With disruption, change, and uncertainty impacting businesses of all kinds, construction business owners may be feeling especially stressed. There’s no time to stick your head in the sand, though. Positive results require flexibility, trying new ways of work, and getting creative to keep the work coming in. Read on for insights about surviving—-and maybe even thriving.
Question Business as Usual
Times of shift are not the time to cling to a “this is how I do things” approach. Sticking to our tried-and-true playbooks may feel comforting, but as construction business coach George Hedley observes, positive results are unlikely unless you are actively changing with the times: “Even if survival is your goal, it will not be business as usual.” According to Hedley, the top two action steps for construction business leaders right now are visiting top customers, and cutting fixed costs:
Most general contractors and subcontractors live and rely on their best 10 customers. These customers generally provide 75% of their revenue and profit every year. Go visit them. Ask about their needs, problems, and future plans. Ask how your company can continue to be part of their future, big or small. How can you provide cutting-edge solutions to help them prosper? What can you do to improve your business relationship and give them exactly what they want for the price they can afford to pay?
Determine what your business really needs to survive and thrive. Eliminate all unnecessary expenditures including extra travel, gifts, donations, office supplies, subscriptions, equipment, and personnel. Lower your overhead budget by 10% with no raises, bonuses, hiring, or distributions. No new long-term commitments such as construction equipment or trucks. Challenge everyone in your office to see who can cut the most out of the budget.
Keeping a steady hand on cash flow is also increasingly essential in the construction business. Hedley recommends preserving cash flow by avoiding major purchases, leasing only as needed, and strategically outsourcing as many tasks and services as possible, to avoid adding to ongoing payroll expenses. When it comes to seeking new business, however, don’t play it safe. Instead, consider a very active approach to pushing forward. Unexpected opportunities are likely to emerge, and it may be possible to win them—and even grow your business. Hedley suggests positioning for success by increasing your marketing budget, bidding more work, and exploring emergent opportunities:
- Spend time enhancing your customer relationships via meals, sporting events, and relationship-building activities. Build true friendships that will benefit your business. Send informational mailings to your entire target customer list…. Send thank-you cards and notes to everyone you talk to and see. Let everyone know you appreciate their business and want to do more….
- As competition increases while contract opportunities decrease, you must bid on and propose more work to land the same amount. Profit margins also decrease in tighter times, so more work will be required to just stay even. Track your estimating, bid volume, and bid-hit win ratio. Lower your markup….
- Look for more complicated jobs, difficult projects, and new markets to enter. Most of your competitors won’t try new ideas during a slowdown, so real opportunities will emerge. Often the best jobs are the ones that nobody wants. Spend more time seeking out these hidden and profitable projects.
Good To Do: Get Paid
Decreasing the time, it takes to get paid for work completed makes a real difference in cash flow. Attention to invoicing protocols, including accuracy and timing, can curtail the cash flow woes that tend to plague construction business owners: “The average number of days it takes to get paid in construction is between 60 and 90. Strongly consider setting a realistic goal to reduce that number to 50 days. You can do this by sending invoices immediately, offering payment incentives, writing clear terms, checking credit reports before making any deals, and restructuring terms with non-payers.” Among the tips experts at Investopedia offer for improved invoicing are:
- Line-item everything: Don’t just lump costs together. Clearly list labor, materials, permits, everything. This builds trust and reduces client questions that delay payment.
- Use plain language: Avoid jargon your client may not understand. “HVAC rough-in” is less clear than “Installing ductwork for heating/cooling”.
- Include project specifics: Invoice number, client name, project name/address, dates of work… the more info, the less likely it’ll get lost or ignored.
- Invoice ASAP: Don’t wait until the end of the month. The sooner it’s in their hands, the sooner the clock starts on their payment terms.
- Set clear due dates: “Net 30” is common but consider shorter terms (Net 15) or staggered payments for large projects.
Team Up for Success
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- surety line of credit—in writing.
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