What are the hardest things about starting a construction business?

When it comes to starting and managing a construction business, there are a number of challenges you may need to resolve. From finding good contractors to marketing your business to potential clients, running any business is hard work. But the unique challenges of the construction sector make running a business even more challenging, and there are a number of reasons why we seem to constantly hear about construction businesses closing or becoming insolvent.

But let's tackle some of the big challenges and discuss some of the solutions so that you can develop and run a successful construction business...

Challenge: Securing quality contractors.

Expect to invest a significant amount of time, possibly up to a decade, to assemble a dependable team of skilled workers. The goal is to find those who are reliable and proficient within your budget, allowing you to fulfil your commitments.

Remember, selecting the right contractor involves more than just assessing their skills; it's also about how well they align with your project's values and work principles. Dedicate time to properly evaluating candidates and consider their suitability for ongoing sub-contracting.

Potential solutions:

• Contractor referrals: Motivate your existing contractors to recommend acquaintances from the industry. Typically, construction workers will suggest only those individuals they believe are dependable and capable, as it reflects on their own reputation.
• Offer competitive rates and incentives: Ensure that your compensation and incentives are attractive and competitive within your local market and sector. This approach will draw more qualified professionals.
• Verify references and work history: Always confirm the references and work histories of prospective contractors to ascertain their dependability and skill level.

Challenge: Identifying a specific market niche.

The term "construction company" covers a wide range of services across the construction industry, including construction project management, building, bricklaying, general formwork and carpentry, and general construction companies headed by a licensed builder.

If you're in a high-growth area, throwing your hat in the ring for different construction jobs might be the way to go. But if there aren't a lot of new buildings being built in your local area, specialising in a particular type of construction can be handy.

Potential solutions:

• Choose an area you know well: Understanding not only your capabilities but also what you can do profitably. It's common to be tempted to pursue projects that fall outside of your primary expertise in order to generate income. However, in the long term, it's more beneficial to concentrate on areas where you excel.
• Work to your strengths: Staying focused on your strengths rather than diverting attention to less familiar tasks typically yields greater rewards. Construction startups can quickly establish a strong track record in a niche target market.
• Respond to market needs: The most successful construction companies are those that can meet the needs of local customers. Live in an area with lots of fancy homes? Focusing on luxury construction and materials might appeal more to potential customers.

Challenge: Maintaining consistent cash-flow.

Ensuring your business has positive cash-flow is important whether yours is a small business or a large multinational. Problems with cash-flow can affect your entire business and it's one of the leading causes of business failure in the construction sector.

Potential solutions:

• Enforce strict payment terms: Publish clear terms and conditions are part of your quotes and ask that customers accept them when they accept your quote. That way you have something to enforce if a customer refuses to pay.
• Ask for deposits before you start work: Deposits can help you to cover the cost of supplies and contractors before you get paid the balance at the completion of a job. For smaller jobs it can make a big difference.
• Reduce up-front costs with credit: Negotiate extended credit terms with suppliers, and opt for leasing equipment instead of buying to reduce initial expenses. That way you're paying bills once you've been paid, rather than going into the red before the first brick is laid.

Challenge: People not taking you seriously.

It might sound strange, but one consistent problem that small construction business owners have is that people might fail to take them seriously. The phrase "success breeds success" applies to a range of different contexts, including public perception. People respect larger, successful businesses because they have a track record. If your small business doesn't yet have a strong track record then people might be inclined to ignore payment deadlines, delay payments, and interject while you're working to provide "advice".

Customers might delay payments, dispute invoices without justification, or expect extended credit terms beyond what was initially agreed. This behavior indicates a disregard for established financial boundaries.

Potential solutions:

• Enforce strict payment terms: As above, publish clear terms and conditions are part of your quotes and ask that customers accept them when they accept your quote. Having clear payment terms suggests you know what you're doing and that the size of your business is not related to the level of professionalism you aim to maintain.
• Promote your successes: Show you are a successful business on social media and in your advertising to potential clients so that they understand you take yourself seriously and have clear professional standards. Include case studies and success stories as part of your marketing plan.
• Document processes from start to finish: As a construction company owner, having strong business processes is the key to ensuring you can quickly and professionally answer queries from clients and potential clients. Documenting everything is a great way to prevent cost overruns, identify cash flow issues early, and effectively manage the allocation of your construction team.

Challenge: Large volumes of paperwork.

Running any business means completing a wide range of paperwork, either online or actually on paper. From taxes and submissions to government departments, to construction licensing and car registrations.

Making sure you have adequate insurance coverage, for example, is a key business process that has a direct impact on future projects. If you want to avoid unexpected costs or costly mistakes, you need to make sure you have your business paperwork in order.

Potential solutions:

• Maintain a to-do list: Few things are as effective as writing tasks down so that you remember them. Or you can type up a list on your computer or phone. Whatever system you use, a to-do list can help you to remember everything you need to do, and prompt you to think of things that should be on your list of things to do.
• Find effective business management software: Though specific construction company software can be a bit hit-and-miss, dedicated software or online tools for tradies can be quite effective. BorisDoes includes everything you need to manage your business from a website with quoting and invoicing functionality to tools that integrate with Xero and MYOB.
• Hire an accountant: just like hiring a mechanic for your car or a doctor to treat illness or injury, hiring a professional accountant is a great way of getting on top of your financial paperwork. They can take everything you have from software like Xero or MYOB and turn it into tax returns or a business activity statement (BAS).

Challenge: Promoting your small business.

The simple fact of the matter is that for any business to survive, it needs customers or clients. And how can someone become a customer or client of your business if they don't know about it? They can't.

But marketing and promotion can be complicated if it's not something you have experience with. Even if you have excellent customer service, how do you convert that into active referrals?

Potential solutions:

• Activate your social media channels: Post pictures and videos of your completed work so that potential clients can see what you're good at. Link that media content to the nice markets and services we discussed above.
• Get a website for your business: Use a service like BorisDoes to create a website for your business and build your presence online. Link your social media accounts and engage with a wider audience of potential clients by showcasing your completed work.
• Encourage word of mouth: Provide bonuses for clients who refer potential customers to you for work. It could be as simple as a bottle of wine, or a discount on their next project with you. Offer discounts to referred customers to cultivate word of mouth referrals.

Conclusion

Building and construction is a competitive industry and starting a construction business involves a range of challenges. But as you can see from this blog post, those challenges can be overcome. It's possible to defy the high failure rate of the construction industry by hiring professional construction contractors, responding to market trends, exceeding industry standards, and implementing effective marketing strategies and growth strategies.

Establishing an online presence and using the digital tools available from BorisDoes.com.au is a great way to manage or avoid some of the key challenges associated with starting and running a construction industry business. Whether you focus on residential construction, commercial construction or industrial construction, BorisDoes can help you manage and grow your construction business.