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How Building Your Business Is Critical to The Success of Your Business

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Like the Construction of a Building – You Need a Plan for Your Company

If you own your own business and aren’t being intentional about the organizational operation of your company, it is likely that you won’t make it past your 5th year. This is according to the Bureau of Labor Statistics.

Just think about the number of businesses that you have seen come and go.

Whether you are a solopreneur or have a team. It doesn’t matter if you have been in business for 30 years or just starting out. Regardless of the kind of work you do, the organizational plan is just as important as the work you do…maybe more.

I know in my 40 years of being in business I have learned some lessons the hard way. Let me tell you, the tuition for ‘The School of Hard Knocks’ (SHK) is expensive. There were times when I got behind on taxes to pay bills and other times when I got behind on bills so that I could pay taxes. Neither of these is a very good business plan.

One of my SHK professors once told me, “That when you steal from Peter to pay Paul, you make Peter a Paul bearer”. If you want to avoid the need for a pallbearer for your business…you need a plan.

Starting a business without a plan is not a very good plan.

Often, someone who has learned a trade or a craft decides, for whatever reason, to go into business on their own. Most of the time they have given little, if any, thought to business structure.

You show up every day working hard and then…surprise, you owe some taxes and don’t have the money to pay them. You needed a plan…a Blueprint for Building a Better Business.

There are a lot of similarities in constructing a sound building and constructing a profitable business.

  • Both need to start with design plans – The thing that gives you a clear direction of what you want the outcome to be.
  • Both need an architect – The person that can see the vision of what the finished product will be.
  • Both need a good solid foundation – The thing that will support you when the storms come.
  • Both need a good framework – The thing that holds everything together.
  • Both need a builder – The person that reads and understands the plans and puts all the different pieces together correctly.
  • Both need the proper tools – These are what allow the pieces to be shaped and fastened together in the right places in the right order.
  • Both need a good team – These are the different people with the different skills and knowledge needed.

It doesn’t matter if you have been in business for years or are just starting, YOU NEED A PLAN. If you would like to minimize the time you spend attending ‘The School of Hard Knocks’, then keep following our blog. We are working on some Business Building Solutions for just this purpose.

In what areas of building your business would some ‘higher education’ be helpful?

Originally posted 2/24/18.

How Using the Payment Application Tool Communicates Clearly with Construction Customers

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Learning About Business Tools Isn’t Necessarily Fun, but it is Necessary for Business Success

I know that the topic of the Payment Application over the past couple of weeks hasn’t been one of the most exciting topics. Learning about any tool, how it works, and how to use it isn’t one of those things that scores high on our “fun meter”.

This is true for most men. Just think about Christmas time and how most of us guys just want to dive in and put that new toy together without bothering with the instructions. We don’t need any stinking instructions!

This, “get ‘er done” attitude gets amped up even more for those of us in construction. Afterall…building things is what we do.

However, you know as well as I do that, more times than not, this doesn’t turn out so well.

That’s why years ago as I struggled trying to put my business together, I decided I needed to read the instructions. The problem was…I couldn’t find the tools or the instructions. So that’s why I decided to make my own Business BUILDing Tools, complete with instructions. 😊

One of those tools is the Payment Application.

Last week we went through the process of getting started with a blank Payment Application and getting it filled out so that it is ready for the customer’s first payment. Now let’s look at preparing the Payment Application for recurring progress payments.

Preparing for the next progress payment –

Step 1 – Updating the application information – In the application information box, change the application number to the next sequential number i.e., from 1 to 2. Change the date from the previous date to the date through which this application includes. This consists of the material provided or ordered and work done by this date.

Step 2 – Moving dollar amounts from work completed to previously billed – On the previous Payment Application you have dollar amounts in one or both columns D (materials presently stored or ordered) and E (work completed this period). The numbers in these columns need to be added together and added to the number, if any, already in column F (previously billed).

Step 3 – Clear dollar amounts from Work Completed columns – After completing the previous step you need to clear the dollar amounts from both columns D and E.

Step 4 – Confirm the dollar amounts – After clearing the dollar amounts from columns D and E you need to check the dollar amounts in columns F (previously billed) and G (total completed and stored to date). These numbers should be the same. Also compare these numbers to column G on the previous Payment Application to confirm that these numbers are correct.

Step 5 – Entering dollar amounts – Now you can start entering new dollar amounts for Material Presently Stored or Ordered (column D) and Work Completed this Period (column E). These numbers will be determined by the material provided and the work done since the last application.

Step 6 – Figure and enter sales tax – Depending on the jurisdiction and the state in which you are doing the work, determine what your tax rate is and whether it is on material only or both material and labor. We use a bookkeeping program on our computer to provide the sales tax based on the jurisdiction. Then, depending on whether it is material only or both material and labor, enter the sales tax amount(s) in the row marked Sales Tax and in the appropriate columns D, E, or both.

Now you have the next Payment Application ready to be given to the customer, in conjunction with the invoice.

Miscommunication happens too often when dollar amounts are left floating around in the customer’s head due to making multiple payments strung out over the duration a large project.

Most customers don’t bother to write invoice amounts down and/or keep a running total. They’re just writing checks periodically with at vague running balance and then are surprised that the final invoice is more than they expected.

The Payment Application lets the customer see –

  • What the original contract amount was
  • What is included in this current invoice
  • What they have paid for previously
  • The total of what they have paid for previously and the current invoice
  • The percentage of the job that they have been invoiced for at this point
  • The balance of what they have left to pay

They get this updated information with each invoice and can easily see where they started, where they are, and what is left to pay.

This is how the Payment Application provides clear communication for the construction customer.

Having this business tool and learning to use it will not only make your customers happy…it will also help you to BUILD a successful construction business.

How Our Payment Application Tool Works to Help Build a Better Business

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This is One of the Most Important Tools in the Construction Business Toolbox

Last week we talked about how construction companies struggle with cash flow and how not knowing what to expect can be very damaging to the business.

Communication between construction companies and customers is one of the biggest problems in the construction industry. The Payment Application is a business tool used for tracking project progress payments. It’s a way to communicate the financial expectations to the customer…and it’s only fair to let them know what to expect, when they’re the ones writing the check.

Construction customers don’t like surprises.

Our Payment Application is an Excel spreadsheet that lets the customer see the numbers before the project starts, continuing all the way through to the end…and this prevents them from being surprised at the end of a project with a bigger than expected bill.

The Payment Application is a document used to show the customer the price of a construction project broken down by item. It tracks the breakdown of payments being made, what has been paid up to this point in the project and what remains to be paid. This document is given to the customer with each invoice so they can see what they are being billed for on the accompanying invoice.

Starting with a blank payment application –

Step 1 – Filling out the project information – This process includes filling out the project information box with the customer’s name, the project name, and the project address. Next fill out the application information box with the application number, application date, project number, and the date the contract was signed. With each new payment application, the application number and date will be revised.

Step 2 – Filling out the scope of work information and value – This information will come from the signed proposal and will be entered in the first three columns on the left side of the spreadsheet. Using the proposal, take the number of the first item and enter it into the first cell on the column titled Item #. Next, write a brief description of the work described on the proposal in the column titled Description of Work. Finally take the dollar amount for this item on the proposal and enter it in the third column titled Scheduled Value. Once this is done you will repeat these three steps, one row at a time, as you go down the spreadsheet until you have all the information from the proposal entered on the payment application.

Step 3 – Confirm the dollar amounts – After all the values are entered, the total at the bottom of the Schedule Value column should match the total price of project on the proposal. If it doesn’t review the numbers in the Scheduled Value column until you find the mistake and correct it.

Now you are ready to use the Payment Application to accompany invoices. This will let the customer see what they are paying for. Seeing a large dollar amount broken down into smaller ones helps the customer understand what it is they are paying for.

It is a good idea to invoice for a percentage of a project prior to starting. This shows the customer’s commitment to the project and helps cover the contractor’s expenses on the project if something were to happen that puts the project on hold or stops it all together.

Entering the payment prior to starting in the application –

Step 1 – Determine the dollar amount for each item – Based on the predetermined percentage of the project prior to starting you will need to get the percentage of material and labor for each item. This information will come from the Worksheet used in the bidding process.

Step 2 – Enter the dollar amounts – The 4th and 5th columns of the Payment Application is where this information will go. These columns are the Work Completed columns. The 4th is material ordered, stored or used. The 5th is work done. Starting with the first row you will go down the sheet entering the percentage amounts in the corresponding column.

Step 3 – Confirm the dollar amounts – This step is the same as step 3 in the initial filling out of the form. It is to confirm that the dollar amount of the two columns added together matches the dollar amount given to the customer as the payment prior to starting.

Step 4 – Confirming percentage – Column H is a formula that is automatically calculated and shows the percentage this payment is of the total amount for each item. Once again you want to confirm this percentage matches the information given to the customer in the proposal.

We’re going to stop here today.

Next week we’ll get the Payment Application ready for the next progress payment.

This may seem like a lot of work, but it isn’t nearly as bad as it appears on the surface, and the benefits of communicating clearly with a Payment Application are well worth it.

The Payment Application is one of the best communication tools in the Business BUILDing Toolbox.

The Payment Application is Another Important Tool in the Business BUILDing Toolbox

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This Tool Helps the Construction Companies See Their Cash Flow Ahead of Time

Concerns about cash flow is one of the biggest struggles construction companies and contractors face — and for good reason. These businesses typically lay out large amounts of money for project-related expenses. Waiting to get paid until the job is complete is a sure way for a company to go out of business.

This is especially hard on smaller companies with limited cash on hand when they are working on larger, long-term projects.

An alternative approach is for businesses to be paid when predefined stages or percentages of a project are complete, a model called “progress payments.”

Progress payments benefit all parties involved.

The Payment Application is an Excel spreadsheet that is used for tracking progress payments made on construction projects. A payment application is more than a simple invoice. It includes a schedule of values based on the proposal and the individual items included in the scope of work.

Construction companies aren’t banks and shouldn’t be carrying the cost of larger construction projects until they are finished. Progress payments help companies recover a portion of their costs for the project along the way, thereby maintaining a steady cash flow.

Payment applications can also protect companies in the case of client nonpayment throughout the construction process. At Timber Creek Construction we have a delay condition in our contract that we can stop working on a project if a progress payment is not received promptly. 

In the construction industry, a progress payment is a partial payment often made after the completion of a predefined stage of work — for example, demolition, concrete, framing, roofing or siding. These installments replace single, lump-sum payments at the end of a project or a “half upfront, half at the end” arrangements.

Making payments connected to the completion of a specific stage of work can create some confusion., For instance, does completion of concrete include sidewalks and garage approaches that may not be able to be completed until other things are done? That’s why at Timber Creek Construction we choose to make our payments based on periods of time rather than stages. We then determine how much has been done within the predetermined period of time and invoice accordingly.

Benefits to progress payments are:

  • Stable cash flow – Progress payments provide construction firms and contractors with a steady stream of income, thereby reducing the amount of working capital needed for projects. This makes it easier for companies to cover costs for supplies and labor throughout the project. This minimizes the need to go into debt.
  • Increased motivation – Reaching that next milestone to get that next progress payment is a great motivator in the construction industry. Being paid along the way can also drive productivity, reduce material and labor expenses, and result in higher profits.
  • Minimizing payment problems – Getting paid based on progress establishes a steady expectation of cash flow and when you should expect it. If payments begin coming in late, or not at all, it could be a sign that the client is having financial issues. Delayed payments help flag this early and can prevent the need to take legal action.
  • Opportunity to pause the project – If a customer doesn’t pay their progress payment for work completed, you may decide to pause work until the issue is resolved.

The one drawback to progress payments is like most other business-related activities…it means more paperwork.

Construction companies and contractors need to make sure they are paid. Most don’t have a dedicated financial or accounting department to handle that function. This puts that task on the basic office staff or the contractor himself.

This is where having a Business BUILDing Tool and a system to use it comes in.

Next week we’ll look at the specifics of our Payment Application and how that tool works.

Having the Right Tool and Knowing How to Use It Can Make Things Much Better

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The Thing to Remember About Tools Is…They’re Only Good if You Use Them

Over the last couple of weeks, we have discussed why it’s critical to save money for those big irregular expenses and unexpected emergencies. Next, we began the process needed to start building a “Rainy Day” fund by determining how much and for what. The Savings Transfer Sheet is like any other tool, it doesn’t do you any good if you don’t use it.

As is the case with everything that’s worth doing, starting is the hard part. Saving money is no different. It’s like digging a hole.

What if there’s an underground water line leaking in your backyard. You can see that spot where the grass is green in an otherwise brown lawn. The water bill is more than ever before and getting bigger each month. That doesn’t matter, the prospect of getting your shovel out of the tool shed and digging is more than you can bear to think about. So, you put it off and pretend that it’s not a problem.

The green spot in the yard keeps getting bigger and greener. The water bill keeps getting bigger too. You decide to cover the spot in the back yard with an above ground swimming pool. That took care of it…no more green spot. You know what they say. Out of sight out of mind.

Then one day you get a water bill that is so big you decide that you’ve got to do something. So, you drain the pool, get a shovel, and start digging. Then before you know it, you’ve uncovered the pipe, found the leak, made the repair, and filled the hole.

That wasn’t near as bad as you thought it was going to be. Once again, you are aware that this is one of those times when the overwhelming dread was way worse than the actual process. The next water bill is back where it used to be, and you wonder why you weren’t more proactive.

A shovel is a simple tool that’s easy to use. It can fix a problem before it gets too big, but only if you use it. If you don’t, the outcome can be devastating.

The same thing is true about the Savings Transfer Sheet. If you’ll take the time to get it out of the toolbox, spend some time learning how to use it, and use it regularly, it will make a significant difference to stop your financial leaks.

Wouldn’t you like to have your money filling up the pool rather than leak out of it.

If you would like to learn more about the Savings Account Transfer sheet, schedule a free 30-minute construction company consultation.

How to Build A “Rainy Day” Fund for Your Business

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One of the Tools You Should Have in Your Business BUILDing Toolbox

Last week I wrote about the importance of having savings, both individually and in business, and the high percentage of people who don’t. The tendency to spend everything you have is a problem when the unexpected happens. I’m not saying that after you pay the bills every dollar should be saved.

What I’m talking about is having money ready for big, planned purchases or unexpected emergencies.

This way you can use your own money and don’t have to pay someone else to use theirs.

Last week I told you about the tool I use for this in my business, the Savings Transfer Sheet. This spreadsheet is easy to use and makes the process simple. What it doesn’t do is force you to save. If only there was just a way to hook peoples’ deposit tickets up to electricity so that they would get a shock when depositing money without saving.

The biggest problem with saving money is…not having a plan to do so. It can be overwhelming trying to figure out how much should be saved when depositing your revenue. One of the things that makes it hard is not having consistent amounts of income. If every week you deposited the same exact amount, you could decide once and always put aside a set amount for savings.

It’s rare in business that every job or every customer pays you the same amount every time you do business with them. There are some businesses like lawn mowing, hair cutting, pet boarding, etc. that a preset recurring price has been established, even so the number of recurrences each day or week is going to vary.

The purpose of this spreadsheet is to provide a simple accurate way to know how much to save every time.

As with most things, the most difficult part is the initial set up. This part requires some research, thought and time. Trust me…the time and effort will be worth it in the end.

  • First – Look back through your financial records of the last several years. The more research you do the more accurate your understanding will be of your financial history. Even if you’ve only been in business for a short time, it will be a good place to start. This will let you see areas of unexpected expenses as well as dollar amounts.
  • Second – Determine what things or areas that need to be saved for. Some examples of what these could be are:
  • Repairing and/or replacing equipment
  • Additional equipment or upgrades
  • Repairing or replacing vehicles
  • Large building repairs or maintenance items (HVAC, new roof, etc.)
  • Building or facility upgrades, expansions, or purchases
  • Taxes (income, property, sales, etc.)
  • Irregular payments (bi-monthly, quarterly, annually, etc.)
  • Retained earnings (money for emergencies…because they are going to happen)
  • Third – Take the dollar amounts for each area that you have determined to be above or outside your normal operating costs. Figure out the percentage of your net revenue each one is. This gives you a place to start when setting up the “Savings Transfer Sheet” for the first time.

Building a “Rainy Day” savings is critical to the survival of your business.

It’s a cornerstone in the foundation of your business allowing it to weather the storms of life.

Next week we will dig deeper into the “Savings Transfer Sheet” and see how the information we’ve gathered fits into it.

Why It’s Critical to Save Money in Business and How to Do It

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Setting Up a “Rainy Day Fund” for Your Business Can Help Keep It Afloat

We’ve just passed a painful time of the year…INCOME TAX SEASON. This can be stressful but doesn’t have to be if you’re prepared.

It’s common for people to spend everything they earn and not save anything for future investments or emergencies. For the most part, as a society here in America we have become comfortable.

We have forgotten how important it is to save money.

There have been times throughout history when things weren’t good financially, i.e. the Great Depression of the 1930’s. Enough time has passed, that for most people it’s become a distant memory. If you have ever talked with someone who went through the depression or a similar experience, saving money became more than something that needed to be done…it was the difference between life and death.

As reported in Zippia 42% of Americans have less than $1000 in savings and 10% don’t have any. Businesses aren’t doing any better, and it’s every bit as important.

Part of a good business financial plan includes saving money for those irregular and unexpected expenses.

Just like in our personal lives, in business we get busy with the process of daily living. We work hard at the normal operation of the business and neglect to intentionally plan for those “rainy days”. Things like equipment maintenance and repairs, building maintenance and repairs, quarterly and annual taxes, irregular payments, etc.

When I started doing construction work I learned the skill of building from some of the best craftsmen. Later when I went into business for myself, I thought I knew everything that I needed to be successful. The problem is that while they taught me how to build a solid, well-built structure, I was never taught how to build a business.

Early on in my business career I learned one of those business building lessons the hard way…the importance of saving money.

I was working hard to keep construction moving forward. The material figured and ordered and suppliers paid. Subcontractors and employees organized, having what they needed and paid. Things were going well, and there was even some money left over. So naturally, I spent it.  Then it happened…the accountant showed me how good my year was by telling me how much I owed in taxes.

How was I going to pay them? I didn’t have that kind of money. What was I going to do? I was going to have to make payments. Just so you know, tuition to the “School of Hard Knocks” is expensive.

That’s why over the last 40 years of learning lessons the hard way I designed and developed a system to help me build a successful business. One of those systems was a way to separate and save money that would be needed later.

The question then was how am I going to do it?

Several years ago, my wife and I found out about Dave Ramsey and his Financial Peace Program. It’s a program that teaches you to, “Live like no one else, so that later you can live like no one else.” The very first lesson he teaches is “Super Saving”. It’s a common-sense approach to saving money and the reasons it is important to do so. This was great for my personal finances but wasn’t an exact fit for the business.

So, using the basic principles of Dave’s plan for personal savings, I began working on a way to do the same thing in my business. The Savings Transfer Sheet is the tool I came up with and is one of the tools in the Business BUILDing Toolbox.

The “Savings Transfer Sheet” is a simple spreadsheet that with a few simple entries will give you the dollar amount that needs to be separated from gross revenue and saved. That money can then be put into a separate checking account, savings account, or turned into cash and put in a safe.

This keeps saved money from accidentally being spent on the wrong thing.

After talking with a lot of different business owners I realized that every business could use a “tool” like this. That’s why we’re currently working on putting business tools in the Business BUILDing Toolbox that will make the Savings Account Transfer tool available to construction companies.

You can find out more about the Savings Account Transfer sheet or other tools in the Business BUILDing Toolbox by setting up a free 30 minute construction company consultation.

Learn How to BUILD the Construction Business of Your Dreams

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The Final Building Blocks in the 5-Step Foundation of Your Business

Dreaming big has always been my nature. Early in my life I had some really big dreams. The problem arose when these dreams didn’t come true. That’s when disappointment and a sense of failure set in.

This discouragement is why over 60% of US construction companies fail within the first five years. People’s business dreams aren’t going according to plan, and they don’t know what else to do but quit.

When I found myself struggling with feelings of failure, I concluded that my dreams must have been wrong. That’s when God got my attention with a smack upside the head…literally.

God wants us to dream big. Mark 11:23-24

The thing that I realized after this wakeup call was…God wasn’t going to do this for me…He was going to do it with me. And I had to get off my “but” and stop making excuses. If I wanted to BUILD this dream business, I needed to get to work.

BEING aware of the problems and UNDERSTANDING them is where the turnaround for your business starts.

BEING aware and UNDERSTANDING are the first two steps in the 5-step process for BUILDing a better business. The next step is receiving the INFORMATION needed and getting INSTRUCTIONS about IMPLEMENTING this INFORMATION into your business. The I in BUILD is hard because it requires asking for help, and most construction guys don’t like to ask for help.

B = Being aware of problems

U = Understanding problems and how to fix them

I = Instruction and Implementation of systems and processes

This brings us to the L in BUILD…LEARNING.

LEARNING is the step that will take the longest and can be the hardest, but it’s also the most important. It is the one that leads to the biggest change. It’s a change from the way you have always done it. Most of us don’t like change. We’re comfortable wallowing here, doing things the way we always have.

Change will go faster if you have someone help you through the process.

LEARNING to build a building isn’t instantaneous. You don’t show up on a job site your first day knowing everything about building. You come back the second day and LEARN more and the third and the fourth. And years later you have LEARNED how to build.

Just like pouring concrete, framing a wall, pulling wire, soldering copper, shingling a roof, or installing flooring…after repeating the process over and over it becomes a part of who you are…you could do it in your sleep.

Building a business is the same. You can’t just wave a magic wand and have your business running like a well-oiled machine. It takes time and effort just like building a building does. This also becomes a part of who you are.

One of the greatest feelings ever is to step back and see a finished building project knowing that you did that. You built that.

You can get that same feeling about your business. If you put in the effort to learn the systems and processes, you will be able to step back and know that you built that business of your DREAMS.

This is the D in 5-step BUILD process. The DELIVERY of the DREAM. This is where all the hard work pays off.

If you would like some help BUILDing your DREAM business and receive a free 30-minute consultation of your construction company, simply take this short survey.

You Need the Right INFORMATION to BUILD the Construction Company of Your Dreams

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Next, You’ll Need Some INSTRUCTION on How to IMPLEMENT This INFORMATION

Most of us in the construction business started out with a vision in our minds of what our dream company would be like. We see those successful companies out there and there’s no reason we can’t do the same thing. After all, we’re really good at building things.

The problem is more times than not…those companies are struggling with the same kind of things that you are. Everything always looks better from the outside.

Dreams usually aren’t founded in reality; it is after all…a dream.

Without knowing the struggles inside those other companies, we begin to doubt that we have what it takes to run a successful business. Then the dream turns into a nightmare. Maybe we’re just kidding ourselves. What made us think we could do this anyway?

This is where a lot of companies give up, close the doors and go back to working for someone else feeling like a failure.

In that time of doubt, you know something is wrong, but you just don’t know what. BEING AWARE that there is a problem is the first building block in BUILDing your dream business.

You don’t need anyone’s help with BECOMING AWARE there’s a problem.

This is where the next block in the foundation of a successful construction company needs laid. The second building block is UNDERSTANDING those problems. It would be nice to have some help with this block.

This is the realization that building a successful construction business includes more than just construction. It requires a plan for the business. In time you can figure out what you need to build a successful business, but it can take a long time and can be expensive. What you need is INSTRUCTION from someone who’s graduated with a master’s degree from the ‘school of hard knocks’.

Having been in construction for more than forty years I have just such a degree.

The third BUILDing block is INSTRUCTION. Just like going to school to learn from teachers is helpful, having someone with more experience in business operations to INSTRUCT you is also helpful. It’s important that you are INTRUCTED with the right INFORMATION. You need the right INFORMATION to help you solve the problems specific to your business.

Asking for help can be a hard thing to do, but it’s easier and faster than trying to do it alone.

The amount of information it takes to run a successful construction business can be overwhelming. Asking someone for help can be scary, not to mention time-consuming. Ultimately, it comes down to you making a decision. You can decide to keep doing things the way you’ve always done them or…

You can decide to do something different and change things.

After being INSTRUCTED and INFORMED you need to LEARN how to use the INFORMATION you’ve received. LEARNING is the block we’ll lay in the next post.

I don’t think your dream was to start a company and have it fail.

It’s up to you to keep that from happening.

If you’d like some help with finding solutions to the problems your company is facing, you can get a free 30-minute construction company consultation with me by filling out this survey.

What Do You Need to Know to Run a Successful Construction Business?

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It Has More to do With Business and Less to do With Construction

There’s something exciting about the thought of starting your own business. It seems like a great idea initially. The problem is that most people don’t realize what it takes to operate a successful construction company.

We’ve all seen construction companies get started and then go out of business.

 According to the Small Business Administration…

60 percent of US construction companies fail within the first five years of operation.

These companies reportedly blamed several factors for their failure, including labor shortage, politics, insurance, taxes, natural disasters, and subcontractor incompetence. While these things may be a part of the problem, if we look a little deeper, we’ll see…

The real factors that brought about construction company failures are internal and within the owner’s control.

The reasons are more likely poor planning, inaccurate scheduling, hiring the wrong people, inability to innovate, poor management, and bad or no business system.

The good news is, that the next generation of construction businesses can learn from their forefathers’ mistakes and avoid failing for the same reasons. 

Owning or managing a construction business is a hard thing to do. And to do so successfully is especially hard.

The solutions to problems that can put construction companies out of business may not be easy. It takes a lot of planning, production management, hard work, and discipline to keep the business running successfully. But at least…

Most issues faced in a construction business are controllable.

Finding out what challenges are likely ahead can help construction companies be prepared.

Here are some reasons construction companies fail –

Lack of funding and/or poor cash flow – One of the reasons construction companies fail is not enough funds or unwise use of funds.

The ultimate dream of any professional in the construction industry is to earn more by owning and running a business, rather than collecting a paycheck working for someone else. But keeping a business operating at a profit is never as simple as just doing construction work.

There are processes and systems that need to be in place for collecting from customers and paying the bills. Construction requires tools, vehicles, and equipment, and these aren’t cheap.

It’s critical to maintain positive cash flow, have a budget for bills, and money saved for emergencies.

Overlooking these things can quickly lead your company to failure.

Poor project performance – One bad project can lead to a construction company’s closure.

Project performance is more than the physical construction work. The internal business systems for proposals, change orders, project management, invoicing, etc. are often not thought off when thinking about construction projects.

Construction projects are about good results. This includes starting and completing projects on time and within budget. Meeting contract requirements and customer expectations.

Failure in any of these areas may mean the closing of your company.

Failure to plan – Just like good planning can lead to a successful construction project, the same is true for building a successful business.

In project planning, you define goals and processes according to the customer’s requirements. You are intentional and clear on where the project is going and how you’re going to get it there.

A good builder will do the same when it comes to their business.

Consistant clear communication with customers, production teams, and suppliers is one of the important pieces of a good business plan.

The likelihood of companies going out of business without a plan increases exponentially.

There are a lot of risks lurking on a construction site that can cause a project to go poorly. The best way to avoid these risks is through awareness, understanding, and preparation.

The same is true for your company. If you become aware that there’s a problem and understand it, you will be more likely to avoid it. Instruction and learning can lead to building your dream business.

The road to success in the construction industry may be long and rough, but it’s worth it.

Become more successful through improved processes, systems, and management; take it one step at a time, and soon enough, you can achieve your ultimate business dreams.

Let us know what your biggest construction business struggles have been in the comments below.