how to grow a construction business: photo of workers on roof with upward graph arrow illustrating growing construction company

Categories

There’s a hard truth about the construction industry: It eats up companies and spits them out. In fact, most construction companies fail, close their doors, and move on. Of the companies that stick it out, they usually end up struggling for years just trying to make ends meet until they can really gain traction. But you don’t need an MBA to learn how to grow a construction business, and success is out there for those who do their homework. 

There are essentially two ways to grow a successful construction company: taking on more projects or taking on bigger projects. But you can’t do either successfully without the right pieces of the puzzle. The following tips on how to grow a construction business properly are critical parts of the equation.

Starting a construction company? Answer These 8 Questions First

How to grow your construction company

Growing a construction business has unique challenges that other industries don’t face. However, the following must-haves will have you on the way toward growing your construction business.

1. Visionary leadership

Companies don’t just grow on their own. Learning how to grow a construction business requires a plan, a direction, and a vision. And they all need to come from the people at the top. 

Your vision and direction are contagious, whether good or bad, so it’s important to hammer it out. You need to develop a plan you can believe in if you want to lead your people toward success and a growth mindset. Once you believe in something, you can get others to believe in it as well. With everyone stretching for the same goals and vision, your company is much more likely to succeed.

2. Solid accounting process

Rest assured that you cannot grow without nailing down your financial numbers. Solid accounting is necessary to know what’s coming in, what’s going out, and how much it costs to do business. Without good accounting practices, you won’t be able to say with any certainty that your company is even growing. 

Plus, if you plan to secure larger bonds or secure financing for projects, you can bet the surety or lender will want to see under the hood of your construction machine. They’ll want to see your accounts receivable, accounts payable, bank statements, and other financial documents. If your version of accounting is a folder on the floorboard of a work truck, you can kiss your chances at bigger jobs goodbye.

Pro tips: 8 Powerful Ways Contractors Can Improve Their Accounts Receivable

3. Positive cash flow

All companies need positive cash flow to survive, but the construction industry is absolutely reliant on it. Between tight margins, waiting longer than other industries for payment, and floating other projects, cash flow is everything to running a company — and how to grow a construction business.

Sometimes, cash flow management involves knowing when to use someone else’s money to fund project expenses. If you’re floating all of your projects out of the company piggy bank, you might not be able to scrape together a down payment on a backhoe when you need it or pay for mobilization costs on a new job. 

Knowing and understanding your lien rights is also important for cash flow. If you know the routes to take when cash flow is an issue, as well as the deadlines and requirements for protecting your lien rights, you’ll spend less time waiting to get paid, encouraging positive cash flow.

Get materials now, keep your cash.

Enjoy 120-day payback terms with any material supplier.

Most folks think of construction as pickup trucks, hardhats, hammers, and nails. Not only does the industry exist on a much grander scale, but there are also way more suits and ties than a layperson might expect. It’s one of the most litigious industries in the world; contract, project, and payment disputes happen all the time. 

A good construction attorney can make a world of difference. They’ll know how to navigate the construction laws in your state, handle payment disputes, and advise you when the road gets a little bumpy. The reality is that the largest GCs and development companies have teams of lawyers, so not having an excellent construction attorney in your corner is a serious disadvantage.

5. Strong business policies

All successful businesses have a roadmap of policies that they follow. Beyond the employee policy handbook you give new employees, your company needs hard-and-fast business policies. A strong credit policy helps to ensure you are extending credit to the right types of customers. Your collection policy will determine the processes to ensure you’re getting paid. A lien and notice policy will protect your legal and financial interests. 

With these policies in place, there will be more systemization, less guesswork, and far fewer opportunities for oversights and mistakes. They’re key parts of how to grow a construction business.

6. Dependable employees

You might be the visionary, but your employees are the foundation of the company. Reliable, skilled employees are tough to find and even harder to hold on to, but they’re the most valuable asset you have. They’re also the face of the company, representing you when you’re not around. That’s an important role to play, and it takes a special employee to handle it correctly. 

With that in mind, treat the good employees like they matter to you — and don’t let the bad ones drag you down.

7. Diversified supply chain

One or two supply houses might be enough for a smaller construction company. But as a company grows and the projects become larger and more expensive, so do the issues caused by supply chain disruptions. A few additional weeks waiting for metal roofing or flooring will upset the customer and cut into your bottom line.

In the news: Domestic Supply Chain Problems Worsen as New Wrinkles Arise For Contractors

How do you make sure your company is nimble and able to adjust on the fly? By giving yourself some options. Establishing additional supply chains, along with the credit required to utilize them, will help minimize downtime waiting on materials. 

8. Great customer service

Never underestimate the importance of happy, satisfied customers. Not only will a fulfilled customer continue to use your company for future endeavors, but they’ll refer others to you. But there’s more to the equation here than smiles and empty promises—you need to become a master of communication.

It’s more important that a customer knows what they’re actually getting than selling them unrealistic goals. From the get-go, you should be setting your customers’ expectations to ensure they’re realistic. Also, once you set them, it’s absolutely critical that you meet them consistently. 

Along those same lines, be sure your customer understands your company’s lien rights at the outset. Many contractors are reluctant to explain how they protect their lien rights because they’re afraid the customers will bolt. That’s very rarely the case. But surprising them down the road with lien notices they never knew existed might be an even bigger problem. If the lines of communication are open and effective, the customer will understand the consequences of not holding up their end of the deal. 

9. Great vendor service

Your growth is dependent on more than just your customers. You also need to focus on keeping your subs and suppliers happy with excellent vendor service. A contractor that makes sure its subs and suppliers get paid on time and in full is a rare thing these days. They’ll appreciate it and see the potential of future projects, ensuring they keep coming back. 

Also, consider the opposite scenario where you aren’t proactive about your vendor relationships. Say you mismanage your cash flow and don’t pay your subs and suppliers on time. For a worldwide industry, construction is small, and word will spread. With that type of reputation, you’ll only be able to secure low-quality vendors, or you’ll pay a premium for good ones. 

There are keys to growing a construction business

Obviously, there are parts to the equation we didn’t mention, such as marketing, know-how, and tools or equipment. But with your focus set on the aforementioned nine factors, you’ll be setting your construction business up for growth and long-term success.