As crazy as it sounds, if you are not paying enough attention to your bids, it’s likely that you are subsidizing clients quite a bit. Increase profits by tightening up the internal processes used before every bid. Of course it’s also critical to be crystal clear on your overhead, convert new contracts to cash efficiently, and use lines of credit wisely.
Uncertainty Is Here To Stay
It sure looks that way, and the pros at Construction Business Owner caution that keeping our heads above water requires ever more careful focus on business inners. For starters, tighten up the bidding process, understanding that better attention to the bid on every project can make a big difference on the bottom line:
Each and every project — whether profitable or a money pit — starts the same way: with a bid.
Enhance internal controls around estimates and bidding to help ensure you’re not unintentionally subsidizing your clients by incurring expenses or charging less than your work is worth. If there are perennial bidding and estimating issues, ask yourself if your existing team is experienced enough to be tasked with this responsibility, which has an outsized impact on your financial performance.Be sure to review bid spreads to gauge your alignment with market rates, request quotes from multiple vendors and subcontractors whenever you’re using them, and update cost assumptions to align with current values.Finally, review projects after they’re complete. You should look for efficiency gaps, waste, unused resources and other issues that can be corrected to improve performance on future projects.
Running a construction business has always required a steady hand on cash flow, but continued uncertainty around current conditions including stubborn inflation and the labor market, make financial skill ever more critical: “Each factor can impact profitability and growth, such as insufficient cash flow, loss of organization, and lack of clear processes and decision-making. To overcome the challenges unique to this industry, construction and contracting business owners need well-established accounting practices….” First and foremost, according to pros from Marcum LLP, is clarity on overhead costs– and having the cash on hand to meet them:
Know your overhead — that means the working capital (in cash) you need to pay your business expenses not directly attributed to your projects. That’s your target, and hitting it means you and your team can continue working uninterrupted and convert contracts to new cash. Make sure your plans to maintain this amount on hand are self-sustaining, and you aren’t taking anything, like financing or windfalls, for granted. Keep in mind the lag time, which is usually between 30 and 90 days, between the completion of the work itself and receiving its value as cash in hand. In an emergency, a line of credit may be useful as a safety net, but do not consider this as your cash — it must be repaid.
Clearly, late and inaccurate invoicing, as well as challenges over change orders can really wreak havoc on cash flow. A best practice that helps construction owners stay ahead of the game, as Gary Bartecki reminds us, is consistently following a weekly routine for estimating cash receipts and payroll, as well as fixed and other payments. The ability to quickly convert short-term assets into cash also gives builders leverage if the road gets rocky.
Line of Credit, More Time To Bid, Financial Dashboard?
Sure, every contractor wants a line of credit in writing, a little more time for accuracy before securing the bid bond, and useful financial intel on demand, right? Come and get them. At Colonial Surety Company, just for completing our easy Pre-Qualification, construction company owners receive Free Business Credit Scores full of insights to put to use right away.
Once qualified for The Partnership Account® for Contractors, you can work on your bid up until the very last minute and then issue your own digital bid bond, in minutes, using our power of attorney. Plus, get an edge over the competition as you steer your business forward strategically with:
- Written Bonding Limits: Receive your single and aggregate bonding limits in writing.
- The ability to update work on hand from your own dashboard.
- Real-Time Visibility: Log in to view your underwriting profile and financial scores anytime.
Get Ahead Today:
The Partnership Account® for Contractors
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