THE CONSTRUCTION INDUSTRY
BY : BARRY MCCORD BOWEN MICLETTE & BRITT
Construction Is A Risky Industry
Construction is a tough business by any standard and failure among small construction businesses is common . According to the US Census Bureau ’ s Business Dynamics Statistics , construction businesses fail more often than other small businesses such as manufacturing , retail , and services .
Here are some of the reasons for such high failure rates in the construction field :
1 . Highly leveraged balance sheets
2 . High project risks with relatively low margins
3 . Short supply of qualified labor 4 . Cyclical nature of the industry 5 . Hard-bid mind-set 6 . Relatively low barriers to entry
Players in this market need to retain a strict sense of discipline for the greatest chance of success . While the risks in the industry are significant , they also present opportunities for the right type of businesses . To be successful , contractors must evaluate the risks involved , the potential rewards , their ability to control their losses , and their skill in performing in such an unforgiving environment . Here
are the three most important areas for contractors to address :
1 . PROJECT SELECTION Contractors should select projects in areas where they have the greatest proficiency , taking pains to enter new geographic markets carefully and only when resourced properly . Be sure to stay away from red flags such as onerous contract terms and conditions , notoriously difficult owners , and the temptation to reduce bid margins in an attempt to gain volume . And finally , it ’ s best if you can diversify your customer base to avoid having “ all your eggs in one basket .”
2 . FINANCIAL DISCIPLINE There are several ways to manage your business financially to produce better success and profitability . Be sure to plan your growth carefully so as not to stretch resources too thinly , and preserve enough working capital so you can deliver over the long haul . You should have billing procedures in place that are timely and accurate , and be aggressive when it comes to collecting accounts receivable . Understand fully where your money is coming from and going to within a given time period , making sure you track each project carefully and systematically as it unfolds . Any changes or new expenses since the prior evaluation should be fully discussed and understood . Finally , try to identify problem areas early on and preserve resources to combat the unexpected by keeping overhead low .
3 . MANAGEMENT OVERSIGHT It is in your own best interest to oversee the most important aspects of the job , such as the selection of major subcontractors , and provide high-quality supervision of workers out in the field . Always surround yourself with trusted advisors , such as your CPA , attorney , and bond agent . Lastly , remember that early succession planning will help minimize disruption during the transition to a new generation of business owners .
Barry McCord , Vice President at Bowen , Miclette & Britt Insurance Agency , has spent his career consulting with contractors regarding their bonding needs . “ Contractors need to be wary of all of the pitfalls out there in a very competitive industry . The right bond agent can help the contractor improve his operation , avoid risks , and help create conditions for success .”
For a personalized consultation with BMB , visit www . bmbinc . com or call 713-880-7119 . +
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