Hand held compass

Navigating a Construction Business Through Economic Uncertainty: Lessons from Sailing

Financial Management, Owner

Running a construction business during these uncertain economic times can feel like sailing a yacht through stormy weather. Just as a skilled captain must adapt to strong headwinds and turbulent seas, you as a business owner must navigate choppy economic waters with foresight and agility. If you have a team under you, they will be looking for direction and confidence. In this post I share some strategies for steering your business through stormy economic seas.

increase profits

A Budget Process in 7 Easy Steps

Financial Management, The numbers

To most trades business owners the mention of budgeting makes their eyes glaze over or reject the idea outright. “I can’t predict what is going to happen next week, let alone in 6 months or more!” is a common response. But it doesn’t need to be that way. A budget is the best way I know to gain a greater feeling of control over your business and therefore your life.  Knowledge is power, so they say, and the knowledge you will gain about your business and what you need to do in order to change it, is an empowering process. A budget also ensures that you know before the year starts what you need to do to earn the return on your investment that you expect.

Closed sign

Business is busy, but companies still going bust.

Financial Management, Owner

The NZ Herald reported recently that despite construction being very busy, small to mid sized businesses in the industry are still going bust. In fact construction has overtaken food service as the number one business category for liquidations in the first two months of this year. This is one first place award that we should be proud of!

Should you be worried?  Probably. If not worried, you should at least be aware that things are not all glittering out there and you should look at reviewing your financial systems and your understanding of some key numbers. What you can measure, you can manage. What you can manage, you can change. Here are two key financial areas to monitor in your business.

tape measures as a graph

The Importance of Back-Costing

Financial Management, Owner, Profitability, The numbers

Do you know what the actual gross margin you make from a job as soon as its finished, or for bigger jobs how you are tracking at each stage? Or are you so busy you just rush to the next job and hope the previous job delivers enough profit to stay in business?

Tracking how a job performs from a profit perspective compared to a quote or estimate is called back-costing, or job-costing as Americans call it, and is vital to maintaining a profitable company and to help you achieve your goals.

Measuring performance

Improve efficiency with lean construction

Financial Management

In my mind sustainability is as much about economic survival and profitability as it is about our concern for the natural environment. Also, the two aspects of sustainability are not mutually exclusive and can lead to a win-win outcome.

One aspect of sustainability that you could consider is the adoption of Lean Construction principles. Lean theory has come from the manufacturing sector, most notably the car manufacturer Toyota. The Toyota Way was a movement that lead to the company becoming the most successful car manufacturer in the world and has been adopted and adapted by many companies in several industries since.

But building a car is not like building a house, I hear you say. You’re right. Many of the principles of Lean Manufacture need adapting for construction due to the different environment you work in and the bespoke nature of many projects. That said there are several fundamental principles that are used in Lean Construction which can help you improve both the environmental and economic sustainability of your business.

Is Job Management Software Needed?

Financial Management

I am always keen to see businesses become more efficient and for the owners of those businesses to use their time more effectively. Just like battery operated tools have largely replaced hand tools for many tasks, software has made similar progress in pushing out the paper and pen from pricing and managing jobs in the field. 

Granted it is easier to learn how to use a cordless screwdriver than a complex piece of software, but the longer term payoff in time saved and improved financial visibility into your business will make the journey worthwhile.  I recently did a Zoom interview with one of the team at Tradify and thought I would share an article from their site about the basics of job management software and some of its advantages. Here is the beginning of that article and a link at the bottom to read the balance….

Man with pen writing a business plan

How to Manage Variations

Financial Management, Owner, Profitability, The numbers

As the old saying goes, “The only certainties in life are death and taxes”. In the building industry that should read, “The only certainties in life are death and taxes AND VARIATIONS”.

There is seldom a project completed without some change to the original plan or scope and this can lead to work being done that is not well documented or billed to the client on a timely basis. Variations are therefor a major potential cause of profit leak from a business, and also disputes with a client. It is essential that you, your client and your build team clearly understand what variations are and you have a reliable system to capture and process them through the job management and billing areas of your business.

Leaky bucket

Are profits leaking out of your business bucket?

Financial Management, Owner, The numbers

It’s profit reporting season. Do you have your latest financial accounts back from your accountant yet? Does the Net Profit seem lower than you expected? Maybe the profit is leaking out somewhere.

Your business can be viewed as a kind of bucket.  In the top you pour revenue, which comes from your marketing, sales and production efforts, then deduct the direct and indirect costs of producing that revenue.  Unfortunately everyone’s bucket leaks and so the amount left over (as net profit) is often a lot less than it could be and what is required to balance the effort and risk that you assume as the business owner.  It leaks out through holes such as: too many overheads, insufficient margin, working with the wrong clients, burning hours on fixed price contracts and a number of other ways.

proceed with caution sign

Building Inflation Monster Rising

Financial Management, Owner

Building materials are up in price around 34% compared to a year ago and more increases are on the way. We are suffering a perfect storm of high demand, due to the boom in building, and tighter supply lines due to Covid, shipping bottlenecks and now the effects of a war in Europe.

While most, if not all of this is beyond your control, how you react and deal with it is something you can take action of. Two key actions should be at the top of your list….

Insurance 101 for Tradies

Financial Management, Owner

At Builtin we deal with thousands of tradies up and down the country, so we know insurance isn’t anybody’s favourite topic! While it’s not something you want to think about, it is something you need to have, and need to have properly arranged.  Having to replace an expensive asset that’s been stolen or damaged, or getting tied up in an expensive liability issue can hammer a small business, not only financially, but they can take an emotional toll on the contractor and their family too.

For larger firms their exposure to risk is greater, as is their capacity to manage it. For company managers and directors, getting the right professional advice and having good risk management practices in place, including insurance cover, is a critical (and legal) duty.

Most of our customers want what we call the “Goldilocks Package”: not too little, but not too much. That’s what we help our customers with every day.

In this article we share some basic risk management questions, as well as the headlines of the key policies contractors need to consider. What you need will vary according to your specific operations and business set up, but this should serve as a good overview to get you started.