If you’re a contractor or own a construction business, you’ve likely been wondering what the this year will bring in terms of revenues and opportunities for growth. While many forecasts are calling for a slight economic slowdown in 2019, construction starts are still expected to hold relatively steady. As you look ahead to warmer months, here are three things to review as you prepare to ramp up your business this spring.
Update your tech
Smart technologies, AI and automation continue to expand their influence on the construction industry. Some new opportunities to update your business technology include:
- Streamlining project management by using cloud-based solutions.
- Utilizing drones for site planning and survey data enhancement.
- Investing in smart safety equipment, such as wearables to track worker movements and fatigue levels.
- Updating your inventory tracking software to reduce materials waste.
- Using building information modeling software to streamline project design.
While some of these options are more hi-tech (and big-budget) than others, if you run a smaller firm, consider tech upgrades that can deliver a solid return on investment without a large outlay of cash. For example, updating your company’s website is something you may be able to do for a few hundred dollars, and up-to-date information and a fresh look might help attract new customers.
Review expenses and pricing
Construction materials didn’t get cheaper in 2018. Through July, prices had risen by nearly 10 percent over 2017’s figures, according to Associated Builders and Contractors. With uncertainty surrounding tariffs and foreign trade policy, materials such as lumber and fuel might become more expensive.
Higher prices means a higher cost of doing business and a potentially smaller profit margin. When planning for the busy season, consider how rising prices may impact revenues and cash flow, in both the short- and long-term.
Specifically, think about whether you’ll need to adjust your pricing to accommodate a jump in material costs. Would a price increase allow you to remain competitive in your local construction market? How would that price increase be received by clients? Will you enhance the value you provide as your rates rise?
At the same time, look for areas where you can reduce costs. Reach out to suppliers to ask for a discount or renegotiate terms. Recycle and repurpose materials whenever possible. Consider whether it makes sense to keep maintaining older equipment or replace it with something newer to reduce repair and maintenance costs. These kinds of changes may add money back into your cash flow and create a healthier bottom line.
Assess your capital needs
With interest rates projected to rise again this year you may want to pursue financing sooner instead of later. The lower the rate you’re able to lock in, the less your financing will cost over the repayment term.
Get clear on your needs and what type of financing may work best. For example, you may want to buy a new fleet of work vans or invest in a new backhoe. Or, you may just need cash to cover everyday operating expenses during the winter months if that’s your slower building season. Equipment financing might be more appropriate in the first scenario, while a working capital loan may be better suited for short-term funding.
Remember the ROI and the overall cost when considering financing for your construction business. Before taking out a $1 million equipment loan or a $100,000 working capital loan, estimate the potential payoff, either in preserving cash flow or increasing revenues.
You also need to be sure that the payments for an equipment loan, or any other type of financing, fit your business budget. And of course, review the interest rate and fees charged by different lenders to help you secure the best deal.