There are so many risks involved in starting and sustaining a successful construction company. The challenges are many. Nearly half of the companies that manage to get started in the business fail in the first couple of years of operation.
Well, there are literally hundreds of reasons but here are 5 common ones we have identified:
Having the capital investment to get started and keeping cash flow can be a serious challenge. Even if a construction company starts out with a solid investment or sizable loan to get underway, there are so many things that need to be obtained to get moving that those funds are quickly depleted. Fixed assets like tools, heavy machinery and vehicles and heavy equipment can be very costly and no work can be done without them. Sometimes capital and working cash get tied up in ongoing projects that drag on and on. A lean season or rough economic downtown can take a young construction company to its knees.
Managing money and cash flow properly is essential. Billing, payroll, accounts payable and receivable and managing project budgets are no easy task and not always the forte of construction company owners whose skills are in building not in finance.
When there is more money going out than coming in, companies fail, period!
- Hiring Good Staff
Any company is only as good as the people that work there. That’s what a company is; people. You can have a great business plan, lots of assets, and even money in the bank but if you don’t have the right people on board, from the executives on down, you’re bound for failure. You have to motivate your people, pay them a fair wage for a good day’s work, listen to their ideas and issues. In the construction industry, turnover is very high.
You have to recruit and keep the best people you can find. Offering good training, benefits and competitive salaries is essential while building a company culture that can keep employees happy and engaged.
- The Quality of the Work
A construction company can get away with having a bad project once in a great while, but if that is perceived as the norm, they will not survive. We are in the age of constant reviewing. People are savvy when it comes to reviews. One bad review can be buried but several cannot. Financially speaking, having bad projects that lose money back to back can mean serious trouble for a construction company. Projects need to be profitable and that starts long before contracts are signed. Bidding properly and leaving room for margins of error, picking projects that are a good fit and doing due diligence regarding cost and the companies or people you are working for can help a company avoid disaster.
- Bad Planning
If a project has been determined to be a good fit and one that will be profitable, careful planning must occur. Timing, budget, manpower needed, supervisors, and equipment needed and available must be part of the equation. Failure to plan properly so you can deliver projects on time and on budge can result in thin profit margins or even losses.
Successful construction companies have a business strategic business with attainable goals and objectives. They will define company culture and core beliefs and competencies that help them stick to the plan. Everyone who works for the company should understand the goals and mission of the company from the executives on down to the labor force. Planning one year, five year, and ten-year goals help a company stay on path and succeed.
- Understanding How to Grow at the Right Speed
Growth needs to be measured. A company that grows too fast can fail just as easily as one that grows too slowly. If you don’t have the resources to grow or the manpower, you can take on more work than you are able or are ones that are too big for you, projects can go into failure quickly.
When it’s time to expand, companies should be strategic and methodical. Taking on larger projects a little at a time is fine but don’t try to do so overnight. New areas or new types of projects can be daunting yet can still be successful with good planning.
We are in the digital age. To grow, construction companies need to innovate and incorporate new technologies and digital tools to keep up in the future. If you refuse to do so and want to just keep doing things the same old way, you will struggle to keep pace with companies that embrace the future.
J4 Construction knows the pitfalls construction companies can fall into. We’ve been around long enough to know how to navigate the murky waters of the business and we will be here for our clients long after other companies fail. If you are seeking to work with a reliable construction company, reach out to us via email or check us out on the web at http://j4development.com.