4 Reasons Construction Companies Fail

By Carlos Hazbun | Builders Risk, Business, Construction Site Security, Copper Theft, Security | No Comments

4 Reasons Construction Companies Fail

Many business owners in the construction or contracting business are fantastic craftsmen — the quality of their work is never the issue — but keeping up with the “preventative maintenance” of running a business is where many fail. According to U.S. Census data from 1989 to 2002, nearly 14 percent of all construction businesses fail where the average across all industries is a few points lower at 12 percent.

When you’re not maintaining equipment, managing new jobs or managing sites, what are the most common reasons why your business could go under? The good news is that they’re not too different from why any business could go under, and that means there are many ways to get out in front and make sure it doesn’t happen to you.

Capital

Too many businesses underestimate the capital needed to run its operations, especially in the early stages. And once you find yourself undercapitalized, it’s a hole that’s hard to escape. There are a few ways to avoid this trap (and it’s good advice for any industry):

  • Build out your business plan to demand more capital than you think is needed, which will give you some room for error.
  • As much as being your own boss is the American dream, being accountable to others can help you stay on track. Going into business with someone you trust to keep an eye on costs helps keep them in line.
  • Don’t underestimate customer service. Customer retention will help keep your numbers in the black.

Planning

Poor planning may be the reason why your business is undercapitalized in the first place. Thorough planning starts with the business plan but goes well beyond that, as the circumstances for what your company needs will always be changing. The best way to plan for your financial future is to track every bit of data from your past — maintenance costs, supplies, staff, etc. — to know exactly how you need to start moving forward.

Flexibility

Are you noticing a pattern of how one problem leads to the next? If undercapitalization comes from poor planning, then poor planning comes from a lack of flexibility. This is the classic case of the business plan that’s chiseled in stone instead of written in pencil. Here’s a real-world example: Let’s say you work out the costs for preventing theft on the job site  it happens, equipment gets stolen. So you beef up security and go all in on construction security equipment. But a year passes and loss prevention is much cheaper than anticipated. Are you able to scale back job site security or are you stuck with all the equipment? It’s little things like this that can add up to big expenses.

Staff & Turnover

Bad employees sticking around and grinding down a business isn’t good, but good employees leaving is even worse. It’s easy to weed out the bad apples, but keeping the good ones on board takes a little more effort. In addition to losing good people, employee turnover is very expensive. It often costs more to train and onboard a new employee than to keep a current one.

The Center for American Progress estimates that turnover can cost 213 percent on average. This means that, if a good employee leaves after one year, replacing them would cost several times the salary they earned in that year. The solution to this is simple, if you have good employees, do what it takes to keep them around.