While roughly half of all small businesses fail within just five years, the statistics are much worse for construction companies, with only 36.4 percent ever reaching their fifth year of business. During the past few years it’s been excusable to look at failed construction businesses and assume the cause was the economy. 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.
1. Insufficient Capital and Cash Flow
Cash flow management is one of the chief reasons construction companies fail. Construction businesses are naturally cash intensive because large amounts of money are invested in raw material, labor, equipment, acquisition of land, and of course in the plans themselves. There should be sufficient reserves in order to pay off debts and expenses and to reinvest in the business.
Actions that can result in negative cash flow include overleveraging assets, delaying projects, overspending on menial tasks, and many more.
2. Poor Performance in Key Projects
When construction businesses are starting out, the key thing to do is to grab projects that are coming in which will elevate the value of the company. It is the performance on these projects that determines how fast and how well the company grows. It also determines word of mouth and counts for free publicity on the market.
A lack of management within the ranks can cost you dearly. If a key project isn’t handled systematically, there are going to be huge losses within a company. This doesn’t just need to be a diligent check every now and then: there should be an entire system in place which monitors and rewards deadlines that are met and punishes failure. The lack of a management system such as this is another one of the reasons construction companies fail.
3. Planning Failures
A successful construction business is always one that is built on a plan. It’s only natural that a business that plans so many giant structures around the world was itself built through meticulous planning. You need to develop very specific goals in order to succeed in construction. Since no one can begin by building skyscrapers, you need to carve out your niche in the business, set deadlines, and allocate budgets. This can all seem very tedious, but it’s all worth it when you see the results coming in.
Failure to Market
If you have a great product or service, there may be no way that people know of it unless you market it out to the world. It’s simply not enough that you build something that is profitable or come up with a service that is stellar; you have to show people why it’s so great. Hence, you have to set aside a marketing budget and a plan to use it wisely so that you get the best return on investment.
4. Unsustainable Growth
This is a problem with most new companies. They take on more than they can chew and end up overplaying their hand. It can seem crazy to think that you trying to grow your business too fast can be a concern, but it’s true. In fact, it’s another one of the chief reasons construction companies fail.
Taking on too much work, overvaluing your company, and under-delivering are all components that make a colossal failure. If you’re doing $10 million worth of work in a year at first, don’t get cocky and take on $100 million worth of work the next. It takes time for any construction company to grow and taking that to the next level without due diligence and forethought is a blunder.
Unprofitable Business Model
Speaking of unsustainable growth, don’t ever make the mistake of going for an unprofitable business model. You should conduct a lot of market research in order to find out what moves can and will cost you the most. If you’re taking on a big project, know how many resources it will take to get done and whether or not it stands to bankrupt your company.
5. Choosing the Wrong People
Any successful business is built on the wealth of its key players. The people that make up the company from the executives to the contractors to the domestic staff have roles to play in the overall health of the company. Hence, if you don’t choose the best people to lead your company, the construction business is likely to fail.
The turnover in the construction industry is very high, hence it’s important that you recruit and retain the best talent possible. It does mean that you’ll have to become a very competitive employer, but that’s the cost of having the best talent. After all, your profits will go higher and higher if your people do the best work they can.
There is also a need within any company to motivate the people you hire. It’s your job to help them become the best versions of themselves once you hire them. If you take care of them, they’ll deliver for you.
6. Stagnation/Resisting Innovation
Failure to innovate is one of the key reasons for the demise of any business, especially in construction since there is so much building development in the world. The construction industry has grown by leaps and bounds according to every measurable metric. In this atmosphere, the businesses that will grow and ride their way to the top will always be the ones that embrace innovation.
This can include embracing things like virtual assistants, drones to monitor construction, and scouting the construction site for improvements, using virtual maps in order to make improvements to plans on the go, and using automation to speed up the workflow involved in the process.
Virtual assistants are the future of construction and will help speed up the workflow so that you can use more manpower on better, more productive tasks. For more information about how virtual assistants can help you embrace innovation, contact Pickett Fence Virtual Services.