5 Costly Mistakes Construction Business Owners Make

5 Costly Mistakes Construction Business Owners Make

New construction business owners already know how to face risk head-on. They’ve risen through the ranks of a competitive industry and found the capital to start a venture of their own. However, with every business venture comes continued risk, and only careful planning and initiative will help you navigate uncertainty and thrive in the long term. Research shows the average rate of failure in the U.S. construction industry is 14%. Fortunately, savvy business owners can learn from others’ mistakes. How do you keep your company firmly rooted and growing in an ever-evolving market? Be mindful of the following five mistakes construction businesses make.

1. Keeping Unorganized Records

Businesses require lots of documentation. Construction companies are no exception. In fact, due to the complexities of licensing, contracts, and the paper-focused nature of the industry, you might end up swimming in paperwork before you know it. The biggest risk of unorganized record-keeping is a liability for construction disputes. A legal challenge could be possible even years after a project is completed. Without a clear record of contracts and change orders, you might be putting your business at risk. Record-keeping also matters for IRS audits and securing federal contracts.

Construction business owners should create clear systems for storing records. Where possible, digitizing records can help streamline storage and communication with clients. Many businesses have found digital project management an easier way to keep track of project concerns across job sites.

2. Not Investing in Growth

Are you conservative with your money management? There’s nothing inherently wrong with that, and it’s likely a big part of your success. However, it’s difficult for your business to lean into new opportunities and maintain success if you fail to invest in growth avenues. First, there’s marketing. Your business may have a reliable slate of happy clients, and many free marketing initiatives — especially referrals — can have a massive impact on growth. However, failing to invest in any paid advertising or digital marketing might leave money on the table. Your competitors are sure to swoop in.

Similarly, hiring can be a sticking point for growing construction businesses, particularly in a competitive labor market. Hiring can be taxing and expensive, but it’s essential for growth. Securing a new contract or taking on more clients will require people who are vetted, trained, and ready to go. The key to wise investment is keeping tabs on the metrics that matter so you know your ROI is worth the expense. Putting in the legwork to set up a working marketing campaign and develop talented people will help your business navigate unsteady waters and stay on top of industry changes.

3. Cutting Corners on Equipment

One of the biggest capital expenditures for construction companies is equipment. Specialized machinery is essential for many construction projects, but costs thousands of dollars you likely don’t have sitting in your bank account. Creating an equipment budget and maintenance schedule is essential for avoiding under- or over-investment in physical capital. First, consider the best ways to invest in equipment for your business. Some businesses find success renting equipment as they need it, particularly for more one-time projects where necessary machinery isn’t a staple of your fleet. Others aim to find reputable and reliable used equipment, keeping the investment affordable while still letting operations run smoothly.

Then, remember not to let up on equipment once it’s in your fleet. One mistake business owners make is forgoing the necessity of steady maintenance to protect investment for the long term. In order to maintain efficiency and reduce the risk of downtime, commit to inspection schedules and record management. If you ever need to sell your equipment, you’ll have a clear idea of its lifetime value at hand.

4. Taking on Bad Contracts

New construction businesses can fall into a risky trap. When you need new business to get off the ground, it’s more appealing to take on a contract that isn’t a great fit. Maybe the client is terrible to work with or the scope of the project will overextend your team. Or maybe the contract is just sloppily written, making financial and timeline details fuzzy. When you’re looking to grow, it’s critical not to get stuck in bad contracts. Even if it means saying no, being selective with your time and energy will ultimately take you farther. Always commit to a careful review of contract terms and take the time to address questions before starting a new project.

5. Poor Cash Flow Management

Finally, the last mistake construction businesses tend to make is related to all of the above: poor cash flow management. In fact, 28% of surveyed construction firms consider this the biggest challenge of their first year in business. Construction businesses can be cyclical. Over the course of a project, you may find yourself needing to cover funding for unexpected delays or new equipment investments before collecting payment. It can put a strain on your business if you’re not working with a manageable cash flow in these times.

Work with your accounting partners to streamline cash flow processes as much as possible. Maybe you can break down billing cycles into smaller, more frequent steps in order to reduce the strain of massive wait periods. You can lead on financing options to help navigate those ups and downs. With good money management, you know you will eventually benefit from the profit of a successful project — it just takes smart organization.

Construction Business Owners Mistakes to Avoid

The construction industry is unique in many ways, but it’s just like any other business in one important aspect — a well-developed strategy will take the company farther. You know you’ll never be able to anticipate every delay or economic downturn, but with good record management, investment in growth, and a clear vision, you’re more likely to thrive. Avoid these construction business mistakes to set yourself up for years of future growth.

Need a Business loan for construction to grow? Check out Capital for Business funding solutions or apply for a business loan today.


Author Evelyn Long






Evelyn Long is a writer and editor focused on home building and construction. She is the co-founder of Renovated, a web magazine for the home industry.


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