Successful companies require careful attention and a well-organized plan when it comes to finances in order to be profitable and remain in good monetary standing. And while this is a hurdle to overcome for businesses of all industries, it is especially true for industries where large investments are needed on behalf of the company, often before that company sees any of the payment from clients.
This is traditionally the case with independent general contractors. In this line of work, it is easy for money to get tied up in clients or projects to fall through after company money has been put into them. And while some of the frustration that arises from these issues may be unavoidable, there are proactive steps your general contracting company can take to handle finances with grace.
Examine and Reshape Payment and Billing Structure
All general contractors should have a license, and with that certification and level of expertise comes a basic understanding of how finances traditionally operate within the industry.
During the recession, many contracting companies closed up shop because no one is truly immune to the rises and falls of the industry. Because of how sensitive contracting work can be to the economic climate, it’s essential that a proactive plan is put into place that protects the company against unexpected crises.
A great way to do this is by rethinking your company’s payment plan. Create your payment schedule so that it matches varying levels of project completion and require clients to uphold that policy. This way, there is continual cash flow into a project and not as much company capital is being invested up front.
Another way to prevent using company money is to require higher payments earlier in the project, so more of the financial burden and risk is placed on the client.
Provide Payment Incentives
Setting up a structure that motivates clients to make payments on time is a great way to ensure money is received on schedule. These incentives can be both positive and negative.
For example, you can charge interest on payments that are submitted past the deadline. This may seem excessive to some clients, but it will also make them pay closer attention to due dates.
Balance out that type of incentive with something positive. Consider giving a discount on services if they are paid within a certain time frame. If the discount is substantial enough, clients will work to make payments on time and feel grateful to you for the opportunity to save money.
Opt to Lease Equipment
Instead of buying expensive yet necessary equipment upfront, consider leasing as a viable option. Not only are there tax incentives for leasing, but this frees up large amounts of working capital that can sustain a company with the necessary cash flow as payments are made over a larger amount of time.
Do the Research and Plan Ahead
Steady cash availability is important for a general contractor to do their work. Because of that, it’s essential to do research and be aware of the changing prices of materials before you begin a project. If you can minimize purchasing costs of materials and strategically schedule the timing of material purchases early on in the planning stages of a project, you can ensure the funds are available when you need them and could potentially save money.
For example, if your company purchases materials too early, there will be less money free to spend on other project components. At that point, you may have to start paying for storage space or interest on materials earlier than necessary.
Stay on Top of Trends to Ensure Business Longevity
The best way to stay ahead of the game financially in the contractor world is to be proactive about changes in the industry. What upcoming trends are on their way in? What is the next generation of homeowners seeking from a general contractor? For example, there is a high demand for eco-friendly living and green technology right now.
By educating yourself and your company on the trends and seeking out additional education and certifications as opportunities arise, your general contracting business will remain relevant and profitable for the long haul.
