Building a more profitable construction industry business
Marsh & Partners work with many successful businesses operating in the building industry. We’ve learnt that, while there are some factors which are common to all small businesses, the building and construction industry presents specific challenges. This article explores some of the operational and business focus areas for building a profitable business in the construction industry.
(Source: IBISWorld E3011 Construction in Australia, February 2017)
1. Improvements in demand over the next five years:
Demand for alterations and additions is expected to improve over the next five years, providing an avenue for industry expansion. Many of the industry’s small- to medium-scale businesses are expected to secure renovation work on existing dwellings. A projected increase in housing prices and solid economic growth conditions are anticipated to encourage households to spend on renovation work.
2. QLD and northern NSW projected hotspots:
Stronger housing investment is projected for the southern Queensland and northern New South Wales markets, particularly from 2018-19 onwards. This expansion reflects an anticipated recovery from the subdued construction trends that occurred over the past five years.
3. Profit performance is expected to gradually improve over the next five years, although competition is projected to remain intense for small-scale contractors, and in most regional markets.
Key success factors
The construction industry is dynamic in nature and successful businesses are those that have the flexibility to respond to market and environment conditions. The following key factors have a significant impact on how successfully a business is able to operate in a changing market:
- Having contacts within key markets
- Access to niche markets
- A good reputation
- Ability to compete on tender
- Access to a skilled workforce or subcontractors
- Monitoring finances closely
- Effective marketing
8 critical areas which will increase your competitiveness
1. Charge rates:
- Find out what other firms charge and assess if your charges are too low or too high in comparison.
- Implement a policy of quarterly reviews to maintain your competitiveness
2. Your good reputation:
- Positive client relationships and client satisfaction are essential to business success in this competitive industry.
- Excellent communication with your clients during the work process will give you the opportunity to resolve any issues that come up as well as an opportunity to nurture the relationship. Happy customers, who are satisfied with the quality of the work and your professionalism, are likely to recommend you to their friends and associates.
- Do you or your staff leave customers' premises in clean and tidy condition?
- How quickly do you respond to enquiries, quotes and jobs?
- Consider doing a follow up call on job completion to ensure the customer is happy with the work.
3. Minimising the cost of materials:
- Keep track of the materials you use on each job (even the incidentals) and ensure you are passing on ordering and handling costs to the customer.
- Can you negotiate better rates from a different supplier?
4. Improving staff productivity:
- Set weekly targets or expectations of chargeable time and communicate those targets with staff.
- Review actual performance weekly or at the end of a job.
- Identify 'acceptable' reasons why some time might not be charged and communicate this to staff.
5. Improving cash flow:
- Set clear payment terms and communicate them.
- Automate your invoicing and utilise mobile technology to invoice there and then.
- Consider incentivising early payment by offering discounts.
- Have a debt collection policy and adhere to it.
6. Increasing the average revenue per customer:
- Keep a customer register / database (to record work done, and other details about the customer).
- Inform existing clients of your range of services.
- Consider a 'check-up' service to identify potential problems before they become an issue.
- Connect with your customers on social media to keep your name top of mind.
7. Attracting new customers:
- Improve your online presence via a current website and active social media accounts.
- Develop your network of referrers (other trades, real estate agents etc).
8. Enlisting the help of a good accountant:
- As a business owner in this industry, you need more than an accountant who simply keeps score. A good accountant provides strategic advice and practical business solutions to give your business a significant competitive advantage.
Marsh & Partners combine industry knowledge with business expertise to help building and construction businesses operate and thrive. In fact, trade and construction businesses are one of our niche client groups and we have expert advisors on hand to help you with:
- QBCC compliance and audits
- Equipment and asset finance
- Cash flow and budgeting
- Asset protection
- Processes and procedures
- Management accounting
Helpful resources for the building and construction industry:
- Research, reports and surveys from Master Builders - https://www.masterbuilders.com.au/Resources
- Information for reporting requirements for contractors in the building and construction industry - https://www.ato.gov.au/Business/Reports-and-returns/Taxable-payments-annual-report/Businesses-in-building-and-construction/Contractors-in-the-building-and-construction-industry/
- ATO information on claiming work-related expenses - https://www.ato.gov.au/Individuals/Income-and-deductions/In-detail/Deductions-for-specific-industries-and-occupations/Building-and-construction-employees---claiming-work-related-expenses/
- ABS information on building and construction activity - http://www.abs.gov.au/Building-and-Construction
- Taking on an employee checklist - https://www.business.gov.au/Info/Run/Employ-people/Recruitment-hiring-employees/Taking-on-an-employee-checklist
- Customer service and consumer laws - https://www.business.qld.gov.au/running-business/consumer-laws