The Design Builder's Blog

3 Financial Strategies for a More Scalable Construction Business

As 2017 dawns, the outlook for the construction industry is optimistic. Despite setbacks experienced during the Great Recession, the industry is set to add 790,400 jobs over the decade of 2014 to 2024, accounting for the majority of new jobs in the goods-producing sector. Real output will grow 2.8 percent annually during this period. In 2017, total U.S. construction starts will increase 5 percent, reaching $713 billion, anticipates Dodge Data & Analytics.

For contractors, this is great news, but it also presents the challenge of scaling up to meet growing demand. Scaling up requires not only hiring more workers and buying more material, but also adjusting your financial strategy to cover your increased overhead expenses without hurting your cash flow and profits. Here are three financial strategies for successfully scaling up in 2017.

Scale up Revenue while Scaling Down Costs and Expenses

A scalable remodeling business model is designed to allow you to increase revenue while holding both job costs and overhead expenses down. To be scalable, your financial plan should aim for gross profit margins of 40 percent or more (minimum of a 1.67 markup).

To achieve this level of gross profit margin, one fundamental strategy is increasing your revenue. The key to increasing your revenue is improving your marketing and sales. One of the most efficient ways to improve your marketing is by improving your positioning through a better unique selling proposition (USP): a brief statement that summarizes what you offer customers that your competition doesn’t.

To refine your USP, narrow down your ideal target market. For instance, is there a certain neighborhood or a certain type of building that would be more profitable to specialize in? Research what your target market is most seeking in a construction contractor. For example, are they price shoppers or are quality or service bigger priorities for them? Craft your USP to emphasize what your target market most values and make sure all your marketing material reflects your new USP.

Along with increasing your revenue, the other half of keeping a high profit margin is keeping expenses low. Many construction businesses fail because they can’t cover the cost of overhead. Finding ways to reduce the money you must pay for running your business is key to minimizing your expenses. Taking the time to research different organizational charts, industry best practices, project management methods, business management software and employee compensation strategies based on performance.   Investing in these areas now can help your business reduce overhead through efficiency of operations as well as economy of scale as the business grows.

Maintain Efficiency through Automation

Another effective strategy to lower job costs is automation. Automation can help you lower the costs of materials by helping you plan more precisely to avoid unnecessary waste. J.E. Dunn has partnered with Autodesk and Microsoft to develop Lens, a cloud-based software tool that combines 3-D virtual modeling with instantly-calculated cost estimates for each component of your building project.

Although not common yet in residential remodeling, another way automation can help cut materials costs and waste is by using 3-D printing. 3-D printing allows you to select from a wider range of cost-efficient materials, while speeding up the building process. Last year, Chinese company Huashang Tengda was able to assemble a 3-D-printed house in just 45 days.  Remember, many said nail guns would never catch on!

Keep Costs and Expenses Down with Outsourcing

Outsourcing is another proven way to cut labor costs both in the field as well as the office. Many successful large companies outside our industry have used outsourcing effectively to streamline their labor expenses. For instance, Google relies heavily on revenue from pay-per-click advertisers who pay to have their results featured in search engine rankings. Maintaining its advertising revenue requires a large sales support team, which Google has outsourced. Amway is another company that outsources its sales, relying on a distributor model to promote direct sales.  In our industry many contractors already outsource activities such as design, engineering, building permit procurement, sales, lead intake and prequalification, RRP demo, specialty trades and even general carpentry.

As these examples illustrate, you can outsource functions that are part of your core business if it is more efficient to delegate them to specialists than to maintain in-house talent. For instance, there is no need to pay for the expense of in-house 3-D drafting when you can easily outsource it. With the right plan and system you can also easily outsource routine peripheral functions such as bookkeeping and payroll.

7 Ways to Use Mobile Technology for Construction

Contractors tend to have a practical approach to their work, and in a competitive market with many moving pieces and complicated projects, investing in the latest technology can help good contractors do their work better. In fact, 75 percent of small to mid-sized construction firms in North America have used a mobile device for work. Like any good tool, using mobile technology can make construction more efficient, accurate and cost-effective. Here’s how:

1. Attract More Clients

Building Information Modeling (BIM) has revolutionized the planning phase of construction, drawing in more clients because owners can understand the design better. This technology is quickly rising in prominence, and with it comes the client’s expectation that the outcome of a construction project will be clear to them from the very beginning. With programs like BIM 360 Glue, contractors and clients with a tablet can see a model come to life before their eyes exactly where they stand in the building.

2. Tracking Workers

Say goodbye to messy timecards, spreadsheets and wondering where your employees are when they say they’re working. With GPS-enabled mobile technology like ClockShark, construction workers can clock in remotely via a smartphone app. Location and hours are logged automatically, and administrators can save time spent managing payroll by at least 50 percent.

3. Tracking Equipment

Rather than digging through piles of equipment or replacing lost items, construction companies around the world now use RFID tags to find misplaced or stolen equipment. High value assets can be tracked remotely, and managers can see in real time where each piece of equipment or tool is located.

4. Increasing Productivity

Mobile technology gives construction professionals the ability to track orders, make phone calls, read emails and solve problems from anywhere. Workers can view client contracts, share blueprints or submit maintenance requests from a tablet. Managers can respond to needs as they arise, saving time and moving the project ahead at a faster rate.

5. Improving Communication

Mobile phones and tablets can be used for photo sharing and video conferencing with clients. Use an app to schedule meetings and sync your mobile calendar with your desktop calendar. Push notifications out to all of your workers when you’re on the job instead of wasting time returning to the office. The new Apple iPhone 7 is equipped with a 12MP wide-angle camera for top-notch photo and video quality and is both water and dust resistant, which can come in handy on a construction site.

6. Lowering Costs

Streamline processes with mobile apps and automatic notifications. Virtually eliminate data entry with mobile time clocks and job write ups. Use BIM software or a simple photo sharing strategy to ensure that your work is approved by the client at all times. This improved communication process will result in less reworks, which saves both time and money. That way you can save the company’s bottom line for the really important stuff: getting the job done right.

7. Capture Real-Time Analytics

If equipment, inventory, job progress and workers’ time are all being tracked with a mobile device, then it’s possible to obtain real-time analysis of how all of those moving parts relate to each other. Being able to respond to real-time analytics means that you can achieve great efficiency and more profits that much faster than your competition.

Construction is a large umbrella ranging from handyman projects to large, multi-funded developments. Some contractors are all tools and skill while others are masters of management and leverage. Fitting all of this under the single category of e-commerce is futile. To truly create a web presence, you need to know your marketing voice and develop your site around the things that drive your audience.

Expert Driven Design

Some people are selling themselves as experts in their industry. For this central marketing message, a blog may be the best. Blogs tend to be written in first or second person, using “me” and “you,” which automatically develops a bond between the writer and the audience. They are usually descriptive, telling the reader how and why something should be done. Take a look at the Amway blog as a good example of a business blog concentrating on industry expertise. Inc Magazine has some good tips for creating content for a great business blog as well.

The Supply Chain Site

In manufacturing, the supply chain is extremely important. The supply chain is the total process from inception to customer care, including suppliers, marketers and the title company that assists in closing. In construction, this is project management and some e-commerce sites use its unique issues as the driving message. An e-commerce supply chain site will be broken down into specific topics of project management. One section may have a supplier and a shopping cart for these items. Another section would have human resource information and your services listed. The idea is that the website will guide a user through the entire breadth of project development.

Product as the Traditional E-Commerce Website

When most people think of e-commerce, they think of Amazon with its departments and lists of item after item. If you are selling products, the traditional e-commerce rules apply. Your site needs to have an easily identifiable navigation bar and solid search functions. The images need to be clear and sharp, being part of a good preview system. Your descriptions should be both poetic and specific, enumerating the product specs in bulleted form. As part of a larger marketing plan, the site and every individual item needs to be easily shareable on social media.

Social Motivated Websites

Where some contractors are focused on their expertise, others are social and friendly, providing a marketing message centered on trust. In the construction industry, this is huge. A trusted contractor is worth his weight in gold. Like the expert site, the social site is content driven but here it is a dialogue instead of a monologue. It should revolve around active social media feeds that allow for a conversation format. A question and answer section will keep people on your site longer and keep them coming back, both being keys to successful e-commerce sales.

The Mix

The gut reaction is to try and do everything, but the reality is that you do not have experience in every facet of the construction industry. Your specialization should be reflected on your website. As your e-commerce site is developed, some things will be added while others will be discarded. A shopping cart is only useful for selling products but generally not for services. Just make certain the website can be shared on social media since it is a good source of marketing.

Contractors are joining the ranks of workers who bring their own devices to the workplace. A Texas A&M survey found that 72 percent of professional contractors now use smartphones such as the Samsung Galaxy S7 Edge at work, while 53.9 percent use laptops and 50.1 percent use tablets.

Mobile devices are assisting contractors in virtually every phase of construction, from finding clients and managing projects to making estimates and bookkeeping. Here are some of the top ways mobile technology is helping contractors on the job.

Any construction job starts with a client, and customer relationship management tools such as Improveit 360 make it easier to find and manage clients. The Improveit 360 app is especially designed with the needs of contractors, remodelers and home pros in mind. It includes tools for:

• Phone and email marketing
• Centralizing your incoming lead database
• Tracking and managing leads
• Preventing duplicate leads
• Appointment scheduling
• Sales

The bidding process is a big part of landing clients, and bid invitation apps like SmartBidNet are designed to make it easier for you to win projects. SmartBidNet provides a communications dashboard, where you can send, receive and monitor your invitations to bid. The app includes templates to help you:

• Formulate and start the draft bid process
• Customize subcontractor access options
• Share calendars to manage bid deadlines

Estimating is one of the most important and time-consuming parts of the bidding process. Construction calculator apps like BuildCalc make estimating easier by providing a spreadsheet-style layout, where you can enter and calculate bid data. BuildCalc comes with design layouts for different parts of a building to help you develop details of your estimate, material estimation tools and quick conversion tools for distance, area, volume, weight and angles.

With today's technology, digital building information modeling is the most efficient and least expensive way to plan projects. The Autodesk app allows you to do BIM from your mobile device. The app also helps you build more efficiently and cost-effectively by letting you create 3-D models of your building projects that you can rotate and even animate.

Once you start a construction project, use your smartphone to manage it through an app like Fieldwire, which is designed to assist construction managers and workers in the field. Fieldwire enables you to:

• Pull up blueprints
• Share files with your crew
• Create and assign tasks
• Track issues using photos from the field
• Receive notifications when tasks are updated

Safety comes first on any project. From a technology standpoint, the Safety Meeting app makes it easier for contractors to comply with OSHA safety meeting regulations. Safety Meeting allows you to:

• Schedule meetings
• Pull up safety meeting topics
• Document meetings
• Receive incident and near miss reports

The success of any construction project depends on accurate data collection, and field data apps like Canvas make it easier for you to collect the information you need. In addition, Canvas lets you:

• Create and fill out forms
• Capture photos
• Obtain GPS coordinates
• Perform calculations
• Send emails and files to crew members

Bookkeeping is a necessary chore for any contractor, and accounting apps like QuickBooks Online take much of the labor out of bookkeeping by letting you automate the most repetitive and tedious bookkeeping tasks. Use your mobile device and let QuickBooks Online:

• Manage your cash flow
• Send invoices
• Accept payments
• Scan receipts
• Make and record deposits
• Pay bills and expenses
• Create monthly statements
• Print or email reports
• Export data into tax preparation software

Software Expert Offers Advice For Owners Seeking Contractor Business Software

I recently did an interview with Forrest Burnson, the research expert at Software Advice, a company that reviews remodeling software and connect buyers with software vendors.  Here are my questions and Forest’s answers.   I hope you find them helpful.

Question #1:

Lots of contractors I work with and others I speak to are looking for an all-in-one solution for their residential remodeling businesses.   So far they and I have not found one that is really “All-in-one”.   Are there any true “All-in-one” systems out there for the $2M and less remodeling contractor?  If not, why not and what can business owners do?
 
Answer:
It's true that traditionally, there haven't been many "all-in-one" systems targeted toward small home building/remodeling firms. However in recent years we have seen a number of offerings pop up for this industry segment, and the older legacy vendors are also starting to target smaller firms. Now, the issue is whether these newer, cheaper offerings will have longevity in the market. There's always the chance of acquisition or the vendor going under, which might be a good argument to stick with systems that offer subscription pricing as opposed to a significant upfront investment.
 

Question #2:

Can you offer some advice and guidance to business owners who want to look into and qualify the appropriateness of software for their business needs?  Maybe offer a best way to get started?
 

Answer:
Well, I do have to plug our service here at Software Advice—we offer free phone consultations to prospective software buyers to help them find the best system for their needs. Always, always, always demo a system before making the commitment—and get people on your team to demo it too, if they're going to be working with it.

Question #3:

Many old school business owners are hesitant to consider cloud based programs, citing their concerns for access and security.   Can you offer some pro/con advice for business owners trying to decide between using desktop and cloud applications?

 
Answer:
While both offer their advantages and disadvantages, the trend is definitely toward the cloud. In the construction industry especially, there are so many benefits to the cloud—mobile access, more streamlined collaborative processes, typically better document control, etc. I do think there is a misconception that the cloud is not as secure—if the proper procedures are being followed, it's no more risky than a traditional on-premise system. That said, it can take more diligence to ensure that a cloud system is as close to 100 percent secure as possible (no system will ever be 100 percent secure). Lastly, in terms of cost, cloud systems will generally be cheaper in the long-run as you will have to invest less in hardware. 

Choosing the Right Tools and Technology for Your Construction Company

Question #4:

My experience shows that almost every remodeling business owner reinvents the wheel of doing business; therefore every one of them has a different business model to support.  This can make it difficult to find a software to support how they already do business.  Plus, setting up the software to support the business can be challenging because most owners of smaller businesses couldn’t explain in a logical order how they do business, it just happens.  Can you offer your thoughts on this reality as it relates to choosing software and getting help setting it up so it is actually ready to use?
 
Answer:
The way you describe how small businesses operate is pretty spot-on—there's going to be a certain 'method to their madness' as they grow, with ad-hoc solutions becoming their modus operandi. So there is a little give-and-take; no matter what, you will have to conform some of your business processes to jive with the software system you've deployed. That said, some of the more complex systems can be quite flexible, and the vendor will typically work with the client to customize the system to fit their needs. Those systems tend to be costlier, so again, it's a give-and-take situation.

Researcher Bio: Forrest Burnson is a Market Research Associate at Software Advice, where he covers the construction, inventory management and supply chain markets. He graduated in 2011 from the University of the South with a degree in political science and French studies. In 2013, he graduated from the University of Texas with a master’s degree in journalism. During his second year of graduate school, Forrest was a fellow for News21.
Prior to joining Software Advice, he was a writer and researcher for Global Water Intelligence. He has also written for a number of other outlets, including the Texas Tribune, the Austin Business Journal, Market News International and the Austin American-Statesman.

As Construction Recovers, Look at Business Operation Tools

The construction industry that drives so much of the contracting business is steadily gaining throughout the nation. U.S. News & World Report reports that new home construction grew almost 22 percent in 2014. Moreover, builders themselves are optimistic, according to the National Association of Home Builders, which reports its members have seen an increase in "serious buyers."

This is great news for the contracting business. But with the recovery still a bit fragile and lenders reluctant to release loans, smart contractors need to be able to respond to work requests quickly. This means working smarter, including the work that runs the business. Luckily, there are tools that can let them focus on their craft and leave the business end in responsible hands, too.

Outsource Complex Financial Tasks

Lots of small businesses, including many contractors, outsource accounting services like payroll and tax preparation. This is a smart move; tools like QuickBooks and NetSuite are constantly improving their services and lowering their costs. Even better, they are hosted online—in the cloud—so they can be accessed from any secure Internet site, reports Forbes. Online accounting services are very good choices for new firms and small ones that do not have a large enough accounting infrastructure to handle all functions and future growth. They're also heavily focused on security and maintaining backups of their own clients' data.

What about revenue management? This is not part of standard accounting services like QuickBooks. But managing your revenue is how your company stays afloat and can perform tasks like payroll and paying your own suppliers.

Customer management firms like Chargify have filled this important gap, providing clients from businesses of all sizes with online, cloud-based services that include:

• Accepting payments from several sources, including ACE, eChecks, PayPal, and credit cards.

• Issuing refunds.

• Emails to customers that handle electronic invoices and receipts, payment reminders, and upcoming credit card expiration dates.

• Coupons and discount redemption.

Best of all, these online services guarantee their accuracy and post solid customer ratings.

Go Online for Business and Legal Filings

Most contractors are small businesses but still have to file the same paperwork as the big guys. Unlike the big guys, they don't have in house attorneys and generally don't have time to run downtown to talk to a lawyer about filing for a business license or how to get a federal EIN.

Online legal services can help with the routine legal issues that don't involve the courts. Services like Legal Zoom and RocketLawyer provide small business owners with information and assistance that can help them understand how to address common legal topics that often arise in the course of business, such as:

• Whether to file as an LLC, partnership, or S-corporation.

• Steps to take to ensure corporate compliance.

• Debt collection advice.

Subscribers also get access to common legal forms like employment contracts, cease-and-desist templates, and nondisclosure agreements. On call lawyers are available to answer general questions around the clock.

Go Online for Office Software

Perhaps the biggest online industry is office products like word processing and spreadsheets.

Small businesses used to shell out a lot of money for office software and then spend more on antivirus software, backup systems, and of course upgrades. They don't have to do this anymore with online services from well-known companies like Google and Microsoft.

To get Google's free online office products, just open a free Google account which includes the famous Gmail email service and more free services:

• Online drive that stores virtually any kind of document uploaded to it.

• Word processing.

• Spreadsheet.

• Presentation slide.

• Forms.

• Drawing tool.

If you or your office staff can't live without Microsoft Office, the online Office 365 delivers the full suite of Microsoft products, including online meeting services, upgrades, and security. Prices start at $12.50/month.

Guest Blogger: Ruth Ann Monti is the founder of TimeStorm Communications, which provides original content, copywriting, social media and marketing services for entrepreneurs and small business. She lives with her son and two dogs in sunny Scottsdale, AZ.