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Building Companies are Still Businesses

October 12, 2017 0 Comments

Sustainable practices, delivering positive outcomes to clients, and making more than what you spend can make many businesses thrive… and of course this is true also for the building sector. Too often small business enterprises (including building companies) overlook the word ‘business’ and get so caught up in doing the ‘business activity’ they fail at handling the administrative side of their organisation.

Sihoette of Builder Looking over Construction Site

Develop the discipline of Financial Management for your Building Company

Crucial feasibility of any business revolves around effective financial management. As many construction businesses operate on multiple projects and face income fluctuations that need to be efficiently managed, this financial management is what determines whether the business sinks or swims.

It tends to come down to the age-old problem of would-be entrepreneurs (business operators): they have a job performing a particular work activity within an organisation. They see the ‘boss’ bringing in copious amounts of money (though not necessarily making a profit) and decide that they want to be their own boss, make a million and live the dream too. So they quit their job and start their own business. They focus on the ‘doing the job’ side of operations and neglect administration as they attempt to keep ahead of their rising work schedule. Shortly cashflow problems arise, they find themselves working longer hours for little return, and end up living a nightmare instead.

While many builders are experts at the technicalities of a building project, some fail when it comes to managing finances. The issue is compounded in that running a construction business isn’t totally easy! It involves multiple outlays, keeping costs under control, and adhering to timelines. Clients or head contractors don’t always pay on time, materials aren’t always as they should be, tradies don’t deliver what they were asked to do… and a lack of detailed cashflow management means by default the building company ends up shelling out more than what they bring in. Builders need to take into account ALL costs related to the running of the business – including administrative costs that are often taken for granted such as transportation, phone bills, office space, leasing of computers and mobile devices, and the increasing costs for electricity. An attitude of “it’s not a biggie – we’ll cover those overheads easily” simply doesn’t help. These costings accumulate over time – eating into cashflow that one was relying upon to pay sub-contractors, purchase necessary safety equipment or cover insurance payments.

While the studies involved with achieving a builders licence cover Financial Management – many building companies (quite often due to the stress of getting the job done) simply neglect this part of the business. As they fall behind on monitoring the finances, the pressure mounts up and before they know it they have lost control over their expenses. It’s not that they aren’t good at their trade… their inability to manage their business let them down.

There are many software packages (some specially developed for the building and construction industry) that will help a builder achieve success in completing building projects. These software platforms enable them to easily track invoices, stay on top of day-to-day expenses, and realistically estimate profits. Even hiring an administrator for that part of the business is a good investment. Strategies also need to be put in place (part of risk management) in case clients or head contractors don’t pay, and most importantly… building company owners need to remember they are running a business!

If you are ever in the position where you don’t get paid for the work you are performing, immediately communicate with the client and put a hold on work to stop further expenses from accumulating. Even if you have been friends (with the client or head contractor) for the past 15 years, remember you are running a business. It’s not as if the client is necessarily a ‘bad person’ – it’s just that it is human nature that people will look after themselves first. As a service provider, you cannot afford to put your own family and your business at risk because someone else is trying to keep their business afloat. You may even discover that in some cases your client / head contractor still has money. They were simply paying other service providers instead of you because the other service provider was the ‘cat that cried the loudest’ and you were ‘too nice’.

Running a successful building company involves having the discipline (or hiring someone who has) to cover all aspects of the ‘business’ – most importantly the financial management.

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