How to run a successful construction business
When you’re just starting in construction (or have a fledgling business that needs to grow), it’s essential to focus on the right things.
This article highlights the key things that construction businesses need to do to succeed. Follow these, and you’ll give yourself a better chance of being profitable long term.
Construction Company Fundamentals
Construction companies who are trading well have the following attributes. How does your company stack up?
• Healthy ‘order book’ of upcoming projects to specify, quote and schedule.
• Well known, trusted name in the market.
• Profitability – they only take on projects with solid profit and the ability to manage potential risks.
• Well resourced – their employees have access to durable, high-quality equipment that ensures their safety and makes their job easier.
• Excellent project management – critical to the successful delivery of each project.
• Cost control and active invoice management to ensure profitability and solvency.
Find Your Niche
Marketing your business as a ‘general contractor’ might seem like a great way to make everyone call you, but in fact, it’s possibly the worst thing you could do. Here’s why:
1. You won’t stand out from your competitors. If a hotel is looking for a complete refresh and remodel, are they going to call a general contractor or a business that specialises in hotel and accommodation refits?
2. You can’t focus your energy, marketing, skills and resources (equipment, employees) without a market specialisation. Again, if you’re a general contractor, you’ll be at the mercy of having to be everything to everyone. That’s not a profitable or predictable way to run a business. With a specialisation, you’ll have the right gear and the right employees to do each job. Plus it’s much easier to find new clients.
Like any business, knowing what your company does best can mean the difference between success and failure; so get clear on what services and projects you’d like to do and then focus your business on getting them.
Get Licensed
Not only is it against the law in most states and territories of Australia to do unlicensed construction work, but it’s also going to stop you from getting projects.
You can advertise the fact that you’re fully licenced (and insured) to your advantage, so why not do it the right way?
Get Business Insurance
When it comes to insurance, you’re best to get customised advice from a qualified insurance broker. They’ll let you know exactly what insurance cover you need and get you a good deal on the appropriate policies, saving you money in the process.
Liability Insurance (Public & Products), Material Damage, Construction Works Insurance, Commercial Structural Defects Insurance and more.
Don’t forget compulsory government cover like Worker’s Compensation too.
Recruit the Right Staff
Your business might be in construction, but just like any other business, success comes down to people.
By taking the time to hire quality staff, you’ll enjoy many benefits as an employer. Not only will they likely to be more dependable, but they’ll also do skilled work – which can quickly save you thousands of dollars in time and materials.
The other to remember is that clients will talk about your team for years to come, so make sure they’re saying good things (or that employee you hired cheaply or put on without checking their skills could cost you thousands or even millions in lost future revenue).
Here are some of the basics of hiring people:
• Hire skilled tradespeople, but check their references and qualifications. Don’t be afraid to turn someone away if they aren’t quite right for your business.
• Pay good rates and pay on time. Nothing demotivates employees more than missed paydays or getting cheap rates of pay. Spending a little more will also mean they’ll stay with you longer and do a better job.
• Be a leader, not a micro-manager. Your employees need clear direction and a set of expectations from you on each project so that they can do their best work. They don’t need someone watching every single action they take. By being onsite regularly and ensuring they all know what you wish to achieve, you’ll have a happy, motivated team.
Managing Contractors vs Employees
Contractors are essentially their own business people, so they need to be managed in a slightly different way to employees.
You need to ensure they are doing efficient and correct work for the success of your project, but they’re people too – so treating them well can go a long way to having a quality result and a contractor who’ll happily work for you again.
Remember, they also have rights on the worksite and can’t be expected to do things that are hasty, dangerous, or against best practices.
Marketing and Promoting Your Business
Starting a construction company and putting a post on Facebook won’t make you an overnight success (unfortunately).
By using several low-cost methods of marketing and promotion, you could soon have several enquiries and quotes to be working on; here’s how:
Word of Mouth
Word of mouth is completely free, and while it’s not as targeted (or as polished) as you might like it to be, it’s still a great way to get known. Ask friends and family and offer a discount if needed to help attract your first few jobs.
Remember to ask them for a review of your work afterwards on Google My Business, as this will help your online profile as well.
Social Media
Twenty years ago, the only advertising options were newspaper ads, radio or the Yellow Pages. Nowadays, you can promote your business for free on Facebook, Instagram and LinkedIn by doing posts, or by paid promotions that boost your posts to a wider audience.
While these platforms are free to use, make sure you’re making the most of it with regular, interesting content people want to see.
Give Free Quotes
Free quotes can be a great way to attract new clients and have an opportunity to meet and talk with them. Just be careful to make sure the time you’re putting into each quote is worth it (or you could soon run out of money doing ‘free’ quotes all day).
Partner Up & Refer Other Construction & Trade Businesses
As soon as you’ve established your niche, it can be great to build working relationships with other businesses that work in your field.
Carpenters, Plasterers, Plumbers, Electricians, Structural Engineers, Concreters, Airconditioning Installers, Roofers, Earthmovers – get in touch with them all and offer to partner up with them or refer leads. Developers are also a great source of jobs, both big and small.
Planning, Finance & Contracts
Just like your projects, if you don’t have a plan before you start, things aren’t going to go very well.
Taking the time to create a simple business plan that covers your goals for the next 1 – 5 years, combined with financials, staffing, budgeting, machinery/equipment requirements and marketing can make a big difference to your success.
Payroll / Training
Do you have accounting software to keep track of financials, invoicing and payroll? Have you asked an accountant about any particular rules or requirements that apply to your business? What have you got in place for things like skills or safety training for your staff and contractors?
Construction equipment financing
Managing your working capital and your cash flow is crucial to staying solvent and operational.
A smart way of handling major expenses like buying large equipment could be to get finance for them, keeping more of your capital in the bank for daily operations. OnDeck can help you with things like this (it’s something we specialise in).
Repairs / Maintenance
You’ll have to budget for things like repairs and maintenance, as well as the downtime associated with it. If your drill breaks on a job and it’s a 2-hour return trip to get a new one, it makes sense to have more than one with you onsite. Being proactive like this can easily save you a fortune over time.
Tools & Equipment
What equipment will you realistically need? Buying too much gear will cost you in capital and storage, but buying too little (or too cheaply) will cause you problems too.
Having a wide range of all the essential tools you need for most projects is an excellent way to start, with things like OnDeck business loans if you need to suddenly buy, or hire more equipment for a particular project.
Building materials
Purchasing materials can cause financial problems for many construction companies. This is especially so when something has failed and needs replacing, or the client wants to make immediate changes you haven’t budgeted for.
It pays to buy high-quality materials (as they’re usually easier to work with and give a better finish), but that can place significant demands on your cash reserves.
Getting access to flexible, on-demand capital can make a difference to your ability to trade (and reduce your stress levels at the same time). Talk with the team an OnDeck today about your requirements if materials expenses are hurting your budget.
Rent / Bills
Unless you’re basing yourself from a home office with a big shed for storage, you’re going to be up for rent or a lease to cover your office and materials/tools storage. You’ll also have to budget for operational costs while you’re waiting to get paid.
Talking about getting paid, you’ll also need to consider –
Construction Contract Types
Lump Sum or Fixed Price?
Cost plus Contract?
Time and Materials?
Unit Pricing?
Whichever model you go for on each project, you’ll have to consider the business impacts and risks of each one. In most cases, you’ll have to be able to fund not only part of the project costs but also all of your operating expenses for the duration it takes for you to get paid.
Some developers and building owners pay on 60 or even 90-day terms, meaning you need to factor that timeframe into your cash flow projections. If you require a business loan to make up the difference, chat with the team at OnDeck for help (it’s a lot easier than applying through the banks).
Theft prevention
It’s a sad fact, but at some point, you’ll have to face the possibility of losing thousands of dollars in tools, equipment, or materials to theft or wilful damage. You can, of course, insure against these things, but you’ll need to have cash on hand to cover the shortfall in the meantime.
Here are some ways to reduce the risks:
– Monitor job site access carefully.
– Ensure all items, tools and materials are locked up securely at the end of each workday.
– Hire security personnel or a security company to monitor access and the site (especially outside of hours).
– Do background checks on employees and contractors.
– Keep records of materials and tool inventories, and check them regularly. – Install security cameras, sensors or tracking onsite and clearly and permanently mark all materials, so they aren’t worth stealing.
Develop Online Marketing Strategies to Grow Your Business
In business, nothing is more important than sales. We touched on Social Media earlier in this article, but here are two other ways to promote your business digitally:
Google My Business
Google provides a fantastic web listing and advertising service that essentially gives you a way to promote your business for free. Download the smartphone app, get approved and start creating an online listing for your business that people can find when they search for construction. You can also advertise directly from the app too, multiplying the chances of finding new customers.
Website
Every business needs a website, so make sure yours is easy to read, visually clear, and that it tells potential customers about the work you do.
With many ‘drag-and-drop’ website editors available now for a low monthly fee (like Wix, Weebly and Squarespace), you can easily create an attractive website – even if you’re not that good with computers.
Find your point of difference and highlight it, but above all, make it easy for people to contact you.
Learn how to grow sales and re-invent your construction small business.
About OnDeck
OnDeck offers flexible business loans that solve a need for extra funding. Whether it’s the cost of materials, covering a cash flow shortfall or getting some new equipment for a project, OnDeck can help you.
With an easy online application process, loans of between $10k and $250k, and terms of 6 to 24 months, we make it simple for businesses to get the extra funding they need.
Apply online in minutes at www.ondeck.com.au or call our helpful finance team on 1800 676 652 today.
Prepared by OnDeck Capital Australia Pty Ltd ABN 28 603 753 215 (“OnDeck”) for general information purposes only. Content may belong or have originated from third parties and OnDeck takes no responsibility for the accuracy, validity, reliability or completeness of any information. Information current as at February 2020. You should not rely upon the material or information as a basis for making any business, financial or any other decisions. Loans issued in Australia are subject to the terms of a loan agreement issued by OnDeck. Loans are subject to lender approval. OnDeck® is a Registered Trademark. All rights reserved.