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Tips to Run a Better Construction Business

The acceleration of remodeling activity in the coming year should enable contractors to grow their business as the economy continues its steady recovery. Additional work and larger projects, however, can disrupt existing processes and quickly damage the bottom line of a company that fails to properly accommodate the increase in volume and scope.

Fortunately, many contractors have learned similar lessons about their business over the past year, and their takeaways highlight the common pitfalls and challenges facing most construction companies as they embark on the new year.

Get to know your employees

More jobs and bigger projects require an expanded workforce, but many contractors say they cannot find qualified labor when searching for new employees. In fact, a number of contractors have brought on additional workers only to discover that these new hires lack the skills necessary to complete everyday tasks.      

“There are a lot of people out there being called lead carpenters when these people don’t know what a lead carpenter is—and neither does their boss,” says Shawn McCadden, a remodeling industry consultant and the founder of Remodel My Business. “[Then] they go to another company [after] being hired [there] as a lead carpenter, and they have no idea what to do.”

As a result, contractors should do everything possible to retain their best workers and try to avoid frequent dips into the hiring pool. Developing relationships with each and every employee allows contractors to learn about more about their workers and understand the factors that will determine whether people stay at their company.

“It’s getting to know them—what are their goals and what are they hoping to accomplish through their jobs?” McCadden says. “Do they want to have a house someday and get out of that apartment so they can have a [real] home for their wife and kids? What’s going to motivate them to want to be at the job?”

Review and study past jobs

Many contractors have trouble collecting payments from their customers so they can use that money to pay for bills related to the project. A detailed analysis of past jobs teaches contractors how to predict costs for future projects, which can also help create payment schedules based on milestones (such as preparing to do the framing) instead of arbitrary points (for example, receiving one-third of payment at the start, middle and end of a job).

“If my payment schedule says that I get paid for the framing after I complete the framing, I’ve financed the framing for the homeowner,” McCadden says. “I’ve got to pay my guys or the subcontractor, [and] I’ve got to pay for the materials for the framing. All [of] those bills [will] come due prior to me getting the money from my customer.”

Evaluating the costs associated with previous jobs will give contractors valuable insight into cash flow and whether the company charges enough for projects. If a problem arises, contractors can figure out the source quickly because they have been monitoring their job expenses over a long period and know how different project costs affect their bottom line.

“Go back and check your job costs when you’re done with a project—and make sure your estimates are aligning with your job costs,” says Dave Brady, president of Oak Design & Construction in Oak Park, Illinois. “You have to be very mindful of getting your numbers right.”

Manage client expectations

Television shows and other entertainment media about home improvement have skewed the expectations of customers, who often balk at longer (but much more realistic) project timelines and higher job costs. Outlining the work process for clients and addressing their expectations upfront ensures the communication lines remain honest and straightforward.  

“[We need to] create a clear process—printed for customers—on what to expect,” says Joseph Irons, president of Irons Brothers Construction in Shoreline, Washington. “This would save [us] time—and time equals money.”

Guiding clients through a project requires personal skills, but contractors can tailor their business model to help customers make better decisions. For the last year and a half, Oak Design & Construction has allowed more clients to pick and choose their product finishes from a “menu” as opposed to just selecting an all-inclusive package or budget.  

“That’s how people buy now—they’re just more selective,” Brady says. “We try to do budgeting right upfront with people because, with the phone ringing more, we need to turn stuff around [quicker], and we need to know which jobs we’re going to pursue and which clients are worth pursuing.”

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