Competition is tough for construction companies. There are contracts to be had but they are increasingly more difficult to win.
To be competitive, and win those contracts, these are some basic financial questions that company owners should be asking themselves.
- What profit margin should I use to bid on the job?
- I want to keep my key employees working (for me) but how do I bring in the work to keep them busy?
- How do I maintain the high-standard of quality for which my company is known while making enough profit on a job to keep my business – and myself – financially healthy?
Having timely and accurate financial information at your fingertips allows you to react to changes within the industry and your company.
So, let’s review a few key fundamentals that might get you into a prime competitive situation.
Overhead
Your company has overhead or administrative costs associated with the company’s day-to-day operations. For example, have you determined how much you want to spend on advertising and promotion? Developing an annual budget for those costs will help you determine what profit you need to make to cover them. Establishing proper procedures and policies to monitor your company’s indirect costs will have a direct impact on the bottom line.
Labour Needs
Do you have the right number of employees with the skills necessary to get a job done quickly, efficiently and to the standards you demand? Finding a key employee at the right time isn’t always an option so consider the potential of existing employees. Are they capable of higher level, or different work? Developing your employees not only helps your business it helps retain good people.
Project Management
Technology is a valuable tool in preparing bids and quotes. It can also play a key role in assessing profit margins. Once you have secured a contract, it is important to track all related job costs in order to compare your actual results to the original bid. This analysis will allow you to continually fine-tune your bids to ensure you’re achieving the expected margins.
Management
For owners of larger firms, having the right people in the right roles means you can be confident you have both the skills and the information necessary to ensure your bids are accurately analyzed against actual costs.
Change Orders
Change orders and extras are often counted on to improve the gross profit expected but always make sure that you have written approval before you incur additional costs. Otherwise, you might have to fight to get paid. Leverage billing and project management systems to guarantee this doesn’t happen.
Getting Professional Advice
Seek advice from professionals you trust and who know your industry: specifically bankers, lawyers, and accountants. Their advice can help you make the right decisions and allow you to focus on what you do best.
These are just a few of the key fundamentals that can give construction firms a competitive edge during the bidding process, and improve bottom lines once the job is won.
For more information on how GGFL can help your construction company with the bidding process, please contact Anne Van Delst.
This article originally appeared in the Ottawa Construction Association’s Construction Comment Magazine.
