As a construction business owner, you probably enjoy working with your hands. And when it comes to making the most of the industry’s seasonal nature, you need to roll up your sleeves and maximize revenue. Unsteady cash flow can be difficult for any seasonal business owner, but what is seasonal working capital’s impact on the construction industry?
Few industries are as cyclical as construction, but the peaks and valleys can provide a mix of opportunities that make your business stronger, whether you’re waiting for payment, bid approval or for the weather to change. Let’s explore a few ways to keep up with the cycles to strengthen your construction cash flow forecast.
Steady Your Cash Flow
According to The New York Times, more than 70% of a seasonal company’s income accrues during its busy cycle. During the strong months, you can prepare for a seasonal lull by creating a solid cash flow management plan that will ensure you can meet payroll and your bills year-round.
Build a reserve fund – During the months when revenue is down, a reserve fund can come in handy. Put away a percentage of your profits in a savings account that is separate from the checking account you use for day-to-day expenses. When it’s not as readily accessible, you may be less tempted to tap into it for unnecessary purchases.
Apply for financing – The busy season is also a good time to apply for financing for your construction business. A construction business loan, for example, can be ready and available to cover leaner times while you’re waiting for your next job to start. Applying at a time when you don’t need it will allow you to demonstrate the strength of your business in the midst of your busy season, and can boost your chances of qualifying for the amount you may need later.
Stay on top of your accounts receivable – You probably know all too well that the construction industry can have lengthy lag times between billing customers and collecting payments. Unfortunately, you may also run into issues where customers pay late or even default. The seasonality of the business makes it vital to be organized and proactive about collecting what’s due to you.
Use accounting and billing software – Following up on delinquent accounts is a necessary part of construction cash flow forecast management. When bills are past due, you may have to pick up the phone and follow up with customers; accounting and billing software can help prevent this. You can automatically track and send out invoice reminders, set terms and implement late fees to help encourage your clients to pay on time.
Maintain Working Capital
When you have a healthy cash flow, you create a safety cushion of working capital to help you keep up with daily operations, emergencies and improvements to your business. Working capital is important in construction because it allows you to confidently bid on projects and compete with larger companies.
What is seasonal working capital’s advantage in this case? If your quote is chosen for a big new project, such as a home addition or new commercial building, you may need to purchase materials to start the job. You can feel secure bidding on large projects knowing you have enough funds to acquire materials, upgrade equipment and hire workers while you wait for deposits to clear.
Apply for a small business loan – A loan can help fund your working capital and allow you to expand your operation in ways that enhance new revenue opportunities. For example, if you rent a certain piece of construction equipment frequently during your busy season, such as a grader or backhoe, it may make sense to purchase one using a construction equipment loan to cut back on rental expenses and lock in its availability. In addition to heavy equipment, you can use financing to upgrade office equipment or CAD software.
Prepare for the ups and downs – A large project may require you to add to your crew. Since the construction industry can have a high turnover rate, you will likely need to hire new workers during the season. In the meantime, you may need to provide your current team with overtime pay to keep pace with a job timeline. Having access to working capital can help you.
Maximize the Off-Season
Leverage your slow season – The off-season can be a great time to train employees, especially if you’ve purchased new equipment. A staggering number of workplace injuries occur within the first five years of employment, according to SFM, so having trained, experienced workers can be a big benefit to your business and protect your working capital.
Stay current with industry trends – Growing your business means you can use the off-season to attend trade shows. Understanding the latest construction methods and technology helps you compete in the field and stay relevant to your customers.
Network with other construction business owners – The off-season is also a good time to network. Sometimes you can team up with another company to bid on large projects where you each have a particular strength. Or you can refer work to each other if you’re too busy to take it on.
Work on your marketing strategies – If you use yard signs or door hangers, make sure they’re stocked up and current. You may also want to refresh your branding or add customer testimonials to your website from jobs you completed during the busy season. Having financing in place to fund these types of projects is a good use of working capital.
Identify areas to improve or expand – Conduct a season debriefing and solicit the input of your crew. They may have ideas on how to make job sites more efficient. If your workers are seasonal, this check-in will be a good way to stay in touch and make sure they’re engaged and want to return to work when the season starts again.
Review your suppliers and vendors – If it’s been a struggle to get materials delivered on time, you may want to research your options. Request quotes from several vendors and suppliers to make sure you’re being charged fair prices for supplies and services, like insurance.
The seasonal nature of construction can offer advantages, but what is seasonal working capital going to mean for your construction business? By maximizing the ebbs and flows you can compete with other local companies while delivering an exceptional job to your customers.
If seasonality hits your construction business particularly hard, a construction business loan could ease you through the peaks and valleys.