If there were one skill you could learn that would make you a more effective leader and business owner, would you invest in mastering it? Of course, you would! Active listening, the act of giving your complete, undivided focus to what someone is saying, can improve your workplace culture, help you build relationships with partners, and even help keep your employees safe.
Active listening is listening with 100% of your focus on the person who is speaking. It means paying attention to body language as well as what is actually said. Active listening exercises empathy and cognitive thinking, so you understand the issue from the other person’s perspective as well as your own.
Chances are you’ve wished someone else would practice more active listening, even if you didn’t know the literal definition. Have you ever tried to talk to a General Contractor or Project Manager about an issue on the job, only to have them constantly check their phone, cross their arms and sigh defensively, or interrupt you with what THEY think the issue really is? That’s the opposite of active listening.
It’s frustrating, right? When someone isn’t listening with intent, it can leave you feeling frustrated, ignored, and dis-empowered.
Now, can you think of a time when you haven’t given 100% of your attention to someone speaking to you? Whether it was a colleague, an employee, a spouse, or a child, chances are you left them feeling the same way you felt when you were the one not being heard. Frustrated, ignored, and shut down. Ouch.
Luckily, you can teach yourself to become a better listener. All it takes is a little bit of discipline, and a few helpful tips to get you started.
Active listening requires more than your ears.
Peter Drucker, the godfather of modern management thinking, has this famous quote about listening, “The most important thing in communication is hearing what isn’t said.” A lot of communication is actually non-verbal. Researcher Albert Mehrabian defined communication as roughly 55% body language, 38% tone of voice, and 7% actual words spoken.
If you’re only hearing the words, you’re only getting 7% of the conversation. That’s bound to lead to misunderstandings and negative emotions.
Active listening requires you to pay attention to the other person’s body language, the historical context around what is being said, and the emotional impact the topic has on the speaker. It means being an active participant in the exchange, gently challenging assumptions and offering new perspectives.
The benefits of active listening far outweigh the effort it takes to master it.
Active listening increases productivity.
If you successfully model active listening with your team, you can also teach them through example to actively listen to you and each other. When your team is participating in active listening, they understand and retain more information than when they are distracted. This increases the likelihood they can complete tasks with fewer questions, misunderstandings, and, most important, costly errors and corrections.
Active listening improves workplace safety.
It’s important for your team’s safety that they feel empowered to raise concerns, ask questions, and show vulnerability. Otherwise, they are apt to try and solve challenges on their own to the best of their ability. That could mean working alongside unsafe workers from another company, or failing to perform a task correctly because they didn’t ask for more instructions.
As the business owner, 100% of the consequences of your crew’s actions will fall on you. In order to keep them as safe as possible, you need to be 100% involved in the conversations and decisions that impact their safety.
When you create an environment of active listening, your whole team is safer. Team members know they can admit they have questions or are unsure of instructions. This level of vulnerability can, in and of itself, reduce workplace accidents. And, should an incident occur, active listening can help you quickly and more effectively gather information that will be important when it comes to the employee’s Worker’s Compensation claim.
Active listening creates a better workplace culture.
When your team trusts you to listen, their overall trust in your leadership increases. This can have dramatic effects on your workplace culture. Team members feel empowered to share ideas and solutions to challenges. You may find you have innovators and future leaders hidden among your workforce, just waiting for the chance to speak up and be heard.
Active listening is good for business.
One important piece of effective listening is creating a safe space for the speaker. That means putting aside distractions and, most important, your desire to speak. This requires a quiet confidence in yourself. You don’t need to rush to prove to the speaker that you know how to solve their problem. First, you’ll make sure that you understand the problem and how it is impacting the speaker.
This is an incredibly powerful tool in business. Most of us are in such a rush to answer the question, fix the problem, and close the deal, that we forget to pause and actually listen. This rush to a solution often comes with a lot of energy behind it, and the combination can quickly lead to misunderstandings and conflict.
Active listening, on the other hand, removes the conflict and focuses on creating an environment where issues can be discussed in detail. Solutions can come later. For example, let’s say you’re a construction subcontractor, and the Project Manager for the General Contractor on a job approaches you with an issue. They believe your crew carelessly disposed of excess materials and created a safety issue. You’re almost certain it wasn’t your guys.
You have three possible choices in how to respond:
Choice #1 Argue & Defend: This is the “brick wall” response. Refuse to listen to the other person’s point of view, shout down any arguments, accept no responsibility, and reach no satisfactory conclusions. Good luck getting the other person to listen to you when it’s your turn to bring up an issue.
Choice #2 Jump to a Solution: This is where you listen to the verbal problem alone, and you rush to solve the problem as quick as possible. Unfortunately, without understanding the WHOLE problem, you’re unlikely to solve it. Both sides end up feeling frustrated.
Choice #3: Listen with Intention. Listen carefully, paying close attention to body language and tone of voice. Let the other person talk as long as they need to. Ask clarifying questions, and respond first with empathy rather than solutions or defenses. When you choose this track, you show the PM, and the GC, that you will own up to issues you might have caused, and will help solve ones that you didn’t! That’s a valuable partner.
Now imagine the next time that GC sees your company’s name on a bid. They remember how you performed in a moment of challenge. Calm, confident, and willing to listen. You’re building a reputation as a trustworthy, level-headed, and collaborative problem-solver, just by listening with intent. Relationship-building is paramount in construction, and really just about every other industry, too.
5 simple tips for more effective listening.
Most people think they’re great listeners. They make eye contact, refrain from interrupting the speaker, and can recite back what was said. That’s NOT active listening. That’s basic listening. How much of what you heard did you understand? Did you communicate to the speaker that you cared about the outcome of this conversation? Did you help them find possible resolutions?
Here are five simple things you can do to become a better, more intentional listener.
Create a listening environment. When someone approaches you and asks you to listen, check to make sure you actually can at that moment. Are there distractions you will not be able to ignore until they are completed? Are you in a noisy work environment where you are likely to be interrupted? Show the speaker you care about this conversation by creating a time and space where you can listen free from distractions. If necessary, ask for five minutes to wrap up an urgent task that is likely to steal your attention. Then, close the door or walk away from the larger group, mute your phone, and focus your attention on the speaker.
Act like a good listener. Make sure your body language is relaxed and attentive, not defensive or distracted. Make eye-contact with the speaker. These actions send a signal to them that you are listening and sends a signal to your own brain that it is time to get down to the business of listening.
Listen with your eyes. Pay attention to the speaker’s body language. A lot of our communication comes from the way we act, rather than what we say.
Listen with your heart, too. Empathy is a key part of active listening. Understanding how the other person is feeling and validating that experience builds trust between the speaker and listener. It also helps you generate ideas later in the conversation that can solve the problem and neutralize potential negative responses.
Ask questions that prompt new lines of thought. A lot of people assume good listening means sitting quietly and saying nothing. But, that actually makes it harder for you to focus on and understand the concepts being presented. It’s better to ask clarifying questions and prompt the speaker for more details when needed. It helps you stay focused and lets the speaker know you’re invested in the conversation.
Asking questions is also an effective way to get people to challenge assumptions, consider alternative perspectives, and accept new ideas. Rather than telling someone what they need to do to solve a problem, ask questions that help them see the solutions for themselves.
Listening isn’t a talent; it is a learned skill that comes from discipline. It takes practice to become a habit, but everyone can do it. The potential benefits — a safe, productive, and happy team, as well as a positive reputation with business partners — make the effort well worth it.
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Trying to be a great leader can be like trying to catch lightning in a bottle. You can’t force it to happen. For many people, the mere act of trying to be a great leader — whether among your family, friends, employees, or colleagues — results in exactly the opposite. Leading is done through your actions and being who you say you are!
It seems counterintuitive, especially in a stereotypically alpha industry like construction, but one key quality of being a leader is your ability to be vulnerable.
Benefits of Being Vulnerable
Why should you embrace vulnerability?
Being vulnerable signals to others you value their trust and feedback. Trying to always appear as the dominant person in the room doesn’t always get results. In short, being vulnerable means understanding the other person’s point of view before being understood. Taking the time to listen — really listen — to the other person before responding with your own thoughts, opinions or agenda is a great way to start introducing vulnerability in your leadership style. When a strong leader embraces vulnerability in their approach they focus on solving problems and helping others achieve shared goals.
Here’s how showing vulnerability often plays out:
Employees feel more comfortable bringing you questions, which means they can learn faster and minimize mistakes.
Employees, contractors, clients, and others feel safe and valued, which increases loyalty and trust.
Other people will begin opening up to you, which allows you an opportunity to better understand and help them in ways you wouldn’t have known about before.
This approach may be a bit different at first, but over time, you’ll find that it takes less energy to listen and you’ll get better results than a defensive approach. And the result of showing vulnerability consistently actually leads to greater confidence for you as the leader in the long run!
Vulnerability is the Key Ingredient for Confidence
Have you heard of a B.S. detector? Just about everyone has one. It goes off when things are too good to be true.
Someone who claims to be able to do anything and everything, who always agrees with you, and who always has the answers to everything is not vulnerable. They’re full of it. You KNOW just by the way they talk and carry themselves that there’s something they’re not telling you, or that they’re missing something important because they’re trying so hard to impress you. No one has all the answers, and at some point, you can bet that those falsehoods will come through.
When you’re being straightforward about your vulnerabilities you actually show more confidence, not less. You stop worrying about hiding what you don’t know and focus on highlighting what you do.
True Confidence Drives Sales
Consider this instance: You’re the owner of a construction company that is typically a 1st tier subcontractor to a General Contractor. It is your goal to attract and retain successful General Contractors that you want to work with. Here are two approaches during a meeting with one of these potential GCs. Which one might improve your reputation and lead to long-term success for the company?
Your primary focus is on the overall price and you say, “I’ll get the job done in half the time for way less money than those other guys!”
“Yes, our bid may be higher than our competitors, but I’ve taken into account X, Y and Z factors that others probably haven’t already accounted for, and this will ensure we stay on schedule and everything gets done right. How do I know? Because I’ve made those mistakes before and I’ve learned from them.”
The first approach is cocky and filled with empty promises. Even if awarded the job, the general contractor may approach each billing with a particularly critical eye — encouraging the project manager and billing department to be extra cautious before approving payments or accepting proposed change orders. In the long term, this approach is destined for failure, conflict, and no repeat business opportunities.
The second option is humble, vulnerable, and confident — all at the same time. Having a hard conversation that your competitors are too scared to have can show value to the General Contractor. It sends a clear message: This person is experienced and is going to tell the truth even if it means losing the bid.
The thing is, the most confident people are willing to talk about their mistakes. Because they’re not LIVING in them. They’ve learned from them, and they’re not afraid to talk about it. They’ve learned by being vulnerable.
In a sales scenario, those who display confidence and empathize with the customer normally close the deal. The salesperson listens carefully to what the customer wants or needs and then coaches and guides the potential client to an outcome that they can be happy with and the salesperson can deliver on.
A good rule of thumb: A customer doesn’t have to know everything about what the salesperson is talking about, they simply need to know that the SALESPERSON knows what they’re talking about. (Again, the key is honesty and trust.)
You don’t know everything about your industry, your customers, or your employees. Being straightforward about your experiences, struggles and accomplishments — and open to hearing about theirs — gives you a chance to provide them with true value, or adjust your product to better meet their needs.
Rarely will someone open up to you or fully trust you if you don’t first practice vulnerability.
Leadership and Vulnerability
Vulnerability and all the qualities that go along with it can make a huge difference for your life, both personally and professionally. Exhibiting vulnerability through honesty, active listening, and transparent communication makes you a better boss and leader. It fosters respect and loyalty. It builds trust and strong relationships with clients, vendors and other external partners you come into contact with.
And when something does go wrong and you own up to the problem, you’ll find that people believe you when you say you’re going to make it right.
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If you build your website to drive business, it can. You may be thinking, “I construct buildings, not websites,” but getting this essential business asset up-and-running isn’t as difficult as you may think. If you don’t have one, or yours hasn’t been updated in years, we’ve compiled a guide of tools and resources to get your company’s online storefront current.
Content Is King
From search engine optimization (SEO) to driving calls to action, your website is only as good as the information you give your clients. There are necessities, and there are some things that can only elevate your online presence. Make your content––in this order––easy to understand, informative, and engaging.
Pages You Have to Have
Homepage: Your homepage is like the cover of your construction autobiography. This is a chance for you to give an overview of your brand, your mission, and why folks should work with you instead of your competition.
Contact: This one is pretty self-explanatory. Don’t make your customers hunt and peck to reach you. Make sure your phone number, contact forms, and emails are easily accessible throughout your site.
Services: Expand on your specialties and what you can offer for each project. Use synonyms and alternative keywords for your business’s services so your site will populate on search engines.
Work/Portfolio: The proof is in the pudding. Your clients want to work with professionals who have a history of a job well-done. This is your chance to show beautiful photos of completed work with descriptions on the scope of each project.
About Us: What makes your company special? How long have you been in business? Why should someone trust you with their budget? This is a great place to expand on your company’s history, accomplishments, and experience.
Nice to Haves
Video: Consider a video message to a future general contractor on your home page. This is your chance to introduce your business and separate yourself from the competition. Keep the video under two minutes and speak to your audience as you would during a pitch. List why your organization is the right fit, what clients can expect from your business and your employees, and expand on the quality of work and innovation you will deliver.
Blog: This is a great space to share tips and tricks for your customers and trending news on your industry. Write press-release style articles on your latest projects, introduce new team members, or announce groundbreakings. Blogs all contribute to the SEO content of your website and help more searches lead to your site.
Careers: If you are constantly hiring subcontractors or project managers, this is a great page to direct those looking to apply for work, collect applications, and expand on your company culture.
Safety/Standard Operating Procedures/Core Values: As a commercial construction business, it’s important to explain why your organization excels at not only quality work, but the safety and treatment of employees. Allow your clients to see the professional level of labor and care that your business would apply to any project.
Client Testimonials: No one can brag on your business quite like a happy customer. These can be tucked into different pages of your site, displayed on your footer or homepage. Get as many client reviews as possible and utilize these within your future blogs and social posts as well. Here are some great examples of what makes an effective testimonial.
Creating Your Website
There are a ton of all-in-one solutions for domain purchasing, website design, and website hosting. Many of these offer free trials so that you can drag-and-drop your logo, pictures, headlines and paragraphs where you want them, with on-demand customer support ready to help when you need it. Some of the most widely used web design platforms include Squarespace, Weebly, Wix, WordPress or Google Sites. Pricing can vary from low one-time fees to monthly subscriptions.
Selecting a Domain
Your domain is your url––your address––to your website. The “your business” in www.yourbusiness.com. Make sure yours is unique to your business and is easy for your customers to type and remember. Consider how it will display on your print materials and advertisements.
Using Templates
The layouts provided with the out-of-the-box website solutions make piecing together your website information super-easy. Pre-designed sections allow you to effortlessly edit and upload your content without knowing any programming languages or coding. Most templates are mobile-friendly and adjust to small screens without any extra steps from you.
Working with an Agency
Websites are like cars. The standard package is fine for most businesses. The all-in-one website solutions can give you a crisp, clean website, but if you’re looking for customization and something to make you stand out from your competition, an agency may be the way to go. Web designers and developers know the best practices and standards to ensure your site is accessible to all of your customers. Copywriters can ensure your information is engaging and SEO-friendly.
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What should you do when a General Contractor refuses to pay? This is an all too frequent situation we hear about from our subcontracting clients. The consensus is clear: Everything would be a whole lot easier if the general contractor would just pay on time. Does it ever feel like they’re almost trying to make your job even harder than it is?
Remember, You’re On the Same Side.
I’m going to level with you. Most subcontractors with this mindset are leaving out an essential fact: The general contractor was hired to get the job done, and they hired you to perform work needed to get that job done. Remember, the Owners must make payment to the GC’s before they can pay you! Rarely are they sitting on your money and just choosing not to pay you.
In short: You’re in it together.
Think about that. The work gets done right, and you both get paid. The General Contractors don’t want to stand in your way, because that wouldn’t do either side any good. The GC wants to pay you the money for your work, even though it might not feel that way.
Are there bad GCs out there? Yes, but they are very, very rare. It’s unlikely a General Contractor refuses to pay you out of sheer spite. For the most part, the General Contractor wants you to perform the work, complete the project, and be ready for the next one. Your performance is the GCs #1 concern.
The General Contractor wants to invoice the project; you want to invoice the project. The GC believes in your ability to do the work — that’s why they awarded you the job. Everybody wants this project to be successful. You share a goal.
So, rather than complaining about it, wishing this wasn’t the case, or fighting with a GC, face the problem head-on.
Solve the Business Problem.
So let’s take a step back. You’re still in a situation where you are owed money that you need.
You’re in the middle of a dispute, a change order, or a similar issue, and the general contractor is holding your payment back. Think about it from their perspective in order to find a solution.
If you remove the anger and financial fear from the situation, you will find a cleaner route to solving this problem. Remember that no matter the solution, you’ll need to follow through on your end of the deal, staying focused on the details and deadlines that you and the general contractor agreed upon in your schedule of values and contract.
Be clear, be honest, and focus on the solution, rather than trying to place blame. This isn’t a matter of Good vs Evil, or Right vs Wrong. The vast majority of general contractors aren’t going to just refuse to pay their subcontractors.
Going forward, are you creating this stress for yourself? Is there a better way? Yes, there is.
Solve for the Future by Planning Ahead.
Subcontractor disputes with general contractors often arise as a result of a misunderstanding or misalignment between two things: Change Orders and / or the Schedule of Values.
Change Orders
Did you do a bunch of work on a change order? Change orders get paid when they’re documented, signed by both parties and approved by the owner. You must understand when you do any work outside of your scope without a signed change order, you are at risk. That’s okay if you’re trying to build a relationship and show value. But do your due diligence. At a minimum, put it in an email to the following effect: “I was asked to perform X, which is outside of the current scope. If you agree, I’ll send a change order and get started right away.”
If they ask you to do work and there is a disagreement as to whether it’s in the current Schedule of Values, then you need to get a change order immediately or come to an agreement with the GC before you start the work or realize you are at risk of not being paid for it. It may be an uncomfortable conversation, where you feel like you’re pushing back on a project manager that you want a good relationship with. But it doesn’t need to be that way. Approach your general contractor or project manager with the mindset that you’re in it together. You both want to be paid, and you need the proper paperwork documentation in place just like they do, in order to avoid issues down the road. After all, disagreements, later on, won’t do either of you any good.
Schedule of Values
Your Schedule of Values needs to align with your job costs. You need to be able to invoice at least as much as your costs are every month. For example, if you have $100,000 in job costs in the first month, you need to know if you are going to complete and bill $100,000 worth of work? If you don’t account for these details and have the ability to stick to your Schedule of Values, you will likely find yourself coming up short.
Unfortunately 99% of the time, subcontractors find their relationship with their general contractor turns sour due to financial strain and stress. Proper planning, communication and having the right resources will be your safety valve in those situations. Completing a Project Cash Flow projection for each job during the bidding process can help you to stick with your Schedule of Values and foster a positive relationship with the general contractor.
Click here to download a free project cash flow sheet
Click here for the Cash Flow instructions
When a Contractor Refuses to Pay, Remember Your Shared Goal.
So, what happens when the general contractor refuses to pay? Breathe. Just because you have accrued costs, doesn’t mean you’re entitled to your first payment yet. You know the General Contractor needs time to complete their pay application process before the owner issues payment to them and they can issue your payment. Making sure your invoices and paperwork are done properly and on time will help, and responding quickly to any questions from the general contractor will help to secure faster payment.
But in the meantime, do you have other jobs that will cover your immediate expenses? Can you negotiate with a vendor to secure better payment terms? Do you need a line of credit or other capital to make sure you have the financial cushion you need to complete this project without fighting the GC? Having access to the cash you need through a line of credit or other appropriate funding solution can allow you, the subcontractor, to focus on doing great work, building great relationships and having less stress overall.
Click here to learn more about project or contract financing for subcontractors.
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When is it Time to Get Funding for Your Construction Project?
The commercial construction market rises and falls with the global economy, but a few trends remain the same. One trend that continues to march forward and increase in importance is environmental stewardship. Green materials, green buildings, and green development strategies all play a role in the design process. More commercial clients demand it, and developers and architects are happy to oblige.
Here a few common trends in green commercial construction that are here to stay.
Solar Design
Commercial construction developers are increasingly having to factor in solar energy to their design strategies. One town in Massachusetts even mandated the use of solar power for all commercial buildings greater than 10,000 sq. feet and residential buildings that house more than 10 units.
There are several ways to incorporate solar energy into construction design. Along with the traditional rooftop panels, developers are also using passive solar design to consider how they position their buildings and design their windows. Through passive solar design, buildings can stay cooler during summer or warm faster in the winter, depending on the climate. Keeping this information in mind can help builders who want a positive environmental impact without investing explicitly in solar panels.
Zero-Net-Energy Buildings
Solar panels are meant to reduce dependency on coal and natural gas-based energy providers like state and municipal energy companies. However, solar panels alone often can’t produce enough energy to completely meet a commercial building’s needs. To achieve this, developers need to invest in energy efficient lights, appliances, and infrastructure in order to create a zero-net-energy building.
A zero-net-energy building (often called a zero-energy building) only consumes as much energy as it can produce. This is achieved through solar production and efficient appliance investment. Having solar or being efficient isn’t enough. More clients want their campuses to be zero-energy so they can reap the positive publicity that comes with it.
Municipalities Are Embracing the Architecture 2030 Challenge
Architecture 2030 is a challenge to create new buildings with zero carbon emissions and to improve existing buildings to the point where they cut their carbon emissions in half. The concept has been adopted by various towns and cities, including the 2030 District in Seattle.
If more municipalities adopt this challenge, commercial construction companies will need to step up. Contracts will go to green-forward companies in town who can keep up with the 2030 Architecture goals.
IoT Makes Remote Management Easier
The Internet of Things (IoT, big data, AI, etc.) are changing building management. Site managers are able to:
- 1. Find inefficiencies
2. Optimize buildings to reduce waste
3. Identify problems in real-time
It’s not uncommon for commercial construction companies to include IoT products in the development process, but these features also have a green element. The better buildings can run, the less energy they use, moving them closer to the coveted zero-energy status that more clients are asking for.
New Materials Are Still in Development
One of the biggest challenges that commercial construction companies face is keeping up with the latest technology. The green materials that are cutting-edge now will be replaced in the next few years. So many people are working to create green solutions – affordably – that there will be a boom in materials options in the next few decades.
This is good news and bad news for developers. On the one hand, going green will be easier in the future. But in the short run, companies will need to spend more to use what they have, and the solutions they use now will be considered outdated as new products hit the market.
Commercial construction developers who stay on top of the latest trends can take steps to meet the needs of their clients. As our society becomes more environmentally conscious, more people are going to request these features or rely on their developers to have the know-how to create a green building for them. You can use your green know-how and the financial support of Mobilization Funding to make these goals a reality.
The modern construction site looks different than it did 20 years ago, 10 years ago, and even 5 years ago. Technology and industry trends are driving developers to do things differently, from changes in high-level planning to finding ways to detect minute leaks. Check out these top six constructions trends that are changing work sites in 2019 to get a glimpse into what the future of development looks like.
Adoption of Artificial Intelligence
There are several AI tools that construction firms can use to improve their building processes. AI has been used to prevent site accidents through temperature and movement monitoring, identify problems like water leaks, and alert workers to unsafe conditions. Through sensors and data collecting, AI is the future of safe construction.
Increased Drone Use
Construction is one of the fastest growing markets for drone users. In 2017, drone use on construction sites skyrocketed 239% compared to the year before, beating out mining, agriculture, and surveying. Developers use drones to check the site progress, make estimates, and capture footage of the construction process over time.
Continued Investment in Construction Tech
Drones and AI aren’t the only tools construction companies will soon have at their fingertips. In the first three quarters of 2018, construction tech firms raised $1.27 billion, a 124% increase on the funds raised in all of 2017. Expect startups across the country to try and “disrupt” construction sites with new processes, materials, and gadgets.
High Potential for Infrastructure Spending
Both Speaker of the House Nancy Pelosi (D-Calif.) and President Trump have said infrastructure investments, from road improvement to high-speed rail, are priorities for their agendas. This could mean big contracts for some companies and demand for construction work as a whole. As long as infrastructure stays a bipartisan issue, there are potential opportunities on the horizon.
Gen Z is Entering the Workforce
Workplaces across the country are becoming more diverse in age, with more than 75% of managers saying they lead a multi-generational team. Generation Z is now starting to enter the workforce, these are workers born between 1995 and 2010, or people age nine to 22. These workers are digital natives, meaning they are more familiar with technology and look for employers that give them opportunities to learn and grow.
Knowing these trends can prepare you for future changes to your work site. You can use the best tools possible to finish your projects quickly and on budget.
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Due to the inconsistent nature of commercial construction, it is essential to build a healthy profit margin into each of your projects, and to know what the breakeven point is that will determine whether each job ultimately finishes with a profit or a loss. The key is to properly run the numbers, being as specific as possible with your job costing, overhead costs and the project’s payment schedule.
Is your commercial construction business profitable? For many commercial construction companies, the answer is “Yes, I think so!”
It can be stressful to take a full look behind the curtain of your finances, especially if you are worried that your profit margin is thin or non-existent. But identifying red flags is important to preventing job delays, payroll shortfalls or as the owner, finding yourself unable to take home a paycheck.
Note: Whether you’re starting from scratch or taking a fresh look at your finances, user-friendly accounting software such as QuickBooks can simplify the process as you estimate and track your costs.
Step 1: Tally Job Costs
The first step in calculating profit margin for your commercial construction project is to generate a list of your job costs, including:
- – Materials
- – Payroll – (Direct labor and Subcontract labor)
- – Bond premium
- – Permitting
- – Equipment
Job costs should be broken down for each project and then married up to the job’s overall schedule and built into your business’ budget and cash flow planning. Make a note of when you will need to order some of those materials (lead times can be long for some things), when you will be invoicing for those materials and labor, and how long until you will be paid. Be sure to account for retainage.
Step 2: Verify overhead
To calculate your business’s overhead, generate a list of all bills and expenses outside of your job costs that are needed for your business to operate. These typically include:
- – Rent or mortgage payments
– Payroll for office-based support staff
– Insurance (General Liability, Workers Comp, Vehicle, etc.)
– Company vehicle payments
– Website costs
– Phone bill(s)
– Owner Salary
– Outstanding debt payments
Overhead should be broken down on an annual and then monthly basis so that the costs can be included in your bids for new projects. For example, if your annual overhead costs are $100,000 and you have one contract that will be your primary source of revenue for six months, you should add $50,000 to your bid amount to account for overhead during that time.
Step 3: Crunch the numbers
Using your bid amount and the values you calculated in Step 1 and Step 2, complete the following formula to see your net profit and margin:
Questions about estimating markup and profit margin? Check out our free guide!
Download a free copy of Margin versus Markup.
Step 4: Look for Improvements
Don’t stop at the first calculation. Knowing that delays and other issues may arise, rework the numbers until you are confident in your bid amount. Again, knowing where your breakeven point is on the job will allow you to know what type of delays and / or other issues you can handle and still be profitable.
Having a complete understanding of your profit margin can allow you to make adjustments that allow your business to function better, such as negotiating better payment terms or lower retainage with your general contractor. In turn, that means getting out of debt, confidently investing in new equipment, hiring more qualified employees, and bringing home a steady paycheck for yourself.
Step 5: Rinse and Repeat!
This process should be standard for each of your jobs, and the numbers should be revised and adjusted as each project progresses. Inevitably, some projects will be delayed or drawn out, unforeseen expenses may arise, or perhaps your estimates were off in some way. The more you get into the habit of working through the numbers and recalibrating your bid estimates, the better you will get at it, and the better your business will operate.
Are you still unsure of your profit margin, or are you in need of additional capital to fill the gap before you receive payment on the job? Mobilization Funding’s knowledgeable team of experts can help. Contact us today for a free consultation.
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If your company has more than a few employees, your revenue is growing, and you are juggling multiple jobs, it’s probably time to hire your own construction accountant, preferably a Certified Public Accountant. A good accountant often pays for themselves in a relatively short amount of time. After all, finances need to be current and accurate in order for you to stay on top of your accounts and plan for growth.
Hiring an accountant can save you time
Hesitant? Consider how much time you currently spend per week on payroll, sending out checks and keeping your accounts in order. What else could you be doing with that time? And how many times has something slipped through the cracks—like a late payment to a vendor or the IRS? Even once is enough to prove why hiring a CPA is a good idea.
A construction accountant can organize your company’s financial documents
No matter the industry, there are a handful of basic financial records that your company should maintain and pay attention to in order to operate efficiently. These barometers will reveal whether your company is making a profit or operating at a loss.
If you don’t know where your company’s financial information — like monthly accounts payable, accounts receivable, quarterly Balance Sheets, Profit and Loss Statements and other standard financial reports — are kept, or if they’re out-of-date or not organized, the right accountant may be your company’s new MVP.
Beyond creating an orderly archive of financial documents, a bookkeeper or CPA can dig into those numbers to identify strategies that can improve your company’s profit margin, eliminate debt, invest in future growth opportunities through strategies like increasing your prices, reducing overhead, or making other changes to your day-to-day operations.
Pay your taxes correctly and on time
Filing and paying taxes in a timely, consistent manner is an unavoidable piece of running a legitimate business. And the risks of incorrectly processing that paperwork are numerous and costly. Failure to do so can result in expensive fees by the IRS, plus automatic draws from your account to repay any unpaid taxes. An accountant will keep you in the IRS’ good graces.
Avoid costly overdraft and other avoidable bank fees
Bank and overdraft fees is not only a slow leak on your company’s bottom line — they’re also a tell-tale sign of financial problems. These fees and the underlying issues causing them (lack of organization, communication problems, etc.) will likely prevent you from qualifying for lines of credit or low-interest loans in the future. If this is a reoccurring issue, consider it a clear sign that you need help managing your cash flow.
An accountant can improve your business growth strategy
Are you passing up on growth opportunities due to a lack of capital? If your business has been approached to take on larger or more lucrative projects but you have turned them down due to financial uncertainty or issues with debt, it is likely time to find a financial expert who can help you to better direct your company to the right track.
How to find the right construction accountant
If you are reading this article, then by now you know it is time to take action. The next step is finding the right person for your business. Here are a few pointers:
1. Research candidates online. There are many websites dedicated to connecting employers and job seekers, such as ZipRecruiter.com, Glassdoor.com or even LinkedIn. Simply enter your qualifications (feel free to compare the requirements of similar businesses) and connect with local applicants.
2. Enlist help from a staffing agency. A temporary staffing agency in your area can place an experienced person with the right qualifications for a temporary amount of time, permanently, or a temp-to-permanent arrangement. While they charge a premium rate, this may be the best option for a business owner who doesn’t have time to weed through applications, order background checks or conduct initial interviews.
3. Reach out to trade associations. Your local chapter of the Associated Builders & Contractors (ABC) or similar agency like the Construction Financial Management Association may be able to connect you with viable candidates who is familiar the construction industry and would best fit your needs.
The bottom line: Your commercial construction business needs, and you deserve, a financial expert’s help.
You should be doing what you do best: focusing on growing your company and properly completing your jobs on time and on budget. Company owners are often reluctant to let go of finances, but the truth is that construction accountants understand your industry and are trained to look for inefficiencies, find other lending options, and help you to more efficiently run your company. Just remember that as the business owner, you should continue to review your financial position with your accountant on a regular basis.
Is your business getting ready to bid on your next big project? Contact us today for a free business consultation or click here to learn about how a financial capability letter could help give you a leg up on the competition.
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