People start a construction business for lots of reasons. Chances are, whatever the reason was you started your own business, you’re also in it to make some money. If you aren’t bringing in enough profit, or even worse, losing profits, then it’s time to make some changes.
Here are the 5 reasons your construction business isn’t as profitable as you want it to be.
1. Spending too much in the Beginning
It can be tempting to run out and make new purchases in the first days of starting your own business. After all, you will need plenty of tools and equipment to get the job done, and since you can now write-off a new truck and new laptop, maybe you ought to get those while you’re at it.
Be careful. Investing too much money upfront can use up cash flow that you may really need later. Look for alternatives that can free up cash and help your construction business turn a profit.
Can you lease specific equipment needed to do a certain job or project, and include the leasing costs in your bid? Can you use your current tools and equipment to get the job done?
Eventually, your business may grow big enough that you need to invest in order to make more money. But in the beginning, gently used or rented equipment can often get the job done just as well.
2. Hiring Unnecessarily
Now that you are the boss, it is time to get some bodies in action. You finally get to be a supervisor, instead of the labor.
But the costs of an employee is much more than just their hourly rate of pay.
Unemployment taxes, federal and state taxes, workers’ comp insurance, and safety compliance training will need to be invested into each and every employee.
Can this portion of the job be profitable to hire another contractor? Subbing out portions of a job are great ways to reduce the cost of having an employee. BE CAREFUL THOUGH!
Make sure each subcontractor has their own insurance in place before allowing them on your jobsite. Hiring cheap casual day laborers may be inciting, but you’re exposing your business to lawsuits, injury claims, and state fines.
If you can do the work yourself, get by with fewer employees, or subcontract portions of the job, it will increase the amount of cash you have on hand for your business.
3. Not Having a Plan
Having a truck, some tools, and a craft aren’t the only parts that make up a savvy business owner. If you want to run a successful, profitable construction business, you will need a plan.
Even if you aren’t looking for investors or a loan, you need a business plan that clearly defines your strategy to make money year-round. You need to know how to measure cash flow, and how to define profitability for your business.
One thing you definitely need to plan for is seasonality. If you live in a climate where it snows five months out of the year, and most of your work is outside, how will you be able to keep up cash flow when the temperatures are freezing?
Understanding the industry, seasons, and properly adjusting your bids to cover the down months will make sure your cash flow keeps your business in the black year round.
4. Spending Money on Advertising instead of Modern Marketing
Advertising and marketing are not the same thing. Advertising is spending money to shout your message at people who may not want to hear it. Modern marketing is about using your website, blog, and social media accounts to connect with people who are looking for your specific services.
Don’t throw your profits into television, radio, and print ads. Instead, utilize modern marketing to bring you more leads and new customers at a fraction of the cost.
5. Not carrying the right Business Insurance
You may think you are saving money by skimping on contractor insurance, but a penny saved today can cost you an arm and a leg, and even your entire business if an accident occurs. The risk you take by not covering your business with insurance is far greater than the cost of your monthly premiums.
You can even get lower rates on your premiums by carrying the right amount of coverage consistently, instead of letting coverage lapse during slow seasons and trying to pick it back up when you get busy again.