Profitability is such a massive part of any business, regardless of the industry. Just like any other company, maintaining and increasing profitability is essential for growth within the construction industry.
If you do not see the profitability you want out of your projects, you may start to question whether or not your business is going to make it in the long-term. It’s essential to throw those thoughts out the window because by taking the right actions and prioritizing the important areas of your process, you can increase your profits significantly. It is time to then take a look at your construction accounting.
To ensure that you’re cutting costs while increasing profits, here are 5 key ways to improving your construction company’s profitability.
1. Increase Productivity
Now, obviously improving your company’s productivity is more complicated than telling your team they need to be more efficient. You actually have to look for areas in your process where bottlenecks may occur.
For example, choose an upcoming project to monitor extra closely. Track every step in the process to see how long it takes to be fulfilled. See which steps are taking longer than they should be, and look for ways to make that step more efficient.
Let’s say that you notice your materials are taking longer than you’d like to arrive at the job site. You might look to change where you’re sourcing your supplies from, and if you can find someone that can do it faster. Less time waiting equals more productivity, which, in turn, creates more profit.
Offering your crew an opportunity to make suggestions on your process improvement can be a good way to hear different perspectives and ideas that you may not have even considered. Making it a competition through prizes or even a game of some sort can help your team feel valued in offering cost savings that benefit your business.
2. Be Precise With Your Bids
One of the biggest mistakes you can make involving a project is making your bids based on guesswork, not concrete evidence, and data. Sure, a quick bid might give you a slight advantage in some cases, but many clients will appreciate you taking the time to give them an accurate bid as opposed to a quick one.
Another mistake with job estimations is simply trying to be the lowest bid every time. This is a good way to not only lose profits, but to frustrate your team when they are working hard on a project that may end up costing the company more than it actually makes. Know how you are structuring all of your bids. Two common approaches that construction companies take in creating their bids are on cost-plus pricing and value based pricing. It’s good to know what is the best fit for the way you do business.
The best way to estimate job costs is by taking your time, doing your due diligence, and being honest with the client. You may not win every bid, but the ones you do win will be highly profitable and help your construction business maintain long term financial security.
3. Set Goals for Profits
Speaking of estimating, never underestimate the power of goals. Whatever you want your profitability to be, set that number in stone by documenting it somewhere. Then, keep tabs on your progress to see whether or not you’re on your way to hitting your goal. Setting your profitability goals, and tracking to see if they are on track ever week can actually help you identify areas that are a bleed to your bottom line.
If you find that certain phases of your project commonly go over budget, it’s good to evaluate how that step can be restructured within the bidding process, what other resources can create less problems for this step, or how more accountability & efficiency can be placed into that phase. Catching profitability issues can also show you where mistakes are happening in other areas of your business such as accounting documentation, change orders, etc.
Because profitability is a company-wide goal, make sure that the rest of your team—regardless of where they are on the organizational chart—is aware of the goal. If you have some flexibility with your revenue, consider rewarding your team for their hard work by offering bonuses or buying them all meals at a nice restaurant. Teams become more aware to watch for issues when it is communicated how those issues impact the company and themselves. Always try to present your new goals as something that will benefit your team. Find the ways that it makes their life easier, and their response will be more welcoming to the change.
4. Invest in Your Employees
Employee turnover can be detrimental to any business. Not only do you have to spend tons of time looking for replacements, but you have to also invest time and energy into training new employees.
By taking good care of your current employees and investing some resources into ensuring they have everything they need to have success while employed at your company, you can limit turnover drastically.
When you put effort into making sure your employees are taken care of, they are more likely to stick around. Promoting from within—where those who take on leadership roles already know the ropes and are family with the business—will help boost your profits even more.
Check out resources offered by your state’s Department of Employment & Economic Development. Many times, there are even grant funding options that can be utilized to invest in your employees. Another great place to utilize is the Small Business Administration there are many options they have to support your team and connect you with local resources that could be of value to your construction business.
5. Prioritize Project Management
Project management is a huge part of productivity. Whether it’s integrating a new project management software that your team can utilize to stay on the same page, or bringing in an experienced project manager to facilitate the process efficiently, figuring out how to improve the lifecycle of a project is key to profitability. Following your projects through their regular life cycle can sometimes be done far better in project management software, and can help you find ways to save time.
Integrations within your project management can also allow for faster document collection, quick access to timeline information, and easy connection to your bookkeeping. Streamlining these types of processes can save hours of manual entry or searching for paper documents.
Contact 24hr Bookkeeper to Manage Your Construction Company’s Accounting
Another way to cut costs and improve profitability is by outsourcing certain areas of your business. This includes your construction accounting and bookkeeping. Hiring an internal bookkeeper can be expensive, but doing it on your own can be incredibly time-consuming. By choosing to outsource your accounting to 24hr Bookkeeper, you can focus on creating beautiful projects for your clients. Having the support of a bookkeeping company takes the stress out of managing your books, and gives you peace of mind knowing that your accounts are in order. Contact us today to find out what options would be the best fit for your construction business!
