5 Things Every Contractor Should Consider When Starting a BusinessOct 10, 2022
It's no question that starting a business from scratch is a tough endeavor. For your organization to be successful, there is a lot you need to consider. Construction and contracting businesses are particularly challenging for many reasons. Multiple moving parts are involved throughout each project. A lack of financial organization, ineffective marketing strategies, labor shortages, and client disagreements may contribute to a business's struggles. For young companies, developing effective organizational strategies is key when building a foundation. Many successful companies develop these strategies over time through trial and error. However, many also go under before they get the chance.
If your company is new or struggling to get things together, there's no need to stress. Take a look at the following five methods to incorporate when starting your own business to make sure you're on the right track from the start.
#1 Cost based estimating
For a construction project to be successful, your business needs to ensure it has all the materials and labor necessary for the job. Cost based estimating is a budget planning process that takes into account both the direct and indirect costs of a project. This assures that any additional charges are considered ahead of time, allowing you to estimate the financial commitment you can handle before taking on a new project.
#2 Cost codes
Cost codes are a great tool when financially organizing projects. They allow you to link cost amounts with specific materials and processes. Once you have accurately created cost codes based on material manufacturers and labor rates, you can automatically link them to projects. Line item everything out so you can track the costs. This will facilitate the process of cost based estimating. You need to be able to compare materials against materials and labor hours against labor hours to determine your company's actual profit. Additionally, update your cost codes regularly to ensure they are accurate when taking on each new job.
#3 Document every single conversation you have with a client
In the construction industry, everyone is nice and friendly until it's time to pay. If the customer requests a change on a project or has a question, keep it on record. Do this regardless of the length of your conversation. Changes made over the phone should immediately be put into writing. All you need to do is send a quick email to confirm any agreements. This will help protect you in the case of any potential financial or legal disputes down the line.
#4 Be prepared not to get paid
Due to the nature of construction, financial dishonesty can be a common occurrence. You must always plan ahead and prepare for the worst. You may find yourself in a situation where your client refuses to pay either partially or in full. In these cases, there are legal actions you can take. However, as a precautionary measure, never take on jobs over your budget. Legal procedures take time. You don't want to put yourself in a position where you are in debt and unable to fulfill other professional commitments.
#5 You have more overhead than you think
The cost of a project goes far beyond materials and labor. Insurance, social security, and tax payment are all necessary. Regardless of their size, these overhead expenses add up and must be tracked and incorporated into the budget.
#6 Pay yourself
Finally, your time and labor are valuable. As the company owner, the effort you put into administrating, evaluating, and accomplishing company tasks is essential for the company's success. Pay yourself the salary you would pay someone with a similar skill set to do your job.
Consulting services, such as the ones offered by Broven Consulting, can be an amazing resource to get your company organized and on track. Visit their website here to set up an appointment and maximize the potential of your construction company.
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Owner: Mariah Bowen