A Path to Success: Back to Construction Business Basics, Part II

construction business basics

A Path to Success: Back to Construction Business Basics, Part II

construction business basics

ARB recently issued Part I of a two-part series, which focused on the basics that keep construction businesses on track for short and long-term success. Basics for maximizing cash flow, minimizing costs, and reviewing procedures, like job costing. Contingency planning and strategy are important, even mid-crisis. We encourage construction companies to keep your momentum, keep planning, and take action when opportunities arise.  

In Part II, we want to take a look at additional considerations that may help your company stay on the path to success in an uncertain economy.

Consider diversifying 

If business in general is down, or you have divisions that are underperforming, consider the market and evaluate the risk for alternate products and services you can provide, such  vertically integrated construction services, equipment rental services, or a new product/service line. You might also look at bidding on smaller jobs than you’re accustomed to. They come with less risk and occupy shorter durations, so they may keep you in a healthy supply of workflow. Sometimes it pays to think outside of your comfort zone. If it could promote who you are as a brand, and it has the potential to grow your business, it’s an option worth looking into further and assessing for risk.

If your business was not hit as badly as some, now may be the time to acquire smaller, less adaptable companies struggling to continue. The assets obtained through such an acquisition may provide an alternate way for your business to achieve strategic goals that may have been previously unobtainable. And smaller scale growth options are available without purchasing a company in its entirety. Explore your competitors. If they are unable to remain in business, there may be options for purchasing customer lists, inventory, or equipment, as well as a chance to acquire experienced staff.

Consider your options and the risk involved for expanding your geographic footprint, whether it’s on your own, as part of a joint venture or partnership, a one-time project, or an on-going change. Weigh the fixed costs involved in the expansion against the capital needed, ensuring your cash flow won’t be affected for your existing business. Look at market studies and know your area competition.

Advancements in technology have provided new opportunities for vertically integrated services. Moving manufacturing, distribution, or labor management in-house, or implementing prefabrication and modular construction can reduce cost, boost efficiency in use of resources, and maximize job profitability.  

Take risk management to the next level

Now, more than ever, it’s important to evaluate risk when bidding on new jobs. Bidding has become much more competitive. Many construction companies are hyper-focused on building their backlog of work, which means they may be bidding on more jobs than they would normally. It’s important not to let fear encourage your company to submit low-ball proposals simply to get the work on the schedule. 

Construction companies should develop a project rating system based on things like a predetermined minimum profit and whether you have management with the appropriate skills available. Based on criteria such as the type of work, the time frame, and bonding requirements, priority should be given to the time and expense estimates associated with jobs that have the potential to provide the highest profit. 

Companies take on an expanded level of risk when work is subcontracted. To assist construction companies in properly vetting subcontractors and minimizing their exposure to risk, ARB has created a pre-qualification form that can be downloaded below.

ARB Subcontractor Pre-qualification Form 

Call on personnel 

It’s time to rally your troops. When cuts are made to things like hours, pay, or employee incentive programs, you’ll have to inspire motivation in other ways. Recognize your employees for accomplishments, find ways to boost morale, and include them in your planning processes. Openly communicate with them on the company’s strategy, continuity plans, and recovery efforts. 

Don’t lose sight of your company’s mission, values, and culture. It’s important to remember that the effects of the pandemic have been felt by employees and employers, alike. Employees experiencing extenuating circumstances are in need of compassion and understanding. Good help can be hard to find. Don’t let the appeal of short-term profit get in the way of the long-term success that comes with retaining a secure and happy team.

Ensure your everyone on your management team makes a commitment to encourage employee accountability, production, and morale. It’s important for employees to witness a united acceptance of new policies and procedures by the management team. 

Consider developing or modifying a referral program to further incentivise employees to bring on new clients and jobs. These programs can be based on future profits from gaining the referral as a client (or starting a new job for an existing client), so they won’t result in the same impact to existing cash flow that other incentive programs may bring about. 

When available funds permit, invest in employee training. It’s an often-overlooked area for overall business improvement. Enhanced knowledge can lead to a reduction in on-the-job injuries, lowered legal liabilities and risk, and an increase in job productivity. 

Nurture existing client relationships, and foster new ones

Stay in close contact with your clients. Client relationships are built on trust. They want to know how you’re responding to the pandemic, what safety measures you’re taking to keep employees and clients safe, and how current events will affect their projects. 

In terms of bringing in new business, look for additional job and scope expansion opportunities with current clients, and reach out to your previous clients too. And when you’re looking to cut costs, think carefully before removing advertising and marketing dollars from the budget. When you’re not “doing,” make sure you’re still “selling.” Maintain a competitive edge by keeping your name out there for prospects to find.

Invest in technology

While eliminating discretionary spending is advised, there is certainly an art to balancing investments when your business has sufficient cash on hand. Depending on your available funds, weigh the implementation cost with the projected time savings and revenue increases experienced through using automation and efficiency-promoting software, such as job costing, risk assessments, asset management, project management, or customer relationship management programs.

Job costing software allows for real-time cost tracking, reduces risk, increases accuracy, and allows access to valuable reporting, such as cost-to-complete, budget to actual, and labor productivity reports. 

Look for integrated options (or options that integrate with your existing software) for things like project management, job costing, and customer relationship management. 

Asset management software can provide businesses with access to inventory at a glance, asset history, repair cycles, and surplus status. And, through RFID or bluetooth technology, it can provide you with an asset’s location, reducing product loss and theft. 

Construction risk analysis software may also help you stay ahead of the curve. For members, the AGC offers The Risk Profiler, an electronic tracker which helps construction companies determine their current risk exposure.

Make a plan that works for long-term success, not just short-term survival

To see where things are now, start with a restatement of your current year capital expenditure budget and operating budget. Meet in-house with your team for strategic planning sessions, and consult your outside advisors on the legal, tax, and financial implications of changes to your business model. 

Preparing projections and cash flow forecasts, and periodically measuring them against your actual cash flow, will help you keep a close watch on your financial standing. We have created a 13-Week Cash Flow Analysis Worksheet, designed specifically to target the liquidity needs of small businesses and assist them with projecting cash flow, forecasting for deficits, managing shortfalls, assessing working capital and liquidity needs, and determining their ability and need to borrow.

Your management will need to have regular, ongoing meetings to review your financial standing. Ensure each department understands their data reporting requirements and the importance of the accuracy of the information submitted to you for your financial reporting. And take this opportunity, if you haven’t done so already, to create or improve a formal contingency plan that will be firmly in place ahead of future crises.

Contact ARB

ARB’s Construction & Real Estate Services Group is committed to your industry. We provide specialized services, including job costing, overhead cost calculations, profitability analyses, software selection and implementation, and preparing forecasts and projections. We’re here to help you maximize profitability and reduce risk. Contact us today to get started. We also encourage you to visit our COVID-19 Financial Resource and Tax Center for additional information on related tax and financial matters.


by David Jean, CPA, CCIFP, CExP