Running a construction business can be a rewarding and profitable experience. People are always going to need new houses, schools, etc. so there will always be a need for industry professionals. You will have a great sense of pride knowing that you have had a hand in building something, be it from scratch or cooperating in a renovation project.
However, many smaller companies close down in the first year, due to bigger businesses taking on the bulk of construction contracts and poor financial management. Word of mouth is also an issue, so if a company fails to provide the required work on time or produces something shoddy, people are going to find out about it. A company will live or die based on the finished product as reputation is everything in this business.
So what are the financial implications for a construction business? While the same rules apply to most businesses, such as administrative costs, there are some differences. It is easy to lose money, as we have previously describe. The key, therefore, is to plan effectively.
Here are some important things you need to take into account.
Forming a business plan
You need to have a clear vision if you intend to secure finance through a bank loan or from investors. Or you may have sufficient capital to begin the business, but you still need to plan to ensure success. Guidance can be found at professionalbusinessplans.com.au. Consider what areas do you intend to specialize in, i.e., Residential or non-residential? Are you looking to work on small or large projects? The type of work you do will determine how much money you are going to bring in and how much you will need to spend.
Focus on your skills
Based on your skill set and that of your workers, you will know what you can offer your clients. For example, plumbers can provide drain cleaning and pipe repair. You probably aren’t a master of all trades, so don’t be tempted to take on work that you can’t manage. You can outsource to other contractors to take on some of the work within a project, but it will be more cost effective if you pursue work in which you have some level of expertise.
Your target market
There are many avenues to explore within the construction industry, so who do you want to sell your services to? If there is a high demand for houses and apartments in your local area, then this may be the obvious choice. Considering many businesses go bankrupt, it isn’t wrong to capitalize on their demise. There will be a gap in the marketplace that your business can fulfill, so do your research.
Advertising
In short, you need to market and promote yourself to find customers. You can do this for free by using social media and relying on word of mouth to spur your company forwards. You can also set up a website for free, but to add a more professional touch you should pay for your own domain name. While we do rely on the internet a lot when it comes to selling advertising, you shouldn’t forego traditional methods, such as producing flyers, business cards, and buying space in trade magazines.
Licenses and permits
You can find out what licenses and permits you need at ablis.business.gov.au/pages/home.
From heavy vehicle licenses to zoning approvals, you need to be aware of the local legislation you should follow in each of your contracts. Failure to do so can result in possible expensive fines that could cripple your company’s bank account.
Being competitive
What makes you stand out from your competitors? Do your research and find out what similar companies are offering. Your company needs to be sufficiently different to survive, including being competitive within your pricing model. While you don’t want to cut costs to beat your rivals, you don’t want to charge a lot more unless you have specific services and products on offer that makes your company a more attractive proposition.
Finding the right suppliers
Depending on your service, you will need to add to your inventory by buying supplies. You shouldn’t necessarily buy from the cheapest companies as you need to make sure the product is reliable. Buying second-hand or faulty supplies may ensure your failure and could leave you liable for legal costs should a building project go wrong, as well as damage to your reputation.
Business insurance
You need to be covered for all aspects of your business, as no matter how carefully you have planned ahead, there will always be the risk of something going wrong. From an injured employee to weather damage to your project, you should buy the right cover to protect yourself. Use the fact sheet at mbqld.com.au/insurance/insurance-fact-sheets to guide you in finding the appropriate cover for your business.
Employees
You can’t carry out construction work on your own, so you need to hire staff, contractors or both. Your employees can train on the job, but you should be prepared to pay for additional training courses. Factor in their hourly rate of pay, pension plan and other employment benefits to keep them on your side.
Transport
You need transport for your tools and equipment. Your small white van may not cut it so look at the list of truck dealers and vehicles at truckdealersaustralia.com.au/truck-dealers/ where you can choose from new or second hand. Choosing the right vehicle is vital, as is insurance cover and breakdown costs in keeping you safe on the roads.
Hire an accountant
Finally, within the minefield of finances you need to navigate, including taxes, staff salaries, and other expenditure, you should consider hiring an accountant if handling money gives you a headache. This will allow you the opportunity to focus on the other areas of your business. An accountant will help you prepare a financial statement, including projected costs and balancing your income, and will help you secure a better financial future.