While the construction sector has largely rebounded from its nadir during the Great Recession, the economic landscape has changed drastically and resulted in:
- More expansive bid lists.
- Tight operating costs.
- Lower profit margins.
- Non-local contractors expanding into new territories.
If you're faced with any of these factors, they can lead to an inability to secure new jobs, complete work within budget or secure performance and bid bonds, among other signs of distress. Your firm needs to be flexible enough to quickly respond to these shifting trends. Consider these three useful tips for dealing with financial hardships:
1. Draft more detailed contracts
Many construction firms, including yours, might use contract templates issued by the American Institute of Architects or similar organizations. However, these cookie-cutter contracts don't always cover the full scope of work required for a specific job, leading to a significant amount of riders, addendums and amendments to the document. Unless every detail of the prospective job is outlined and clearly delineated in your contracts, it can lead to your firm doing more work than you were originally hired to complete. This is known as scope creep, and it's a driving force behind firms only managing to break even, or worse, lose money on a job.
2. Consider implementing an ERP system
At any given time, your construction firm no doubt has many jobs spread across several sites, miles away from one other. In addition, all of the important financial data pertaining to these projects is siloed on in-house servers or in many cases, paper files. Without real-time access to all of this crucial information, project managers and site foremen don't have the ability to make informed decisions on the job. This can lead to budget overruns, scheduling delays or scope creep.
Implementing a cloud-based enterprise resource planning (ERP) system can keep all of your firm's financial data in one single repository that's accessible from any mobile device with internet connection. An ERP system can help your construction firm streamline finances and ensure every project stays on budget, on schedule and within the scope of the contracted work. While implementing a system like this does require an initial investment, it can ultimately save your firm time and money over the long run.
If you aren’t ready to invest in an ERP system, you can begin by implementing a fleet management tool to better understand your uptime, fuel use, machine location and operating patterns.
3. Utilize equipment financing options
An easy way to cut overhead costs is by switching to leased equipment. Instead of doling out the full upfront cost of the machinery needed for daily operations, using equipment financing options provides more financial flexibility and the ability to reallocate resources where they're most needed. Whether for funding payroll, investing in a marketing campaign or paying vendor invoices, this allows you to react to changes in your industry and keep pace with your competitors.
Using a captive finance company like Cat Financial provides your organization with quick and easy financing and customized payment plans that allow you to weather any financial hardships and continue growing your construction firm.