Smart Strategies for a Tough Economy

Despite sporadic signs of life in certain regions and sectors of the economy, the construction industry overall still faces a challenging environment. A proactive approach that focuses on cash flow, controlling costs, and staying flexible can help contractors overcome this tough business environment.

Make Cash Flow a Priority

If you are not already preparing cash flow forecasts for every job, then now is the time to start doing so. Cash flow planning allows your company to make smarter decisions regarding budgeting, capital expenditures, financing, compensation, and growth. With proper cash flow planning, your company will become more efficient and find it easier to deal with lenders, sureties, business partners, and owners. In fact, lenders want to see detailed cash flow forecasts from contractors to assure themselves that cash is being generated and used carefully.

Project planning is at the heart of a cash flow analysis. You should have a clear idea of when you are going to perform various activities that comprise a project and what cash will be received and disbursed. Decide in advance how you will bill the job and be sure to forecast both regular and periodic expenses, such as insurance premium payments.

Control Costs

Look for places your business can reduce expenses. Are there areas where you can reduce or cut unnecessary overhead to boost your cash position? Are your general and administrative expenses in line with other contractors of your size and area of business?

An energy audit may reveal areas for immediate and long-term savings. Also look at your inventory. If you are warehousing materials for future projects, you are consuming much-needed cash. And be sure to perform regular cost analyses for all of your trucks, loaders, dozers, and other pieces of large equipment. At some point, it becomes more cost-effective to replace a piece of equipment than to continue to repair it.

Screen Customers’ Credit Histories

Always screen new customers for a good payment history before you do any work for them. You may find warning signs that customers are having financial problems if they’re taking a long time to settle invoices. Send bills out for work and materials as you complete each stage of a project. And send friendly reminder letters when a customer doesn’t pay on time.

Look into Alternate Sources of Work

Right now, government contracting and green construction are robust and could offer opportunities. Doing government work can be a good source of income.  Federal law requires every federal agency to post information about their contracts, so reviewing their websites can be a good first step.

Many owners, as well as architectural and engineering firms, are now insisting that some or all aspects of their projects meet certain environmental and energy efficiency benchmarks. If you are unfamiliar with these requirements, it may be beneficial to learn what these standards and requirements are. Federal and state government agencies and industry groups are a good source for information on green construction.