Every year, thousands of construction companies fail, regardless of how long it has been in business. The industry is fragile and the cause of failure can be something as minor as one bad project or customer experience. Research by the University of Tennessee found less than half (47 percent) of U.S. construction companies still operate four years after startup.
With such high stakes, every construction business owner needs to recognize and understand the most common threats that can bring their company to bankruptcy, and learn the best practices so they can avoid becoming another statistic. Here are the top three reasons construction companies fail.
1. Loss of loyal customers
Customers are the lifeblood of any business. So when they start to take their business elsewhere, it’s a red flag that things aren’t going well. Customers want to do business with companies that understand their preferences and address their questions. One reason customer service can start to slip is owners and managers can’t keep track of customer details, so key information slips through the cracks.
Use a centralized database, such as a customer relationship management (CRM) tool, to input and track customer and partner information. Having all the information in one location makes it easy for any team member to quickly get a complete picture of a customer, or reference the details of a particular project. A centralized database of information also helps capitalize on existing customers to generate repeat business.
2. Unrealistic growth expectations
It’s easy to get caught up in expanding a business without much analysis on how successful it will actually be six months or a year down the road. If cash flow is tight, or there is an inability to forecast cash flow, things can quickly take a turn for the worst.
Cash is king, so carefully plan the monthly budget and accurately project cash flow numbers. Generating monthly sales reports can help monitor and make sense of data, leading to business metrics that will help make smarter business decisions. Also, using accounting software will save companies time, streamline the flow of information, and provide a clearer view of customer account history, including invoices and payments.
3. Poor project management
A strong pipeline of projects is vital to the long-term success of a business. However, similar to keeping track of customer details, staying on top of project deadlines can be a challenge. Missed deadlines slow down the overall timeline for a project and can lead to unsatisfied customers.
CRM provides reminders for upcoming deadlines and what needs to happen next to keep the project on time. It also provides visibility so management can ensure resources and efforts are being properly distributed. By closely managing projects, construction company owners can spot the early warning signs for problems that could derail the project.
Many construction businesses fail because they don’t have the proper systems in place to keep managers, employees and projects on track. Take these solutions into consideration to prevent your company from becoming another statistic for failed construction businesses. Talk to customers and employees, and take a good, hard look at how business is operating. These actions will present an opportunity to take immediate action to improve these areas of weakness—before it’s too late.