Rising interest rates are increasing the complexity of operating a profitable construction business. Why? Because the longer a project takes to reach a payment milestone, the longer you need to wait for payment. If you rely on a bank overdraft or business loan, project delays mean you are paying more interest as a result of those delays. The higher your interest payments, the more they eat into your profits.
With material and labour shortages, project delays can seem inevitable and beyond your control. But you can take steps to reduce and better manage these delays to protect your profit margins.
Timely completion is more important than booking new work.
Typically, construction businesses focus on booking new jobs with good reason –predictable, future projects generate a steady income and create stable cash flow. But most construction businesses fund a proportion of costs like materials and labour in advance of invoicing. That means you are covering those costs with your own money.
If you can reduce work-in-progress timeframes and invoice jobs at the first opportunity, you immediately begin to:
- Free up your cash flow
- Help to reduce your interest payments
- Improve your profit margins
That’s why timely completion and invoicing of jobs is currently more important than booking new work. If your business is growing rapidly, as most construction businesses have over the last few years, this is the area you need to address before increasing your workload.
“Take control!”
Jobs can’t be invoiced until they are finished or completed to an agreed stage. That’s why reviewing your project management systems and the terms of your contracts or quotes will greatly benefit both your profitability and your capacity to grow.
Reviewing your contracts or quotes will help you identify areas where you may need to clarify when a job is completed or has reached a progress payment milestone. The clearer these payment stages are, the faster you will be paid.
Project management systems help you plan:
- The labour or trades you will need, and when you’ll need them
- Which materials you need to order (and when) to ensure they are available when required
Project management systems should also alert your admin team when it’s time to invoice a project. So with good systems, they aren’t waiting around for you to tell them to send the invoice and how much it should be.
Technology is another area you should consider reviewing because it can automate a lot of processes for you. This means you or a team member can simply enter the appropriate information to obtain the data you need to run an efficient business. The great news is, this type of technology is available at a variety of price points, to suit the size and scale of your construction business.
Running a business means adapting to change
We are passionate about helping owners of construction businesses and we do this by sharing the tools and knowledge contained in the Construction Business Navigator Growth Program. We’ll deep-dive into what’s happening in your business and work together to remove the underlying problems that are hindering your success.
To learn more, book your FREE, no-obligation 15 Minute Construction Growth call.
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