Improving Profitability of Construction Companies | Push Digits Chartered Accountants

Improving Profitability of Construction Companies

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Improving Profitability of Construction Companies

A company’s stability is determined by the amount of profit it is making, the same is true if you are running a construction business. Significant profit also helps you to grow and expand your construction business in the future. There could be many ways to improve profitability like, reducing costs, improving productivity to deliver quality work, using shared resources, automating standard processes etc. For constructions businesses, the following strategies should be helpful to improve profitability:

Improving the Bid Estimation Process

Most projects in the construction businesses start once you have succeeded in the bidding process. This process involves estimating materials, labor, and overhead costs and then building a margin of profit to top it all. A valid bid can include tools like having accurate pricing for the materials, having the right technology to assist the work, and an estimated time for completion of the project. A bad estimator would end up over or under-bidding on estimates, leading to lower profits. Since the value of jobs in the construction industry is huge, over as we as under estimation should never happen if a business wants to survive in this industry.

Maximizing Your Cash Flow

The pandemic has affected the construction business adversely, there are fewer projects and fewer bid opportunities. In this situation developing a system to manage cash flow is highly recommended. This can be done by carefully tracking and justifying all the expenses to reduce the chances of a loss. Offering a maintenance contract or a payment plan to the client could be helpful in stabilizing the cash flow. Eventually, cash is king and if you do not manage your funds properly, not only it will negatively affect your manpower but will also risk the going concern of your business.

Implementing Training and Safety Plans

Training of on-site employees is also an important factor to improve profitability. It not only improves retention of employees but also makes them more efficient thus providing a better product to your customers. This training includes complete on-site safety protocols such as usage guidelines for heavy machinery, training for handling and lifting of materials, and how to safely use tools. Eliminating risks of job site accidents not only saves time but also secures your reputation and profit up to some extent.

Assessing Subcontractors and Negotiating Better Payment Terms

The subcontractors selected to assist with the project must be financially strong and have the required skills to complete the task they are given. They should be assessed for their qualifications, management capabilities, and strong credit history. You should also be able to negotiate favourable credit terms with sub-contractors to manage your cashflows.

Improving Productivity

Productivity rates can be improved by better scheduling, supply chain management, and employee training. To maximize efficiency all parties involved must be working in a logical sequence in performing various tasks. Also, by ensuring that all employees are completing the assigned tasks on time. This will result in the completion of the project under budget and ahead of schedule, thus improving profitability.

Setting Goals and Tracking Progress

Assigning a goal for each of the tips discussed above will help increase the profit margin of your company. Set goals and track your progress by monitoring the data on a monthly and quarterly basis.

In the construction business, you have to build the profit margin with continuous hard work to grow and make your company successful.



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