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10 Methods for Expanding Your Construction Business

10 actionable suggestions to grow your construction business that as you plan your 2021 expansion.

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For most construction businesses, the winter months are slow due to weather conditions and reduced demand. Fortunately, downtimes offer the owners of construction businesses time to catch their breaths. With less time on site, there is more opportunity to think and plan ahead. Often, that includes getting bids for warm weather projects, catching up on paperwork, and pivoting business strategies. While the first two items are routine, pivoting a construction business requires careful planning. This is especially true when trying to expand or change business strategy. Here are some actionable suggestions to help as you plan an expansion.

1. Have Flexibility in Your Business Plan

No matter how well you make a business plan, there will be wildcards that require changes. For instance, the COVID-19 pandemic has forced many businesses to change how they do business. The lesson is simple: as a business owner, you should always be prepared for situations beyond your control.

Besides the Paycheck Protection Program, the winners and losers in recent events have been determined by business flexibility. While certain activities were restricted, there were other ways in which many companies could operate. Having fewer workers on-site was a common adaptation, but it can cost money to work this way. Still, paying overtime and hazard rates often proved cheaper than a complete shutdown. Better, it allowed some contractors to pick up jobs left behind by inflexible competitors.

Of course, there are ways to be flexible, even in more typical circumstances. Let’s say that your company is especially good at digging basements and framing houses. This is a basic construction area, but it is relatively limited. If housing starts to decline, then a company might end up with fewer contracts. Building flexibility into a business plan allows the owner to take other kinds of jobs. Maybe a contract for the entire structure, for instance, or framing larger buildings. Doing this will allow a business to expand and be more resistant to market changes at the same time.

2. Hire the Right Employees

Most business owners will tell you that their most valuable asset is their employees. Without employees, it is impossible to get work done in a timely manner, if at all. For employees to be valuable, however, they need to be the right ones for your business.

The right employees are respectful of customers. Depending on the type of construction business, front-line employees can interact with customers more or less frequently. Residential contractors working on an occupied dwelling or office space, for instance, will likely see customers and their employees every day. When building a new structure, this is less common. Either way, it is important to ensure that your employees are respectful of customers and your foremen. When customers encounter happy, respectful employees, they often tell their friends. Likewise, unhappy or rude employees attract the wrong kind of attention. The overall reputation of your business can be strongly affected by these impressions.

Employees being on board with your plans is often critical for success. If they don’t want to learn how to work with stucco, you might have to hire new people to build that kind of home. Not wanting to pour rebar might keep you from constructing larger structures. Having knowledgeable, flexible employees is an asset to any business.

Speaking of assets to your business, don’t forget the value of excellent subcontractors. Some jobs, like those where home builders want superb decorative woodwork or a wrought iron fence, might require specific expertise. Most companies don’t have this kind of specialization on their regular staff, so going outside the company might be necessary. Be sure to learn which skilled craftsmen are good at what. More than that, the right craftsman does what they love and is reliable as a result. Sometimes, the right relationships with outside professionals are your best asset.

3. Expand Services

Nobody questions that having a niche is important. Your company shouldn’t be a “jack of all trades and master of none.” There needs to be a handful of things that you do really well. However, that’s not to say that services need to be severely limited. Having some secondary lines of business along with your specialties, is advantageous.

If your company can handle a variety of construction-related services, then it is easier to expand. Commercial construction companies can learn to do residential and vice versa. Added services can mean more than just hanging your building type. Existing structures need maintenance, so contracting with a property management company to help with larger repairs can be a lucrative side business. Preventive maintenance for homes and commercial buildings also can keep your crews busy during the slow months too.

Finally, keep track of industry trends. Once you know the trends, stay ahead of them. By upskilling your workforce and acquiring new certifications as necessary, your company can be well-positioned to get the next big contract.

4. Stay on Top of Finances

Generally speaking, the biggest reason for business failure is cash flow problems. These can take several forms, such as failure to account for business taxes or underestimating business costs. Surprise expenses, such as unusually high material costs, can also take a toll. For that reason, make sure that you can account for every penny. Identifying excessive costs or realizing savings can help your business become more profitable. Better yet, you will have money for expansion or new equipment. Buy (or hire) what you can afford and no more. Ideally, you will have a rainy-day fund that can help when equipment breaks unexpectedly or you must pay out over time.

Besides careful accounting at the business level, staying on top of finances includes monitoring project profitability. It’s easy to take payments for a project and then spend what you think is necessary to get it done. Unfortunately, this is a great way to ensure that a project loses money overall. To avoid this problem, carefully track your revenue and expenses for each project. This will often mean having a separate “account” sheet dedicated to each contract. List the money paid by the client, but also keep track of each expense.  How many hours did you payout for labor? What is their “share” of employee benefit remittances? Are you on track to meet your materials budget and maintenance costs? Knowing all these numbers are on track allows you to adjust while you still can. This increases profitability, both on the project level and overall.

Keeping track of finances is easier than it seems. If your business is smaller and you have adequate bookkeeping skills, putting all your line items into a program like Quickbooks should be adequate. In this case, be sure to run and review reports monthly so that you can identify issues. Larger businesses might want to hire a bookkeeper. A bookkeeper will often use the same software but is hired specifically for this task. In practice, this will free you up for other tasks. As with the DIY approach, be sure to review monthly reports. Knowing how much money you have allows the pursuit of expansion opportunities as they arise.

5. Practice Safety First

There is no denying that poor safety culture and frequent accidents damage the reputation of your business. Many customers, especially in commercial construction, do not like to use contractors who they see as a liability. On the other hand, having a perfect safety record is a great advertisement for your business. It tells potential customers that you are a responsible business owner, and many will pay a bit extra for that peace of mind.

Fortunately, there are steps you can take to achieve a perfect safety record. Buy the best safety equipment that you can afford and give employees an allowance for personal safety items. Hold frequent safety trainings and ensure that your foremen enforce safety rules. Finally, you can incentivize safe working through employee recognition programs.

6. Increase Marketing

One of the challenges facing construction businesses is a lack of proper marketing. Referrals and relationships with other businesses are the lifeblood of most construction firms, but these often ignore mass marketing techniques. Services and estimating always require an on-site visit, further discouraging an online presence.

Unfortunately, our world is increasingly connected. Online forums like social media and home improvement sites, let consumers compare notes on contractors of all types. Increasingly, this means that if you are not online, then chances are your competitor is. By having an online presence, you can build name recognition and gather sales leads. This should be in addition to any traditional media ads that you place.

Finally, have a business website. Your own online “real estate” allows for posting your portfolio of work, introducing your management team, and bragging about accomplishments. Differentiating yourself from the competition is one of the best ways to encourage customer inquiries. A website template can be purchased for less than $100 from sites like themeforest, or engaging a website designer to build something custom or semi-custom from sites like 99desisgns.

7. Always Be Willing to Learn

Some professions, such as law and medicine, have continuing education requirements. This isn’t true of contractors, but you should still always be learning. New technologies and techniques come along in the construction industry from time to time, and they will eventually be requested by clients. During the offseason, you should consider taking courses in these new technologies so that you can offer those services.

Learning more will help you expand your business. Depending on your long-term strategy, there are different certifications you can earn. Energy-efficient construction techniques are a popular example: increasingly, clients want LEED-certified commercial construction. Residential structures are increasingly energy-efficient, too. By offering this kind of option to your clients, you’ll put yourself ahead of the competition. Become an expert overtime, and customers who want green buildings will seek you out.

8. Choose Jobs Wisely

As the saying goes, you can’t be two places at once. For most growing businesses, there comes a time when they receive more demand for services than they can provide. When this happens, it’s time to be more selective about which jobs you choose.

Let’s take on a concrete example. There are some customers who are difficult to work with. Maybe they can’t make up their mind, or they make unreasonable demands. Other customers are slow with payments or refuse to make a deposit that’s used to buy materials. Worst of all are the cheapskates who expect a lowball offer and then squeeze the most out of every dollar.

While taking a few of these customers when trying to buildup a portfolio might be OK, as you grow, they will keep your profitability low. Fortunately, experience and customer reputation will help you avoid these clients over time. As profit margins increase, you will have more cash to upgrade equipment and expand your business.

9. Use Your Contacts

While it’s always important to safeguard trade secrets, networking is advantageous for business expansion. One way to balance these priorities is by joining building trade associations. These allow you to meet people, find out who is good at what specialty, and protect industry interests.

Over time, having a network can help you get more jobs. Perhaps one contractor has a client who needs a service they can’t provide. If your business offers those services, they might make a referral. Then, you may return the favor at a later date. Likewise, advertising through business associations can help potential customers find you. By being part of a community, everyone can work better and smarter than they could alone.

10. Keep Your Integrity

Everyone likes to make more money, and expanding is a great way to achieve that goal. However, few things are worse for clients than being cheated by a contractor. When building a home or commercial property, you are ultimately putting the safety of others in your hands. Shoddy work requires more maintenance and can even be dangerous. Do a bad enough job, and you might get sued. Short of this, word gets around that you cannot be trusted, and you will ultimately lose business.

Keeping your integrity during an expansion is surprisingly easy: Just put yourself in the customer’s shoes, and act accordingly. Most clients will want a good value for money, which means they get the right construction at a fair price. Typically, this doesn’t mean they want good, fast, and cheap. Instead, they want the best construction job they can afford.

One way to deliver is to offer the customer options. For instance, in residential construction, there is a wide variety of finishes available in kitchens. Each of these can be high enough quality, but prices vary widely. Help your client select the right options for their needs. Then, consider your costs and a fair profit margin to arrive at the best solution. When prices are fair to both sides, everyone wins.

Wrapping It Up

Expanding your construction business isn’t something you can do overnight. It takes careful planning, great employees, and a firm grasp of company finances. However, with these tips, you should be able to guide your company and its employees in the future.

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