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Financial Advice for Construction Companies

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How to make your Construction Company more productive and more profitable

When you are looking for ways to make your construction company more profitable, it’s easy to miss the woods for the trees. Improving profit in your construction business can seem like an uphill battle.  Too often contracts are simply awarded to the lowest quote. The effect of the coronavirus has compounded the issue.  The pandemic has driven up the costs of materials (when you can source them) and increased competition as the work has been harder to come by. Add in the high cost of experienced labour and tariffs and it is a wonder you make any profit at all. Nevertheless, there are still areas where you can improve the running of your business and make a difference that should see an increase in your profits.

How Productive Are You?

One of the easiest ways to make your construction company more profitable is to improve productivity.  Productivity is dependent of the efficiency of you and/or your workers on the job.  Equally, once your productivity begins to fall away from the estimations your quote was based on, your profit begins to fall too.  As a result, it is vital to maximise productivity on site. Simply put, this means workers staying on schedule.  To do this, you must carefully plan every stage of the project, such as:

  • Ensuring your workers have the right training for the jobs they are assigned.
  • Scheduling your workers cleverly so they always have work to do
  • Monitoring the schedule carefully and communicating clearly to your team at every stage to avoid time wasting
  • Ordering materials and resources so they are always ready to use
  • Minimising waste (resources, time, energy)
  • Keeping track of changes to the job, i.e. issuing change orders for new work, making sure you don’t start new work until a price has been agreed etc.
  • Even before COVID-19 PPE was an important factor onsite. Make sure you have in stock or in a reliable supply chain, all the PPE you need to keep your jobs moving
  • Building in contingency for accidents, changes to brief or supply chain problems.

Time spent up front (and accounted for in your quote) to plan the job properly, will lessen the likelihood of waste and delay and improve your profit margin.

Get your costing right

Increased costs are one of the most common reasons that a construction company’s profits get eaten away.  The right numbers for supplies, materials and labour are needed from the very first stage.  Equally, if you do not know clearly what you are going to spend on the work, there is no way you can predict or maintain your bottom line.  This goes hand in hand with the careful planning discussed above.  Make sure you have accounted for even the smallest of cost to protect your job’s profit margin.  Labour, equipment, supplies should all be estimated correctly.  In addition, also make sure you plan for legal fees, insurance, overheads like rent, utilities and fuel or transport.

Work towards profit

Make sure you allow for profit when you calculate your costs.  Be realistic when doing these calculations, if your costing is off, then you will eat into your profit, simple as that.  To begin with, plan for things that will go wrong.  Mistakes will happen, events will sometimes conspire against your best laid plans, so build in a contingency line.  This exercise will become easier with each new project you plan and track carefully.  Your project management should include tracking the real costs and times for tasks on the job, against what you estimated in your quote.  This information will be useful to feed back in quotes, making each one more accurate.  As tempting as it may be to reduce your bid to win the work, unrealistic costing and downward spiralling profits will not help your business in the long run.

Raise Your Sights

As you begin to see results in predicting your profit and holding against those predictions, you can start to set profit goals. Factor in your long-term plans for your company.  Do you hope to expand, sell up?  Whatever your goals, what do you need to get to that point?

Once you have a clear idea of where you are heading for, can work out the profit goals you need to achieve to help you to do that.  This will make it easier for you to decide which are the right jobs for your business, based on what kind of profit margin your can expect.  This will help you to narrow your focus on the prized jobs that fit your criteria.  You’ll find you not only save time and money you would have wasted on quoting on jobs that are not right for your company. But at the same time, it will give you more time to put together killer bids on those jobs you really want to pursue.

Recalibrate

As we have mentioned before, keeping track of your job is vital to accurate costing and improved profits.  If you have been doing this, you now have a wealth of information you can use to inform your next quote and job.   Go through the difference between what you had estimated and what really happened.  Analyse how close your estimated profit was to actual profit. Identify the issues that cause those discrepancies.  If you could have predicted them, you’ve learnt a valuable lesson for next time.

At Accurox, we have a wealth of experience working with businesses and sole traders in the construction industry.  We can help you will the issues discussed above and set you on the path to increased profitability.  Get in touch if you would like to know more.