Although the construction industry is booming with opportunities, every construction business owner knows that growing their business is no easy task. There are ever-present risks in construction like combating a labor shortage, dealing with tariffs, or collecting payment from a delinquent owner. Along with any of these challenges is the underlying fear of failing on a project. During the Great Recession, many construction firms fell by the wayside as a fiscal stranglehold rendered their services obsolete.
As a construction business owner, you need to be mindful of the common reasons why a construction business fails so that you can develop a strategy to avoid these pitfalls. In this five-part article, a Brandon construction attorney will explain ten of the root causes of failure in the construction industry. Remember, for all of your construction business and legal needs, the Brandon construction attorneys at Cotney Construction Law are standing by.
1) You Can’t Manage Cash Flow
A construction business relies on capital in order to invest in the necessary resources to take on projects. Whether it’s material pricing, heavy equipment, work trucks, or a workforce, a construction firm must have access to capital in order to provide their services. Of course, many growing businesses fail when the unexpected need for cash hits them at the worst possible time and they have no money left in their piggy bank.
Although generating revenue is important, cash flow management is just as crucial to a growing business. When cash flow is managed properly, a successful business has the resources necessary to take on projects while also having a few successful bid proposals waiting in the wings. Some businesses may have a lot of capital, but it’s all tied up in their projects. Without a rainy day fund available, this can lead to a lot of problems when things go wrong.
2) Your Project Execution is Lackluster
A construction firm that drops the ball on a big project will have to accept that they lost profitability and squandered a potentially lucrative opportunity; however, the firm that hits a cold streak of several lackluster projects in a row needs to evaluate the way they are projecting profitability for their projects. This is a common occurrence in the construction industry as companies are either too ambitious and take on projects outside their capabilities or they simply aren’t placing effective bids. Along with ensuring that you are placing lucrative bids on projects, the firm must deliver results on time and within the agreed upon budget. In order to achieve this, firms need to develop a sustainable system of taking on projects and then identify their profits and losses throughout the project.
As we will discuss throughout this article, construction firms need to develop an effective strategy for taking on projects, empower the right key members to take on leadership positions, and invest in the right technology and resources to grow their business.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.