As we all anticipate the changes that could occur in the construction industry over the next few months, there needs to be some clear strategy in place to keep your finances in a comfortable place. We’ve been researching, reading books, and analyzing policy changes to develop our game plan to support you as a construction company business owner. But because we know that bookkeeping is only one part of your business, we’ve also compiled our top construction business strategy recommendations that we have seen be successful in previous recessions and times of crisis. Many of us have already been through economic busts once or twice, and we want to support you as best we can.
Audit Your Cash Flow & Accounts Receivable
Going through your books right now to understand where your money is coming and where it’s going is incredibly important to controlling costs. Knowing what needs to still be paid, and who currently needs to be billed can help you make a game plan for how and when to get your accounts in line. Just because you have money in your bank account doesn’t mean that it isn’t spoken for somewhere else. Knowing what your inflow and outflow look like helps you know what amount of cash you need to retain in order to make your payroll, keep accounts current, and maintain operations. For more tips on keeping cash flow rolling, check out this article we wrote.
Think Lean & Know the Cost of Subcontractors
While many construction businesses applied for the PPP and EIDL funding, it’s important to remember that some of the loan may not all be forgivable if you have a change in staff numbers. You must keep the same number of staff from when you applied throughout the loan time frame. If the number of staff changes throughout the forgiveness period, identify the exemptions that you may qualify for towards forgiveness.
Hiring new employees at this point also might not also be in your interest if the new contracts slow, but it does depend on the position you’re looking to fill. If subcontractors are a better fit for your business, don’t forget that you must file your 1099’s correctly.
Find the time to calculate what a new employee will cost you versus what it could look like to hire a subcontractor to do the job. If you don’t know how to calculate the cost of an employee, you can check out our video about calculating your labor burden. We also have created a subcontractor management plan that you can utilize if you choose to work with some of them for your construction business.
Streamline Your Construction Business Processes
There is so much time lost within many construction businesses because they are using processes that are outdated, technology that isn’t automated, or their communication process has gaps. The phrase, “that’s the way we’ve always done it” costs businesses thousands of dollars every year. If you’re stuck at home or forced to self-quarantine, use the time to create better processes or research different types of technology that can save your team time or money. One product that we really like, and work to help our contractors integrate with their accounting system is Buildertrend. If you have questions about different software options and are looking for recommendations, we’d be more than happy to point you in the right direction!
Evaluate Your Construction Business’ Price Point
Consider ensuring your bidding estimate calculations are accurate for any changes that have happened including OSHA regulations, PPE requirements, or worksite changes that make your project sites slower impact your operating costs. You need to be factoring these into your next bids. Make sure your estimators have accurate costs factored into their bids as they work on new business. As jobs get more complicated, and safety plans cause additional delays, you must factor this into the cost of doing business. Doing this now will save you many hours processing change orders.
Have A Strong Relationship With Your Construction Material Suppliers
Many suppliers have a required down payment policy on supply orders, while others have the option for you to open a line of credit. Consider what type of support you will need from them to get through this time, but also know that any accounts that have been unpaid prior to COVID-19 are being called and your request may not be taken seriously if you are not current on your previous orders.
Open and honest communication with your suppliers is important to ensuring you can come through for your customers. This relationship is incredibly important if you’re finding that your accounts receivables are not coming through well. Suppliers can support you in contacting your customers and ensuring you get paid. The actual supplies that they provided for the job can give them the ability to place liens much easier than you can on your own for the work you have completed.
Commit to Quality Customer Service
The care and respect in which you have shown your customers impacts their emotional response to opening their checkbooks. Communication and timeliness are crucial, especially in times of crisis. Take one from the Hurricane Harvey play book. Construction companies that communicated efficiently and showed concern while having the correct policies in place during their response to Hurricane Harvey strengthened their brand and brought their business long term loyalty from quality customers. Make sure that you keep your commitments and communicate if you are not going to be able to do them.
Ramp Up Your Construction Sales Team
Especially within the commercial industry, new construction projects have started to dry up more than ever before. With governments looking at deficits, and businesses wondering if they will endure, you have to have a strong sales strategy with a solid team to back it. Know what kind of contracts you plan to go after and help your sales team prepare to connect in a way that is helpful and supportive to the customer’s needs. Uploading their contract documents into QuickBooks can allow you to easily reference them. You may also create your proposal and progress bill. If that is not the best option for you, you can also create your invoices ahead of time, dated for the appropriate billing period, as they are accepted in your client contract. You can easily do this within QuickBooks Online, using the Projects function. This is not available for QuickBooks Desktop.
Dig for Tax Deductions & Save Receipts
Now is the time to keep all of your documents organized. Keeping your accounting records up to date with any purchase receipts and unexpected costs due to COVID-19 should be documented. This could help you qualify for a disaster relief credit of some sort if the legislature passes one for small businesses before the end of the tax year. If you took the PPP or EIDL loan, you will also need to count the forgivable portion of this loan as income and from what we’ve seen so far, you will need to pay tax on it.
Talking with your CPA is a good way to know if there are more areas that you may not have counted before as tax write-offs such as training hours, mileage, etc. Being diligent this year in your documentation because it could help you save so much money when tax time comes!
Button Up Your PPP Loan Forgiveness Application
If you have applied for the PPP funding, the forgiveness application is now open. The longer you wait to get your application in, the longer it will take to get processed. Being ahead of this now could give you some advantages in freeing up your time later and potentially cash flow by being able to plan what you will have to repay and what percentage you are forgiven. If you haven’t accessed this form yet, you can find it here. If you are still in your 8 week period, and need to track your expenses, we’ve created a spreadsheet that you can duplicate and use right here.
Consider Have a Construction Diversification Strategy
There are tons of different ways to diversify your construction business, but historically, many contractors have gotten through recessions by having great customer service while patching up what’s broken. Having a repair and maintenance division gives your sales team a foot in the door to develop a great relationship while waiting for their customer’s confidence to be restored in signing a contract for making a new build or complete renovation. What’s also great about this side of the construction business is that it can help you lock in residual income to fix anything under a certain dollar value while waiting for bigger business.
Exploring other options such as new product offerings, becoming certified under a certain manufacturer’s warranty, or expanding into different parts of construction can also help you stay afloat. Always research and run your profitability numbers first before signing on a new product!
Incentivize Cost Savings Within Your Construction Business
We know you’re committed to keeping all of your construction employees, but the need to cut costs is never more apparent than in a recession. You can track what your expenses are within your business, but your employees can offer you a hand in cutting costs. Some construction companies have incentivized saving money for their business, and many employees take it on as a challenge to find ways to increase efficiency. Holding contests, offering rewards, etc. can make this a team effort and keep it fun. You would be surprised how much your team can save your business if you show them the value of putting their minds to work. Utilizing classes in QuickBooks can help you track some of these employee efforts.
Know What Your Time Is Worth As A Business Owner
Working a lot within your construction business can help pay the bills, but working on your business is going to keep it going long term. Find time to delegate work that someone else on your team can do before taking everything on yourself. Now is not the time to be a micromanager. Help your team take on the things that need to be done to succeed and/or find a way to outsource tasks that can be done by someone who specializes in that field. If you find that bookkeeping makes sense to outsource in order to free up your time, you can connect with us to see what options would be right for you.