By Patrick Hogan
Running a business is never easy, but possibly even more so if you are in the construction industry. Not only is the industry saturated with both large companies and small players, but it also has one of the highest failure rates in the country. Data from the U.S. Census Bureau’s Business Dynamics Statistics showed that only 36.4% of construction businesses reach their fifth year of business, the lowest of all sectors analyzed.
Contractors and material suppliers may feel that the odds are stacked against them. However, there are key success factors that company leaders need to understand to steer the company in the right direction. Here are five of them.
1. Accounts Receivable Management
Construction companies require a lot of capital to continue operations. They invest large amounts of capital in purchasing and maintaining fixed assets that include heavy equipment, tools, and vehicles. And with payment issues plaguing the industry, company leaders need to maintain an adequate level of capital to continue operations. One way to do that is by careful management of accounts receivable to protect cash flow.
Construction companies need to be proactive in collecting receivables. This means sending accurate invoices in a timely manner and imposing strict client qualification requirements before extending labor and materials on credit. Most importantly, construction companies need to protect their right to file liens that can help them should payment issues arise.
2. Embracing Tech Innovations
According to McKinsey, construction is one of the least digitized industries, second only to agriculture. A lot of construction executives view technology as merely an expense rather than an investment. However, construction technology is becoming easier to implement across a company and its benefits are hard to ignore.
Analytics makes it possible to extract data on current operations and obtain meaningful information for data-driven decision-making. Cloud technology and communication platforms help connect managers with employees out on the field. For a construction company to be successful, it needs to leverage these innovations for operational efficiency and effective communication.
3. Client Diversification
The construction industry is greatly affected by economic downturns. This was especially apparent during the 2008 economic recession when firms closed down and millions of employees lost their jobs. Having diversified revenue sources from various industries, as well as multiple areas, helps construction companies resist any adverse changes in economic conditions. It also maintains the stability of cash flow and reduces volatility, all of which are critical to a construction company’s continued operations.
4. Accurate Documentation
Construction companies should give accurate documentation as much importance as PPEs in a construction project. Not only does it guide the flow of the project and keep it within budget, but it also protects the company from litigation. In the event that the company needs to prepare relevant documents for a court case, having inadequate documentation will lead to an unfavorable decision.
5. Managing Complexity
Construction projects are becoming increasingly complex. A single construction project can have multiple stakeholders and even multiple locations. There are also unexpected events like severe weather conditions, accidents, and supplier shipment delays. For a construction company to be successful, it should be able to have a firm grasp on this complexity.
CLOSING THOUGHT
There is no one-size-fits-all answer to success. However, protecting cash flow, managing complexity, and embracing technology are clear ingredients to a construction company’s success.
about the author:
Patrick Hogan is the CEO of Handle.com, where they build software that helps contractors, subcontractors, and material suppliers with late payments. Handle.com also provides funding for construction businesses in the form of invoice factoring, material supply trade credit, and mechanics lien purchasing.