Category Archives: Finances

Building finances for your construction company. Does it take time?

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Construction is a multifaceted industry and a risky business. It requires huge financial investments, which get returned as profits much later. Thus, it is an expensive business which offers delayed benefits. The construction project cannot proceed without adequate finances. Hence, the owner of construction facilities must obtain reliable capital resources to finance costs of construction. The owner does not just work on one project but numerous projects which are all financed together. In addition, there are other problems such as budget overruns, unreliable contractors and delays. If the owner is unable to cover costs, the capital investors face financial problems.

However with a pragmatic approach, owner of construction industry can build finances (achieve profits) in less time. Some of the guidelines for the same are as follows:

  1. The owner should be aware of the amount of work to be undertaken. Further obtain knowledge of the technical skills required which will enable to calculate the correct cost of construction project. Thus he should define goals and set expectations. Emphasis have to be on long term planning. Setting expectations enhances confidence of both clients and employee’s in the owner.
  2. Generally it costs less during planning and designing of the project but involves substantial expenses during construction. Instead of giving importance to sales, and getting deals, owner should develop understanding of the financial aspects and costs involved in the construction project. They can also hire appropriate project managers and financial consultants to understand the actual costs incurred by a project.
  3. Estimate the true profit by considering overhead costs, risks and job costs.
  4. Managing the job production to achieve profits: the job should be done in the cost-effective manner to make profits. Changing daily orders of operation and determining the productivity of labour force. When the work to be completed in 2 days, takes 6 days, it incurs additional costs. Thus jobs should get delayed.
  5. Accounting for profit by employing a project manager who keeps track of the budget and purchase orders. He has accurate knowledge of the expenses since he is present on the site. He applies construction specific accounting knowledge.
  6.  Since education always helps, hence training to be given to labourers, employees and management professionals.
  7.  Emphasis on written procedures (SOP) is important. Procedures should change improve. They should be evaluated periodically.
  8.  Effective Good communication with employees is valuable and necessary. They result in strong relationships with all parties and frequently result in future referral business.

Overall building finance in construction industry takes time. Following the above guidelines will enable the owner to develop business skills to reap profits in less time and have sustainable career in construction industry.

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Administrative and finance are two crucial departments of a construction company

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Every company has few very crucial departments without which the functioning of the company is unthinkable. Like ways, the two most important departments of a construction company can unarguably be the administrative and the finance department. It is perhaps after the consultation from the head of these 2 departments that the company can take any major decisions. If either of these departments does not give their nod, there are high chances of non-happening of an activity. If heavy equipment and construction laborers are two vital parts of a construction company on the field then the admin and the finance departments are another two vital departments off the field.

A person who wants to establish his own construction company needs to understand the workings of these two departments thoroughly and once he/she is confident that he/she can take vital decisions after understanding the functioning of both the departments, he/she should go ahead. Rest of the important parts like knowing about heavy equipment, what machine is needed for which purpose can be advised by other professionals but there is no expert per say when it comes to the finance and the admin departments. No one can guide you accurately when it comes to the finance section as they do not know your business plan and the capital you have for investment.

If only someone knows about your business plans, they will be in a position to guide you. This work is ideally done by the Head of Department of the finance section since he/she knows about most of the projects the company is working on. However, if you are the owner of small sized or medium sized construction company then you probably not be able to afford an expert and qualified person who would be heading the finance department. It is perhaps you who have to take the lead and take all the important decisions. You will definitely be having few men working under you but they can only help you with data, the rest will be your call. Therefore it is necessary to understand how both these departments work so that you have a fair idea as to where the company is heading.

The work of the admin team is primarily restricted to taking care of the employees by providing them with all the necessary means that will enable them to work in a safe environment. In case, if the employee has any problem, the first point of contact he will approach is the admin team who in turn will check how to get that resolved.

If there is any monetary involvement in sorting out the problem then they might then get in touch with the finance team and check what can be done. If it pertains to any other issue that doesn’t seek the requirement of the finance team, then the process may become a lot simpler. However, it has been witnessed in most of the cases the admin team has to work in sync with the finance team and vice-versa making them the 2 most important pillar of the construction company.

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Have sound financial reserves to meet unforeseen challenges

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When you are rich, do not spend lavishly because you never know when you may need that money the most. Life is full of unforeseen happenings and this is why it is prudent to keep some control over your spending before things go completely out of hand and you remorse for things that you could have easily contained. People belonging from the construction industry have to be very careful with handling their finances. They can’t spend copiously in buying things for their business without even having the need for it. This may result to some serious problems in the future. Construction business is very dynamic in nature and things that are happening now may not happen in the very next moment. Which is why you should always maintain some amount as contingency fund as you do not know when you may require the money.

We will be discussing few important points that will highlight why having sound financial reserves is necessary to meet unforeseen challenges.

Getting new projects out of the blue:- 

At times, you may have experienced someone taking the reference of one of your clients and giving business to you. Well you must have never expected that business to come but it did arrive out of the blue. Now, if you say that you do not have enough resources to take up that job, you are simply not doing justice to your business. Getting new clients is always good for the business and especially when he comes to you as a reference of your existing client. Saying no to him will not only impact your business with a prospect but also will strain your relationship with your existing client. Henceforth, he may not give any business to you considering that you do not have the potential to take up new challenges.

Considering the same situation, if you keep yourself ready for such unforeseen opportunities, it will certainly help you nurture as a business owner and will also boost your business in a grand way. Therefore keep enough money to procure heavy equipments and employ new workers to work on the addition site.

Financial reserves can help you sustain during hard times:-

Construction business can show you both good as well as bad phases many times during your active career as a construction business owner. It has been widely observed that most of the companies go sick when the bad phase hits them. At times, it hits too hard for them to sustain further leading to unwanted closure of business. When you are down with projects and do not have much work in hand, you can cut down your costs. That will save a bit but you still have to carry on to survive and for that you require money. Having sound financial reserves helps you big time during such moment of crisis.

You can depend on your savings and can pull things on for few more months. Till then you may see the tide moving back and businesses pouring in. Your savings have thus saved your business.

 

Do not spend all your reserves for buying heavy equipment – Take a loan instead

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When you are in the construction business, it is very important to keep your reserves intact and not spend the entire sum buying heavy equipment. The money that you make from your business helps you to run the business and also allows you to buy some machines that are much needed. However, it is also important to understand that these construction equipment are too expensive and one should not utilize all the reserves in buying machines. They should rather look out for options that can be adopted instead of clearing the reserve amount from your account.

If the need of the heavy equipment is too urgent then you should probably look for taking a machine on rent. You will a lot of people willing to rent their machine. Here you do not have to shell all that you have in your reserves to get the stuff. You can pay the rental amount to the giver on each and every month till the contract expires. The rental amount must be agreed upon by both the parties and if you see a chance to negotiate the amount, do not hesitate to do so.

However, if you feel that you may need the machine for your future projects as well and you consider it to be an integral part of your project then you can opt to buy it. Here you have 2 options, either you can buy a used one or you can go for a brand new machine. The used machine will definitely cost you less than a brand new one and hence if you feel that you want to content yourself by buying an used equipment then you got to start looking for sellers who want to sell their machines. Once you ready for the purchase, the next crucial thing that you should do is always pay a small portion of money from your reserves as down payment. The rest of the money should be borrowed from some organized financial institution.

Though you have to pay some interest on the amount you have borrowed but that will not lead to the complete depletion of your financial resources. You will still have money to run the company which is the most needed aspect when you have a construction business at hand. You always got to ensure that you have parked sufficient money for the smooth functioning of the company. Your employees should get their salaries on time and you should carry on with the same goodwill that you have earned over the years.

Before you go for the loan, do some research on the banks that offer business loans and at what rate of interest are they offering the money. They may have some other terms and conditions that one needs to know before they end up taking a loan from them. There may be certain hidden costs which they will come up once you have taken the loan. So try and read the reviews of their existing customers. If they are happy and content with the services of the bank and if they recommend others to go with it, you can take their advices seriously.

Keep a track on your finances while spearheading for any expansion plan

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When you think of expanding your business, it means that you are having sufficient money to let you think about it. It would be absolutely naïve for someone to even think about expanding his business without having enough money in hand. The other option would be to take loan from financial institution. However that will cost you interest that you will be required to pay for the next many years. Taking loan can’t be termed as a bad option. It is just that one should go for this option only when it is really needed. As long as they can do with the money they have in their account as surplus, they should try to take care of any expansion plan with that.

We will be discussing few very important points that one should take into consideration before they decide to spearhead for any business expansion.

Multiple projects should be avoided without adequate resources:-

When we talk about expanding our business, we have to pay a lot of heed to the fact of having enough resources to take care of the extra project. You can’t sign up with a company and commit them of completing their project if you do not know whether you have adequate resources in hand. One of the major components that come under the word “Resources” is availability of finance to fund the project. You just do not want to start up with something and then get to know that you are unable to carry it along due to scarcity of funds. That will be a nightmare both for you and the one who gave you the business. That will also go against your goodwill and will deteriorate your relation with your client. You definitely do not want that to happen with you.

Knowing your finances helps you to take better decisions:-

You can take better decisions when you know how much money you have that you can utilize for your business. Remember, you also got to meet your financial responsibilities with your existing company like paying salary to your employees, taking care of operating and non-operating expenses and many other expenses that probably your accountant may keep an account of. It is better that you call up a meeting and take detailed report from all the departments. Understand the immediate financial requirement of any department and once you have taken suggestions from every corner, you decide what should be your next step.

Turn up to a financial institution if you really have to expand:-

At times you may get an offer than would be too lucrative and naturally very hard to resist. You will certainly not want someone else to bag it instead of you. In situations like these, you may turn up to a financial institution to avail loan from them. However, before you do so, have a small talk with your business advisors and check what they feel about the project. In case, if they all are positive about it, you may take a shot.