November 15, 2018

How to Increase Profits in Small Construction Businesses

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Every business owner aims to maximize the profits their company makes, and construction is no different. While your focus is likely to be on such frontline factors as material costs, salaries, legal requirements, and the margin you’ll make when the property is sold, there are many other elements of your business which could be making the difference to your profit margins.

Many small builders set up in business because they have a passion for construction and all the skills and qualifications needed to build houses; however, they often have fewer skills in management and business. That means there are many excellent builders operating small construction companies who run into trouble not because they can’t do the job, but because they aren’t equally skilled in the administrative and management side of the set-up.

Improving your business skills

The better a manager you are, the money you’ll make from your business. If you haven’t had much in the way of business training or experience, look for a course that covers the basics. Courses are available in construction-based management and business operation, which would be particularly relevant and probably easier to get to grips with than a generic class. Being a successful business owner requires skills in the admin side of the business and the hands-on management of staff, sites and the overall project, and the more knowledgeable you are in these areas, the better able you’ll be to run your business successfully.

Business plans

When you started your business, you should have had a business plan that detailed your set-up, plans, and projections for the business over the next few years. If you haven’t looked at it for a while, dust it off and review what your projections were. Are you where you thought you’d be? What has gone right or wrong since you started, and what have you learnt from these experiences? Look at the budget section of the plan, and compare the profits you hoped to make with what you’re actually bringing in. Can you work out why you’re not meeting your targets, and use this information to alter your processes?

Accounts

A good accounting system or capable accountant will be able to produce reports on any financial aspect of the business, so you can pinpoint anomalies such as expenses that are too high, or profit margins that aren’t high enough. Use these reports to find out where you’re making good money so that you can expand these aspects, or where you’re losing money, so you can take steps to prevent further loss. You might feel more at home with inches and pounds than dollars and percentages, but you won’t be able to maximize your profits if you don’t understand your accounts.

Making savings

One way in which businesses frequently lose money unnecessarily is through costs that are too high. It’s natural to focus on the bigger picture – how much profit did the company make from building these three houses and selling them? If you take the trouble to break the figures down, you could well find you missed out on a bigger payday because you spent too much on cement, or made mistakes with pricing. Better organization and tighter controls on purchasing can save a surprising amount overall, even if it seems like only a few dollars here and there to begin with.

Optimizing your systems

Businesses need constant review and updating to ensure they stay ahead of the game and maximize their profits. In construction, there are multiple ways in which business owners tend to stick with what they’ve always done rather than stop to consider whether the method is still offering excellent value for money. For example, you may have started your business several years ago, and invested in your own machinery.

Say you have a back-hoe loader and a dumper truck, they still work well, and you think little about them day-to-day. Take a few minutes one day to work out how much these machines are costing you, and compare your figures with newer models, or hire options. You could well discover that when running costs and productivity is compared to the alternatives, your machinery is costing you more than it would to hire new vehicles as you need them.

How’s the fuel consumption on your company vehicles? Gas isn’t cheap, and a few pennies on a gallon can make a significant impact if you’re using a lot of fuel each year. Check what mileage you’re getting, then read this blog to find out what could be affecting your fuel consumption. You could well be impressed at how much fuel you can save, or be pleasantly surprised by comparing the fuel consumption of newer, more efficient vehicles with older models like your own.

Time is money

One of the most common causes of lost profit in building jobs is lost time. Supplies that don’t arrive when they should, or the wrong items come; tradespeople who don’t turn up when you expect them; delays due to weather conditions; any of these problems typically affect most building sites to some degree. If you’re trying to site manage as well as run all the business admin, you’re going to find it hard to keep on top of everything.

Better systems could well help, or getting someone in to assist you with some of the tasks that need doing will free up your time for more critical jobs. If you employ an accounts assistant, for example, or use an agency, your assistant can take care of all the day to day organization, while you take charge of managing the site. That way, you’ll be in a better position to ensure deliveries are made on time or chased up promptly, and take steps to avoid any downtime.

Running a building firm is no different from managing any other type of business, and having the knowledge and skills to get the best from it is an essential component of ensuring profitability. If your business skills are letting you down, get some help or improve your skills, and help your business make more money.

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