how to manage construction business

Construction businesses are probably one of the hardest types of businesses to manage.

 

We talk to dozens of hard-working contractors every single day and see it first-hand.

 

We’ve always wanted to point people in the right direction to learn more about how to manage their construction business the right way, but it seems most people that wrote those articles don’t truly understand how to actually run a construction business.

 

So, after being in the industry for so long and figuring out what really works and what doesn’t here are our 30 best tips and strategies for you to manage a construction business.

 

 

 

1. Create a Lead Generation System

 

Number one on our list of importance is building up your pipeline of leads.

 

Building leads is the fuel of your entire business. Without leads, you don’t get any projects. So, lead generation should be your #1 focus in running a successful construction company.

 

We have a great article dedicated to construction lead generation where we get into detail on the best ways to get quality construction leads.

 

The best two methods are:

 

Use Lead Generation Services

These include:

  • Construct Connect
  • The Blue Book
  • Building Connected
  • Dodge

 

The Visiting Method

 

Use Google Maps to find your ideal clients. Then visit them to introduce yourself. Collect their business card and ask to be added to their bid list.

 

General Contractors should target:

  • Architects
  • Commercial Realtors
  • Developers

 

Subcontractors should target:

  • General Contractors
  • Property Managers
  • Interior Designers

 

 

 

2. Outsource your Estimating

 

It’s not a mystery that the most time-consuming part of a contractor’s day and the business challenge to growing and managing a construction business is the estimating part.

 

Large companies have estimating departments. But what do you do when you’re a smaller contractor and you don’t’ have the payroll to hire multiple estimators and create a team?

 

You outsource your estimating to a company like ours that specializes in estimating.

 

We’ve crunched some numbers, and the average contractor is missing out on $20,000 per month in profit because they are missing out on bids and projects.

 

When you’re the owner of a construction business, you are wearing a lot of hats and you can’t focus on just one task like estimating. And even if you tried, your phone won’t stop ringing with issues onsite so you can’t even focus on an accurate estimate.

 

I get it. I’ve been there. That’s why we started I AM Builders. If you’re bidding 10-20 jobs per month or less, outsourcing your estimating is the perfect solution. It’s cheaper than hiring a trained estimator. If you’re doing more than 20 per month, many clients are using us an overflow. It’s a proven construction business model to outsource the estimating portion.

 

Either way, as the business owner, don’t do the estimating yourself. It takes you away from the sales and management of the business.

 

 

 

3. Use Estimating Software for your Budgeting and Bidding

 

Don’t bid by hand! This is old school, time-consuming, and extremely inaccurate.

 

If that’s how you’ve been doing it for the last 30 years, it’s time to upgrade.

 

First of all, as the business owner, you should not be doing any of the estimating. I mentioned why above. It takes away from you managing your business.

 

So this advice is for you to implement with your team: Use Estimating Software.

 

There is the takeoff part of the bid, and then comes the pricing and estimating part of the bid.

 

For the takeoff, which includes measuring the quantities, we recommend Planswift or Bluebeam. Both are simple to use and will dramatically improve your speed and accuracy.

 

For the budgeting and cost analysis, you can use Excel to prepare the spreadsheet. To obtain costs, you should use some of your own historical data that has proven to be successful. You can so combine that with Craftsman National Construction Estimator or RS Means to get up to date pricing.

 

 

 

4. Set up an Office For your Team

 

If you’re a smaller operation, or maybe it’s just you, you might not need an office. But if you’re planning to grow the business, you’re going to need an office.

 

Your office should be centrally located to where you typically work so you and your project management team can easily get to jobsites.

 

It’s also helpful to be nearby where your clients are in case they want to come by your office to discuss a project or sign a contract.

 

Keep your overhead low. If you’re just starting to grow, don’t go all out and get a fancy office. It’s unnecessary. Get the minimum of what you need at a cost that is affordable. Plan ahead so if you’re looking to hire 2 or 3 employees in the next 1-2 years, make sure you have the space.

 

In your lease, explore options for growth. Some landlords have larger spaces they can move you to once you start growing.

 

Invest in fast computers and software. You’ll need estimating software, PDF reader and editor, accounting, and construction management software.

 

Our recommendations are:

 

Estimating:

  • Planswift
  • Bluebeam
  • RS Means
  • Craftsman National Construction Estimator

 

PDF Software:

  • Bluebeam

 

Accounting:

  • Quickbooks

 

Construction Management Software:

  • Procore
  • Corecon

 

 

 

5. Hire the Right Construction Management Team and Office Employees

 

Invest in your office team. These are the people that are going to be running the high-level work of your business. You should not go cheap here.

 

As construction professionals, we tend to think of the field as the most important part of the work. But more important than the field is the guy sending the change orders, of the bookkeeper sending the invoice.

 

The key office team includes:

  •  Project Manager
  • Accountant/Bookkeeper
  • Office Manager
  • Estimator
  • Purchaser

 

For smaller companies, you can have the same person working on multiple responsibilities. But it’s critical that all of these get assigned to someone other than the owner of the business. Each one of these positions need focus and time. Business owners simply don’t have the available time to give each the time it deserves.

 

 

 

6. Delegate Everything You Can

 

As entrepreneurs, it’s hard to do this. “Give away control of parts of your business to other people??? Are you crazy?”

 

If you give people trust and responsibility, you’ll be surprised at how well they’ll do. If you give them a task and let it be known it’s completely up to them to figure out how to get it done, you’ll be blown away.

 

If your employees know you’ll solve any small hiccup they have, they’ll keep coming to you. So delegate in this case is “assign a task to someone on your team or company and have them complete the task without you involved”.

 

The key part of this is “you not being involved”.

 

As a business owner, you need to work ON the business, not IN the business.

 

Even I struggle with this sometimes. But I force myself to trust my team, trust my marketing and content team, trust my estimators and reviewing team.

 

I’m a perfectionist and it’s hard! But necessary. My team has blown me away every time I’ve taken a leap of faith and transferred responsibility to them.

 

 

 

7. Create Long-term Plans for the Business

 

Having a vision for your business is important if you’re going to have a goal of growing it. Managing projections and your future can be challenging.

 

This is one of the most important parts for any business. Determine the goal so you can make a realistic plan to meet the goal.

 

If you want to make $100,000 per year as a business owner, you need to figure out how many jobs that means you have to sell.

 

For example, if you’re profit margin is 20%, you have to sell $500,000 worth of projects. If each project is an average of $125,000 in contract value, you’ll need to sell about 4 jobs per year. If the average closing rate in construction is 10%, you’ll need to bid 40 jobs in the year. That’s only 4 jobs per month.

 

If you need help planning your business, we can help you with a short 30-minute strategy session.

 

 

 

8. Decide on a Specialty of Niche

 

Being known as an expert in a specific type of construction will give you the advantage over your competitors that are Jack of all trades.

 

For example, if you are a specialist in restaurant construction, you should focus your efforts in finding restaurant owners that need their restaurants built or remodeled.

 

If you are a specialist in office construction, then you should focus on that sort of work period this will give you the ability to charge premium rates and will give you more credibility than your competitor when it comes time to negotiate.

 

 

 

9. Set up a Powerful Sales Team

 

A great sales team can make or break a company. Most contractors are the only salesperson for their business and this will limit the amount of potential projects you can bid. This is the best way to promote a construction business, but building a team of sales people.

 

One of the strategies we always talk about is visiting clients and getting to know them on a personal level so that when it comes time to negotiate projects or get the inside scoop on a project comma the estimators and project managers can tell you what’s going on internally in the company in regards to that project.

 

By having a team of salespeople, your multiply your chances of getting good quality leads. If you are a solo entrepreneur contractor, focus on building up a large pipeline of leads comma and once you have the cash flow, consider hiring a salesperson that maybe can also estimate your jobs.

 

 

 

10. Use Digital Technology and Automation

 

With the advancements in technology, software companies are developing construction management and estimating software packages that you should be implementing in your company.

 

We’ve already talked about a few of them, and these would include estimating software, accounting software, CRM’s which are customer relationship managers, and construction management software to manage your contracts, RFIs, change orders, and your payment requisitions.

 

 

 

11. Hire the best Bookkeepers and “Moneypeople”

 

By far the most important part of your business is going to be the financial side of it. This includes the bookkeeping and accounting of your business.

 

Most contractors are doing their own billings and invoicing and this is a mistake because it’s hard to keep up with payments owed to you when you’re running around supervising jobs and trying to get future work.

 

As part of the management team, you should have a dedicated bookkeeper or at least have your office manager be doing and managing your finances.

 

 

 

12. Cash Flow is King – Use Construction Financing and Credit Lines

 

You can’t build if you can’t pay for materials and labor. Many banks and private lenders offer financing in the forms of credit lines they can offer you so you can implement in your construction business.

 

There are even special types of loans called bridge loans that will bridge the gap between the work performed and the check from the client. Oftentimes there is a waiting period of 60 to 90 days in commercial construction that you must float before getting your first check. This can stagnate a business from growing.

 

You should be keeping a reserve of capital in combination with credit lines and even investment funds.

 

 

 

13. Use Subcontractors to Finance the Project

 

If you are a general contractor, on commercial construction projects, you can actually have your subcontractors finance the entire project. This will virtually eliminate any risk in regards to cash flow that you might have on the project.

 

Subcontractors typically also have special terms with their suppliers so they’re only really needing to come up with funds for the labor. If you are a subcontractor, consider using piece-workers and charging your general contractor for mobilization.

 

 

 

14. Partner with a Lender to Offer Clients Loans and Secure More Work

 

For residential contractors, you might want to consider partnering with a bank or a private lender they can offer loans specifically for remodeling and home construction. This can help you secure more work because clients don’t need to have 10s of thousands of dollars saved in cash to do the project. They can just get a loan for it.

 

 

 

15. Hire the Right Field Supervision and Project Manager

 

If you want to maximize your profits on a project, hiring the right field supervisor and project manager will be the best decision you can make.

 

These are people that are experienced in construction, understand construction management principles, and are expert builders, and are able to coordinate and manage field crews effectively.

 

Our philosophy is that every single project should have its own field Superintendent or dedicated foreman, and a project manager should manage administratively multiple projects, but not be overwhelmed where they can’t focus on each project.

 

 

 

16. Have Great Customer Service

 

This one is a general principle in business. Customer service includes assisting the client with anything they might need, showing up on time, handling disputes very carefully, and using difficult situations as an opportunity to make the client a long-term happy client.

 

Your goal should be a client success rate of 100%. Not every client will be easy to work with, so make sure you are selective even with clients you will work with.

 

 

 

17. Be a Leader and Inspire your Team

 

A leader is one that will inspire others to follow them. this includes being understanding when people are late, have difficult personal circumstances that they can’t work at their 100%, and understanding when and how to discipline and correct employee’s actions.

 

 

 

18. Use a CRM to Manage and Track your Sales

 

A CRM is a customer relationship manager that helps you track your customers, clients, projects, and most importantly, your sales.

 

Most contractors are trying to remember everything without writing it down, or using their email as their To-Do List. As a busy contractor, it’s important to have all of your business activities logged and tracked so you can manage them.

 

A good low-cost CRM that you can use is Zoho. Other ones include Salesforce and HubSpot. But I think you will do well with something simple at least in the beginning, so Zoho is your best shot.

 

 

 

19. Invest in Professional Templates that make you Stand Out

 

Branding your business is very important especially when it comes to the professional templates you use. These include your change order paperwork, time and materials tickets, contracts, purchase orders, and any other document that you will be submitting under your company.

 

Hire A graphic designer to design your templates so you can look professional. You can do this on Fiverr.

 

 

 

20. Build an Impressive Website

 

Even though websites and graphic design has nothing to do with your ability as a builder, having an impressive website can help you win more clients more easily. The less work you have to perform to win a project, the more you can focus on the other aspects of the business.

 

You can hire a freelancer also at Fiverr to do this for you.

 

 

 

21. Hire a Marketing and Lead Generation Company

 

We have determined that if you are a residential contractor focusing on homeowners, you should be putting a good amount of investment in online advertising. The alternative to this is using HomeAdvisor where you can paper lead. The only downside of this is you will be competing with other contractors for the same lead.

 

If you do your own marketing, the leads you get will typically be cheaper than using a service and will be less competitive because it will be your lead alone. But, I’d still urge you to consider using a digital marketing agency that can help you with your website, landing pages, Google ads, and even Facebook ads.

 

For commercial construction, you can use one of the construction lead generation services above to help you connect with the contractors and architects that are bidding jobs right now.

 

 

 

22. Train your Skilled Labor Well

 

One key aspect of managing a construction business is training your field labor To work faster and better. A big aspect of this is hiring the right supervisors and for men that can train the crews in the field.

 

If you have a specialty yourself, consider investing a few hours per week training your people.

 

 

 

23. Use Piece-Workers and Subcontractors when Possible

 

Another effective strategy is going to be to use peace workers and subcontractors. A peace worker is a subcontractor you hire for his labor or just a portion of the project. A subcontractor typically performs the entire part of the projects for their trade.

 

A piece-worker might do just one floor while another company does the second floor. Like this, you can build at lightning speed without having to manage employees. You will simply be managing the companies you hire.

 

 

 

24. Rent Equipment instead of Buying

 

Whenever possible, rent equipment instead of buying. The only time you should buy equipment is if you are consistently using the same piece of equipment annual rental costs are much higher than the monthly payments for financing the equipment.

 

Keep the money on your side.

 

 

25. Calculate your Overhead Correctly and Add Costs to All Jobs

 

The correct way to calculate overhead is to take last year’s operating expenses excluding materials and subcontracted labor and divided by last years total sales.

 

For example, calculate the costs of all of your employees, rent, computers, subscriptions, utilities, and any other expense that is not directly related to a project. This is considered your overhead.

 

Overhead Percentage = Overhead / Sales

 

If your sales are $1,000,000. And your office staff, rent, and other overhead is $150,000, your overhead is 15%. Make sure to include 15% extra in every estimate you submit.

 

 

 

26. Don’t Take Projects with Little to No Profit Except to Invest in the Client

 

Not every project is considered equal. Only take projects that are profitable. The only exception to this rule is to take a project that a potentially large client might give you future work that is profitable.

 

 

 

27. Write a Detailed Proposal to Make Sure Everything is Covered

 

A detailed proposal is going to let your client know that you went through their project in detail and it’s also going to cover you for anything that you did not list so that you won’t be responsible for those items.

 

Many times clients expect something to be done and you might consider it outside of your scope. And when the payment time comes there may be an issue that the client feels like you did not complete what you committed to.

 

Having this in writing makes it very transparent and easy to avoid these issues.

 

 

 

28. Join an Industry Association Group from Credibility

 

Consider joining an industry association or membership of some sort. There are a few good ones like the Better Business Bureau, local and national construction associations. this will give you credibility when it comes to networking and your expertise with clients.

 

 

 

29. Keep Licenses and Insurance Up to Date

 

It’s critical to have your licenses and insurance up to date. Your city, county, and state will require you to have a license for the work you are performing. Insurance is going to cover you and your client in the event of an injury or unforeseen damage on a job site.

 

 

 

30. Plan Projects Ahead

 

The last tip I’m going to give you is to plan your projects ahead. Many times with the emergencies in construction , it is difficult to plan projects time to properly order materials and schedule the correct crews. You should be planning your projects at a minimum 2 weeks ahead.

 

And as a general contractor you should have hey construction schedule for the entire project. That way you can check on your progress periodically and see if you are on schedule.

 

 

 

Conclusion

 

Managing a construction business is very challenging. We’ve highlighted 31 ways you can manage and oversee your construction business so that it continues to grow.

 

We’ve covered important sales strategies, management principles, and overall structure to set up your company for success.

Daniel Quindemil

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Founder and Senior Estimator at I AM Builders