Construction is one of the most notoriously difficult industries to successful in.
We know the struggles because we ourselves are a construction company and we advise clients as a consultant. We’ve worked with clients in different countries, and we know the challenges are universal.
The construction companies Cincinnati offers for instance, tend to be a very difficult industry to be successful in because there are so many moving parts. There is marketing, financing, hiring skilled workers, estimating, accounting, and a ton of other things.
We’ve put together this short guide that is going to highlight a few important things one can do to grow a construction business in any country.
1. Improve your Estimating and Keep Growing
One of the biggest challenges by far a construction company faces is time. Most contractors and project managers spend 90% of their time supervising jobsites and coordinating things like deliveries and scheduling multiple trades.
Many contractors become stagnant because most of their time is focused on running the business. A very important aspect of the business that is often neglected is the estimating part of it. Most contractors are still estimating the tedious manual way instead of using digital software or services. It’s recommended to either hire a dedicated in-house estimator, or use an estimating company to prepare bids and estimate jobs.
Many contractors get bogged down with emergencies in the field and leave so much money on the table because there is not enough time to estimate certain jobs, so they just pass on them. It’s really not a sustainable practice. We call it the Yo-yo Effect in construction.
Let’s say today a contractor has 5 active jobs and is so busy he can’t estimate any more. There is a gestation period of 3-6 months where projects are being put through financing and negotiations before they come to reality. So short-sighted contractors won’t notice that if they don’t bid for 2 or 3 months, they will have a gap later on down the line.
2. Specialize in a Niche
There is a famous saying that says a “jack of all trades is a master of none”.
Our first recommendation to grow a construction company is going to be to establish yourself as an expert in a specific niche.
We have worked with many different contractors with many different specialties and we can testify to the importance of being a specialist at one or two things at most.
This puts you ahead of the competition because when the owner of a project is looking for the right candidate, if your specific construction company has expertise and experience in the type of construction they want to build, you are going to have the most perceived value out of all candidates.
3. Build your Perceived Value
One of the things we teach our client is to develop their perceived value in the eyes of their clients. This puts you ahead of the competition because when the owner of a project is looking for the right candidate, if your specific construction company has expertise and experience in the type of construction they want to build, you are going to have the most perceived value out of all candidates.
There are several ways to do this including branding, customer service, and expertise. One strategy that is highly effective is to use your experience and expertise to make recommendations to improve the project and or project pricing.
Oftentimes we see the architects and engineers design projects in a certain way and an almost cookie-cutter fashion without much innovation. Many times contractors, because they’ve seen different plans and experiencing different scenarios and conflicts over years of experience, can make ultra-effective recommendations to improve and ultimately make the projects more successful.
Contractors also have great relationships with suppliers and know alternatives to materials and means and methods to build cheaper. This is known as value engineering. The most common thing that happens at the end of the first round of permit drawings is the architect and owner realize their project is over budget and look for ways to reduce costs. If you are a savvy contractor, you will take this opportunity to be the expert and make recommendations to lower cost without sacrificing quality on the project.
If you can establish yourself as the expert and you provide value in the form of value engineering and just making the project better overall, being a specialist in your niche will give you the upper hand right away when bidding jobs.
4. Manage your Finances Effectively
Another struggle that keeps construction companies from growing is improperly using funds and not managing finances correctly.
Most contractors are great at building and supervising jobs, but aren’t skilled in the accounting and financing or lending aspects of the business. This is where financially educated contractors, although their building talents may not be the best, end up being more successful.
The finances in construction have to do with estimating, sending your monthly invoices or payment requisitions, following up on open invoices, making payments to suppliers, and knowing how to use loans and credit lines effectively.
5. Hire an Accounting Department
One of the best strategies a construction company can implement right away is to hire an experienced office manager that knows how to manage construction accounting and billing. This is almost like its own specialty in itself. This person should manage the entire department on behalf of the company.
Now, when it comes to using financing like a credit line, we’ve seen many companies get in trouble by improperly doing this.
Did you know that You can go out of business by getting too much work and not being able to support it with your credit line?
Believe it or not, this is very common. Contractors over extend themselves with loans and credit lines, and can’t keep up with the finances on the job. They stop paying suppliers and labor, and eventually walk off jobs and close the doors to the business.
Credit lines can advance your ability to take on new projects, but you do have to have someone with experience to manage the finances.
6. Make Marketing your Priority
Marketing and any business is one of the most important drivers of revenue that you can have. Many contractors on the smaller and are focused on word-of-mouth methods to get projects.
If a contracting company is going to be successful, they must utilize a variety of different marketing strategies which, our favorite is using lead generation services. These are companies like The Bluebook, Dodge, and Construct Connect whose sole purpose is to connect owners and architects with contractors and subcontractors.
If you’re on the residential side, you can use services like Home Advisor or Google Ads and your website to drive potential clients to call you or sign up on your website.
7. Attract more Funding
We touched on this a bit above, but every construction company should have a credit line. This is a revolving account that allows you to take on more projects and pay back your lender once you get paid. Alternative methods to finding your projects can be bridge loans or business capital loans.
Another way you can get your projects or companies financed is to find investors they want to be a part of your next project or deal if you are a developer. It’s very common for a managing investor to create a real estate investment trust where he can pull multiple investors in A deal and I versify the risk and rewards.
Construction is a very difficult type of industry to be successful in because it has so many moving parts and challenges, but if you invest in building up different departments, become an expert on managing your finances, and utilize technology and services available to you to help you with your leads, you’ll find that growing a construction business is a very satisfying and rewarding type of industry to be in.