Construction is a risky business; failure rates are high and profit margins are slim. Following are five things a construction company must constantly monitor to avoid the pitfalls that lead to failure.
• Hire the best estimators who can bid jobs at the best price possible. Don’t bid a loss, intending to make the profit on change orders.
• Know when to “fire” a client. It may be time if the client does not pay on time, makes unreasonable demands, or insists on onerous contract terms.
• Hire and retain project and field managers who can keep the job on schedule, solve problems, implement documentation practices in the event of a claim and settle disputes before they have to be escalated.
• Have a short-term and long-term business plan.
• Maintain a healthy backlog of work, but not more then the company can handle without harming the schedule of other projects.
2. Financial Health
• Have a solid cash flow and the ability to forecast ebbs and tides.
• Collect receivables quickly.
• Have adequate surety credit and lines of credit with the bank.
• Use a CPA familiar with construction accounting practices.
• Maintain good relationships with vendors, sureties, banks, and project owners and their employees.
• Have a clear transition plan in place should a key member of the management team die or leave the company.
• Resist the temptation to move into new geographic regions or take on work outside of the firm’s area of expertise unless it has the suppliers and trained personnel needed.
• Develop short- and long-term plans to become the best contractor in the company’s niche market.
• Maintain cash flow and manage growth without overextending the bank line of credit or other resources.
• Have a solid business and growth plan in place with a clearly defined market.
• Cultivate a culture that results in loyal, well-trained employees who are knowledgeable in sales and customer service.