If you are thinking about investing in a construction business, after seeing the industry statistics, and hoping that the growth will continue in the next few decades, you will need to face a huge competition and changing regulations. To make sure you can make it in the challenging marketplace, you might want to take some precautions to avoid crashing and burning, like so many construction firms have before. Below you will find a few tips for securing long term success in the construction industry.
Solid Financial Standing
When you start any type of business, you need to have a solid foundation. If you have money to invest, make sure that it will last you for the first few months or years. If it is not enough, you will need to seek government funding, or startup loans, so you can finance the initial investment and build a business you can be proud of. Without creating a detailed startup budget and business plan, you can get into money troubles in no time, and stop trading before you would really start dipping your toes into the construction business. From equipment, such as mobile cranes to insurance, employee costs, and training, you need to estimate all the costs to budget effectively.
Once you have your investment amount secured, you will also need to start calculating your regular expenses, to make sure that you will always have enough cash in the bank to finance projects. If you don’t have a customer base yet, you will need to start investing in marketing and promotion, to make sure you can cover all the outgoings and pay your employees. You must also focus on your business profitability, and avoid losing money because you don’t know how to calculate costs. The cash flow of your construction business is extremely important, as it can make a difference between being able to bid on large projects or not.
As you start taking on contracts from private and public organizations, you will need to make sure that your books are in order, or you will lose in the bidding process. Without financing security, you will be less flexible than other companies, and will not be picked for projects. If you can show your potential customers that you can finance large projects and secure the equipment and materials at a good price, with good payment conditions, you will have a better chance of breaking into the competitive construction industry. You should talk to a business finance professional to find out how you can increase your financial security and avoid risks.
One of the largest challenges of construction companies is complying with the regulations. Industry standards and recommendations change from one month to the next, and – depending on which state you do business in – you will need to register with several trade and government organizations. The construction industry is one of the most regulated around the world, and chance are you will need legal advice to maintain your compliance. If you are found guilty of breaching the guidelines or breaking the law, you might be fined, or have your license suspended, meaning the end of your business.
Another problematic area that can cause damage to your startup construction business is poor employee relations and work conditions. You need to comply with industry regulations when it comes to healthcare, breaks, and working hours. Even if you work overseas and employ agency workers, you will need to maintain a good relationship with the employees, and manage them in a way that they are committed and motivated. You might want to set up your own human resources department, or outsource the work, but providing essential training and tools for doing the job is the bare minimum you can do for your employees. Anything beyond that will increase your chances for success.
Health And Safety
It is also important to pay attention to the health and safety regulations in your industry, and provide adequate training for all employees. From safety equipment to courses on working with highly flammable and toxic chemicals, it is your responsibility to create awareness of the risks. If you want to stay safe, and protect your business, you might even create your own risk assessment, and appoint health and safety managers who will monitor compliance and training, and report back to you on the most important development areas you need to address in your construction business.
Building Up Your Portfolio Gradually
One of the most common mistakes among starting up companies is biting more than they can chew. While winning the bid on building a 20-story hotel and casino in the city center might be appealing, if you don’t have the workforce or connections, and cannot finance the project, you will end up burning yourself out, and getting into financial trouble. Make sure that you start small, and you can afford to finance the project, build up your construction industry portfolio gradually, and take one step at a time.
Vetting Your Suppliers
Another area where some startup construction businesses fail is trusting their suppliers without checking them out. If you have an urgent project, and your suppliers are late, it will affect your business reputation and deadlines. You must ask for references – and if necessary – financial reports to make sure that you will be provided with an effective service or delivery on time, and your supplier will not jeopardize your own projects. Without vetting your suppliers, you will not be able to plan ahead, and increase your chances for failure. Compare offers and bids, and do your research.
Thorough Customer Checks
Startup construction companies are often simply happy to secure their first few contracts, and fail to check the project details. If you have limited experience, you should consult with a legal professional before you sign a contract. You must also ask for securities to make sure that the company can afford financing the project, or you will end up doing the work without being paid, or having to face delays that will cost you money in employee hours and equipment hire. When you get a new request, always check the background of the company, and find out how many projects they have successfully completed in the past. Ask for a detailed schedule and payment plan, so you can create your own budget accordingly.
If you would like to make sure you eliminate waste and continuously improve your company’s effectiveness, you might want to create a LEAN project management plan in the beginning. Lean focuses on increasing customer value by minimizing waste. In the construction industry, you can implement the principles in your costing, employee relations, and procurement process, and look for development areas constantly to provide a better value for less. If you introduce your staff to Lean principles in the beginning, they will be more likely to work with you on making your company more effective, and help you find ways of eliminating waste in the form of time, money, resources, and defects. If you haven’t yet studied lean management principles, and you are serious about your company’s future, it might be time to start.
Supply Chain Management
The importance of supply chain management in the construction business cannot be over-emphasized. You will need to make sure that all resources and materials, tools are available when you need them. Linking your supply chain management system to your suppliers to find out when you can start each phase of the construction project might be a good idea. Make sure that your plans are flexible, so you can move staff around the site and change schedules, without losing money or wasting resources.
Effective Project Managers
Without highly trained and experienced project managers, applying the latest theories in practice, your construction business cannot operate effectively. Make sure that you employ the best people, who can manage resources, suppliers, and employees. You don’t want to end up micromanaging every employee and supplier, therefore, outsourcing some essential tasks is important.
Building a Competitive Advantage
To make it in the construction industry, you will need to learn how to build a competitive advantage, and provide a better or more effective service than other companies on the market. Research your competition, and find out what they are doing, and how you can do it better. From offering a planning service, to being flexible on the payment deadlines, to creating progress reports, there are several ways you can add value and stand out from the rest of the construction firms.
Creating a successful construction firm is not without challenges. You need to build a good relationship with customers, regulators, contractors, and employees. Failing to nurture good relations with either of them will result in failure, reputation loss, and financial ruin. Pay attention to the above areas, and you can make your company grow gradually, and build it up from the ground, providing a better and more effective service than most. Pay attention to attracting and nurturing talent, and seek legal advice if necessary.