Construction spending in both residential and nonresidential sectors is off to a great start in the first quarter of 2017. Forecasts predict a 5% increase in U.S. construction spending this year, surpassing the 4% growth last year.
While this is great news, the truth is construction businesses can fail even in booming economies.
So, how do you prevent your business from going belly-up? Know the common pitfalls and how to avoid them.
Below, the experts at Papé Machinery covered three reasons construction companies fold and offer advice on how to dodge these common mistakes.
1) Cash Flow Problems
The key to survival in any business is well-rounded cash flow management. If your business isn’t generating enough income on a monthly basis, you won’t last long. Employees need to be paid, payments need to be made, and neither will wait for a good month. While you can’t entirely predict the future, realistic projections can give you a pretty good sense of your debt to income ratio for the months ahead.
Not to mention, there’s always financing to help ease the initial monetary burden of owning heavy equipment. When purchasing new construction equipment or materials, financing is a great way to spread out your costs. Even if you have the cash on hand to buy the equipment outright, financing at a low rate is a smart move to keep cash on hand for business operations.
2) Bid Errors
Accurate construction bids are important if the business is to remain profitable, as the reason for most project losses can be traced back to bid errors.
Written estimates should be granular in their level of detail to account for all expected costs associated with a project. It may seem like a waste of time to be that detailed before you’ve secured the bid, but there is no other way to ensure you’ve accounted for all the costs. Short cuts will result in bid errors and expensive losses.
3) Expanding Too Quickly
Early successes can lead to quick failure if you rush to grow your business. Jumping to take on bigger projects or projects in areas where you don’t have expertise can cause major trouble. Growth should be steady and calculated. Don’t take on a project simply because it’s offered to you. Do your research and understand the risks before making a bid.
Avoid these common construction industry pitfalls and 2017 should be a great year for your business.