Business

Set Up for Success: An Investment Guide for Construction Contractors

Investing might seem daunting, especially for a construction company in an unpredictable economic climate. But certain steps can simplify the process.
By Salvatore Schibell
November 14, 2023
Topics
Business

Identifying and seizing growth opportunities can be challenging in the ever-evolving construction world. With economic uncertainties looming, construction contractors must take calculated steps to secure their financial future. Construction leaders can follow the comprehensive guide below on identifying potential growth opportunities and developing a sound business plan to determine their return on investment.

DUE DILIGENCE: THE FOUNDATION OF GROWTH

Before expanding their construction businesses, contractors must thoroughly assess current positions, financial stability and market dynamics. Here's how to get started:

Analyze Financials: First and foremost, review financial statements for the past few years. Examine income statements, balance sheets and cash-flow statements to understand the company's financial health. Identify areas that need improvement, such as reducing costs, increasing revenue or optimizing cash flow.

Market Research: Stay informed about market trends and the competition. Look for niches or underserved areas within the construction industry. For instance, green and sustainable construction practices continue to gain traction due to increasing environmental concerns. Identifying such trends and aligning the business can set contractors up for success.

Customer Feedback: Solicit feedback from existing clients to understand their needs and expectations. Their insights can lead to the development of new services or improvements in existing ones.

Assess the Team: Evaluate the team's capabilities and capacity. Consider hiring additional skilled personnel to handle a heavier workload as the business grows.

Technology Integration: Embrace technology to streamline processes and increase efficiency. Tools like project-management software and BIM can help contractors stay competitive and deliver projects cost-effectively.

IDENTIFYING GROWTH OPPORTUNITIES

Once due diligence is complete, the next step is to pinpoint potential growth opportunities:

Diversify Services: Consider offering a broader range of services within the construction sector. This might involve expanding into renovation, remodeling or specialized niches like solar installations or smart home construction.

Geographic Expansion: Explore opportunities to expand into new geographic areas. Analyze regions where demand for construction services is rising that can leverage existing expertise.

Joint Ventures and Partnerships: Collaborate with other construction firms, suppliers or related industries. Joint ventures and partnerships can help share resources and expertise, reduce risks and tap into new markets.

Government Contracts: Look for government contracts and public infrastructure projects. Participating in government bids can be a stable source of revenue, especially with the availability of federal funds and the need to repair or replace fundamental infrastructure like bridges and roads throughout the country.

Sustainable Practices: As mentioned earlier, sustainable construction practices are rising. Position the business as an environmentally responsible and efficient contractor to attract clients who prioritize sustainability.

DEVELOPING A BUSINESS PLAN FOR ROI EVALUATION

Once potential growth opportunities are identified, it's crucial to create a comprehensive business plan that outlines the strategy and assesses the ROI. To develop that plan, construction leaders should:

Set Clear Objectives: Define growth goals, such as increasing revenue, expanding into new markets or diversifying services. These objectives should be SMART—specific, measurable, achievable, relevant and time-bound.

Financial Projections: Create detailed financial projections, including income statements, balance sheets and cash-flow forecasts. Estimate the initial investment required and the expected return over a set period. Ensure all costs, such as operational, marketing and overhead expenses, are included.

Risk Analysis: Identify potential risks associated with the growth strategy and outline mitigation plans. This can help prepare for unexpected challenges.

Marketing and Sales Strategy: Develop and test promotional messages in the new markets or with the expanded services to ensure they are compelling and relevant. Outline the sales and marketing plan, including target customer segments and competitive positioning.

Operational Plan: Detail the functional changes needed to support the growth strategy, including staffing, technology and equipment requirements.

Monitor and Adjust: After implementing the growth strategy, regularly monitor progress and compare it to the projections in the business plan. Adjust the approach as necessary to stay on track.

Seek Professional Advice: Contractors should consult financial experts, legal advisors and/or industry specialists to ensure the business plan is realistic and feasible.

Navigating growth opportunities in the construction industry requires dedication, adaptability and a sound financial strategy to secure a prosperous future for construction contractors. As the economic climate fluctuates, those who carefully assess opportunities and make informed investments stand to thrive in this competitive and ever-evolving industry.

by Salvatore Schibell
Salvatore Schibell, CPA, CFP®, CGMA, MS Taxation, MBA, is the tax partner at Lawson, Rescinio, Schibell & Associates, P.C. One of his specialties is working with contractors to maximize profitability utilizing his certified global management, financial planning, and tax planning specialties. Sal is considered a leader in construction accounting and can be contacted at (732) 539-7328 or salschibell@lrscpa.com.

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