What do you know about running a construction business? Odds are, you know a lot about construction, but not much about running a business.
Businesses have a hard time staying open, with about 24% failing in the first year. It’s a much darker picture for the construction industry. Some estimates say that 36% of construction businesses fail in the first year.
There are so many risks in running a construction business, how can you make sure that yours is successful? Read on to learn the risks of the construction industry and what you can do to run a successful business.
Understanding the Major Risks in Construction
You’ve probably heard that the construction industry has been booming over the last few years. It has been, but not every contractor is rolling in money. Many are stressed out and have no idea how to make the company work. That’s because there are a few major business risks in construction that may not be present in other industries.
Many businesses close because of cash flow issues. That is a problem for contractors, too. There are many financial risks that construction companies have to be aware of.
Those that cut corners by not insuring subcontractors can be in for an expensive surprise if something happens on the job. There are other risks out of your control, such as economic turns and weather events.
Tips for a Successful Construction Business
How can you make sure that your construction business overcomes these challenges? Just follow these tips that will help you focus your business.
1. Hire the Right People
You’re definitely not going to do every job yourself. You need to build a team of reliable and skilled workers who can do the job. It’s also important to show how much you value your employees if you want to retain them. You need to go beyond the paycheck and thank them for the hard work they put in each day.
You’ll create loyal employees who stay with your construction company for years, saving your company money to replace and train them.
2. Get Insurance
Insurance is necessary and a legal obligation in many states. You don’t want to just get the bare minimum for your business. You should view insurance as an investment that will pay off when you need it most.
You’ll need to get workers’ compensation insurance and liability insurance. You may need to consider other types of insurance such as property and key man insurance, too.
3. Put Worker Safety First
There needs to be a culture around employee safety in your construction business. It’s good for your employees and good for the business overall. You don’t want to have a reputation where employees get hurt on the job.
No one will want to work for you and people will think twice about hiring you. You should have regular employee training that goes over safety protocols on the job. You also want to make sure that you comply with OSHA standards and exceed them.
4. Have Suppliers You Can Depend On
You’ll need to have vendors that you can rely on for your business. Fuel delivery services, lumber suppliers, and equipment suppliers need to be considered.
You don’t want to have to rely on going to a big-box retail store for your needs. You won’t get the level of service or personalized care that you would from other suppliers.
5. Remember the Importance of Cash
Your financials are everything to your business, and this is where construction companies get tripped up. You never know when there will be an issue with a job or an economic downturn.
You want to be able to weather these storms by having enough cash on hand to manage them. You want to keep about 6 months’ Net worth of revenue in the bank. This will put you in a strong position to come out of a downturn ahead of everyone else.
6. Don’t Underestimate Projects
When you’re in a competitive industry, you may be tempted to bid on construction jobs for less than you should just to get the job. You’re putting yourself in a horrible position where you’re likely to lose money on the project.
When you put in a low bid, you’re going to have to cut corners on the project. That might mean getting lower-grade materials or making your staff work faster, where details can get missed.
By giving your company a lower profit margin, you have to execute the job flawlessly. As we all know, a construction job rarely goes smoothly. A weather delay or unforeseen issue can delay the job. That will cost you money and your razor-thin profit margin.
7. Always Deliver a Great Service
No matter how big or small your construction project is, you have to deliver great service each and every time. The best way to make sure that you deliver great service is to manage expectations.
Your customers will expect a lot from you and your construction company. They also want projects to run smoothly and quickly. That’s not always the case, but if you can manage expectations and communicate issues, you can relieve some of that frustration.
Put a communication plan in place for each project. Have one person be the main point of content for the client and make sure they respond to questions, and they give frequent updates on the project.
Running a Successful Business Takes Work
The odds are great to run a construction business and make it a success. It’s not easy, but when you put these tips to use, the odds will go in your favor.
Once you learn how to manage your finances and price your jobs to make a profit, it becomes easier to run your business. It also allows you to focus on the most important thing, which is people. The people your company hires and serves are critical to your success. You have to hire the best people in order to provide the best service.
That’s how your construction business will grow. Be sure to check the business news section of this site for more helpful insights.