construction industry Archives - Mobilization Funding

Today, we are going to talk about a variety of alternative lending solutions and why they exist. Why this topic? Well, the construction industry is dynamic, as you know, and one day, the likelihood is pretty high that you will need some type of financing. Given the state of how contractors get paid and payout, traditional lending sources and loans don’t always work. As we review this, don’t assume needing lending options for funds is a bad thing! One of the most common mistakes business owners make is to view debt as a thing to fear rather than as a tool for growth. The reality is plenty of business owners borrow money not because they need it to survive but because it is the smartest way to capitalize on an opportunity, run the business, or manage the cash required to operate the business in the most effective way.

Financial lending solutions are not one-size-fits-all. In order to build a financial plan that will allow you to run the business and support your plans for growth, it is important to use the right funding option for each opportunity. Using debt or other financial instruments for those purposes is excellent; however, oftentimes, business owners find themselves taking on debt to fix a problem or series of mistakes that were made instead. In these situations, debt can also be good and certainly can make the business owner and business feel a lot better, but it still may not be what the business needs to grow. Here is a list of alternative lending solutions your company can take advantage of, when it is best to use them, and when it is not.

The first option is the Traditional Bank Line of Credit (LOC).

This is the gold standard in lending. If you have a bank line of credit, your company has solid financials and a proven track record of performance. You can use the money for anything, including financing the upfront expenses of a new job. Lines of Credit are meant to give you access to cash when you need it and then be paid back down when you are paid for the work you do. A bank wants to see the LOC drawn on and paid back down frequently. They do not want to see it used like a long-term loan. That means using it to bridge the gap in times when cash is needed is ideal. Making payroll every week before you are able to invoice a project, paying the supplier bill that is due this week but you will not receive your payment for that material till next month, or investing the cash needed into some pre-construction work for a new project, you will not be able to invoice for 30-60 days. The downside to an LOC is this: The size of your Line of Credit is typically determined by your past 24 months’ financial performance, not the next 24 months.

If you are growing fast, you may outgrow your line of credit and need other lending options to support your growth.

Next is the Small Business Administration or SBA Loan. This is a long-term loan from a bank with an SBA Guarantee. The first thing to know is the SBA does not issue loans, banks do. What does a guarantee mean? Basically, it means that if the loan is made to you under certain terms and conditions that the SBA approves in advance, they will guarantee some portion of the loan the bank made to you. In the event you don’t repay the loan, the bank can go to the SBA to be repaid a portion of the loan (typically 80%). These are often easier to acquire than a bank line of credit IF you qualify as a small business. For commercial construction, the SBA defines a small business as one with no more than $39.5 million in average receipts. The loans also have maximum loan amounts and terms for repayment that need to be considered. SBA loans also require a LOT of documentation, and you need to find the right sponsor (i.e., bank) to make it happen. The biggest downside in terms of growth is that once you hit the cap, you no longer qualify.

Another option when looking at alternative lending solutions within the construction industry is Invoice Factoring. Simply put, invoice factoring is a way to use the Accounts Receivables (the money you invoice your customers and they owe you for the work you performed) of the business to generate cash by selling those invoices to a factoring company. The factor will give you an advance on the amount that is owed to you (usually about 80%), and then they will wait for your customer to pay under the normal terms of payment. When they receive payment from your customer, they will take the fees that are owed to them and then remit the balance to you. This process can be repeated over and over each time you generate an invoice for your customer(s). While invoice factoring shrinks the time between when you invoice and when you receive some cash, it doesn’t get you funding before the work starts. While financing your company between payments is absolutely a normal part of the construction industry, many subcontractors and general contractors have a negative perception of factoring. There are several reasons why general contractors have a negative view, but the most common reason is it affects the contractual terms they have with you in the subcontract agreement and their ability to set off payments that are owed to you. When a factor purchases a receivable from you, they typically will require that the invoice is verified. The process of verifying that invoice involves the GC certifying they do, in fact, owe you the money invoiced and that they will pay that invoice when it is due and in full. It’s that step of verification that the GC typically does not like as it removes their ability to set off that payment in the future should they want to, based on something related to your performance on the job, a negative change order, or one of your vendors is required to be paid.

Similar to factoring, there are asset-based lines of credit. Like invoice factoring, an ABL line of credit can regulate cash flow by speeding up the time between invoice and payment. This allows you to have more cash in hand to run your project and overall business. For both invoice factoring and ABL credit, you need to make sure you aren’t paying for future growth with the money you need for present demands. This is one reason we recommend setting up a dedicated payroll checking account, keeping your operations account for just the operations of the business. Invoice factoring and ABL lines of credit require great administrative capabilities in your business and financial discipline. When you receive money from your invoices, it is critical to make sure you use the funds for the project you were advanced on—paying the subs, vendors, and suppliers when you are paid. Maybe you don’t pay them in full, or you provide partial payments, but nonetheless, the money you receive is marked for specific job-related costs, and if you use the money for something else, you will not have that money 30-45 days later when it is time to pay them, and that can be the cause of major issues for you on that project. Then those major issues can carry over into the main business!

As much as I don’t think this next option is one of the best alternative lending solutions for construction businesses, we must also address the Merchant Cash Advance option. These have nearly ZERO benefit to construction contractor’s plans for growth. In fact, these high-risk cash advances can destroy your ability to get paid for the job you’re on now and crush any dreams of future growth. These are the daily or weekly payment “loans” that have been out and available for the past 10+ years. You can get funded very fast, in just a matter of 24-48 hours, and the deposit will come straight into your business operating account.

Here’s how they work: The MCA lender will assess the number of deposits and activity you have in your checking account on a monthly basis and then provide you an “advance” on those future deposits. They then add their advance fee to the amount that is being advanced to you (for construction that fee is typically between 33% – 50%). The repayment of the advance is typically between 6-12 months. I am here to tell you as clearly as I possibly can this is NOT a financial product for construction contractors.

Last but not least, a loan program designed specifically for construction contractors, Mobilization Funding!

This loan program is designed to help a company execute the work they have available to them by providing access to cash at the start of a project or contract. When the company has revenue in the form of a contract, purchase orders, or a service agreement, Mobilization Funding can help them. These alternative lending solutions provide the money needed to pay for labor, materials, or other project-related costs before the company invoices their customer. This allows the company to get started on the project in the most efficient manner by removing the barrier of, “Do I have enough cash to do it the way it should be done?” They can get on a project with the right amount of labor, order the materials needed in the best form and timing, use the right equipment, and so on. That means You, the business, can do the work in the most efficient manner and not lose sleep about how you are going to make payroll each week or pay the vendors, subs, and suppliers.

This construction financing program was built to help you grow. You can confidently bid on bigger projects because you know you won’t have to finance the labor out of your own pocket. You can take on the extra work without putting a financial strain on the business but still do the work and grow the business. The Mobilization Funding loan structure is designed to be paid back as you get paid on the project.

Having a financial partner can greatly improve the strength of your company. A financial capability letter from that partner will also improve your bid, winning you more work.

Mobilization Funding’s client service and project funding partners work with their clients to align your repayment plan to your pay apps, minimizing the strain of repaying a loan on top of managing your business. Finally, they have a network of experts in industries like insurance, legal, equipment, and more who are ready to help when clients have a question.

All of these alternative lending solutions can help your business go from surviving to thriving, but remember, understanding your cash flow cycles to incorporate repayment of borrowed capital will also be the key to its success!ng the right talent this industry desperately needs.

In November, much of my Mobilization Funding team and I attended The Dirt World Conference in San Antonio, Texas. It was an opportunity to join together, get educated and begin to strategize on some of the latest trends in construction! The focus of the meeting was really centered around the industry’s greatest resource — its people. Aarron Witt, CEO or as he calls himself, the Chief Dirt Nerd, has “studied” the Dirt World’s trends for years. The most common trend every construction company is talking about right now is their largest resource and asset, their people!

One of the single-handed biggest problems in the construction industry, if not the biggest right now is the recruiting of young new talent to the workforce! Unfortunately, the construction industry is on the brink of a crisis, and one day, I fear we won’t have the workers needed to save cities from destruction!! Nearly half of the current construction workforce is expected to retire within the next decade, creating a massive labor shortage. The U.S. will need millions of skilled workers across sectors like housing, infrastructure, and renewable energy. Without an influx of young talent, essential projects like roads, homes, and disaster recovery will be delayed, harming communities and the economy.

Today in the United States, Millennials and Gen Z make up the next generation of the workforce, the working class as we may call it. They are the generations born from 1981 to 2012. They are now in high school or college, or already in the workforce. With this generation it is crucial they see the opportunity beyond the traditional path of a 4-year university degree, then into the corporate business world. Or white-collar work.

Unfortunately, there are some misconceptions associated with the career path in the skilled trades – that is, “blue collar” work. The problem is young workers just aren’t interested in construction. Studies say almost NONE OF THEM want to join the building trades. Yikes! Together we need to come up with a way to establish this essential industry as a pathway forward for our country, and for others to desire this career path as a means to build their own American Dream.

In Aaron’s visits across the world, analyzing, watching, and working alongside various construction companies and contractors, he has found a series of actions that companies do well and set them apart from those that are struggling or even failing. The biggest differentiator with who has the best talent lies in LEADERSHIP. Much like other industries, what holds many people back and stifles careers in construction is often the lack of leadership, a failure to focus on people and culture. These are the essentials that breathe life and longevity into a business, and if they aren’t at the top of the priority list, the ship sinks. People and leadership are the most important asset of every business! If our goal is to attract and retain the next generation of workers, we may need to adjust our thought process and what our culture needs to look like. So, what does America’s youth want in a career? Forbes Magazine reports that nearly ALL of them say it’s important they feel valued, included and empowered at work. This is information none of us can afford to overlook! Regardless of your job title, everyone can be a leader!!! You 100% have the power to impact another person’s life and career just by asking questions, giving advice, and caring.

Since the construction industry is constantly evolving, driven by innovation, environmental concerns, and shifting market demands, staying informed about emerging trends is crucial for businesses seeking to stay competitive. The rise of construction tech is also a big trend in the construction industry and is reshaping how projects are managed and executed. From robotic usage, AI (artificial intelligence), Building Information Modeling (BIM) to drone mapping and 3D printing, finding ways to adopt these technologies not only streamlines processes, reduces waste, and improves safety, but also gives the construction industry a hand up in the recruitment process of young new professionals to the workforce who are interested in careers with technology!

With current environmental, resources, and global changes, finding and reusing resources continues to be another common industry trend. Sustainability remains at the forefront of the construction industry. Companies are increasingly focusing on eco-friendly materials, energy-efficient designs, and renewable energy integrations. Techniques like net-zero energy construction, the use of recycled materials, and green certifications (such as LEED) are becoming standard. By finding solutions and opportunities for sustainable solutions, companies achieve long term cost savings, reduced environmental negative impacts, and increased project values!

Another topic that was mentioned at the conference regarding current construction trends was the emphasis on employee training and safety.

With an increased focus on safety, companies are implementing new safety technologies and rigorous training programs. Wearable tech, such as smart helmets and vests, monitors worker health and improves on-site safety. These are important attributes that can also help recruit the next generation of workers.

Additionally, we know turnover can be a common trend in the construction world, one major factor that is contributing to turnover or lack of job satisfaction is training! It is so important to take the time to train your employees. It doesn’t have to be fancy; it just needs to have some time, focus, and energy put into it. Any one can train! The benefit on construction is so much of it can be on the job training!

One last final discussion around trends and problems in the construction industry was mental health. Believe it or not, construction has one of the highest percentages in drug and alcohol abuse, depression, and suicide rates! Mental health issues are vert prevalent in the construction industry. Here are some statistics and more information that can be found written by Sara Lorek:

With numbers like these, we can’t afford not to make this a priority and something we begin to change! As we all know the majority of the construction workforce is males, and males are less likely to admit struggling and even less likely to seek help. This industry is stressful, the expectations are high, and layoffs are sometimes unavoidable. No longer can we assume everyone on the job site is in a healthy state of mind. Our workforce needs to start looking out and supporting one another and companies would benefit from offering confidential help and support to those who need it!

The industry is at a pivotal time, strong LEADSERSHIP qualities will be essential, from there, balancing innovation with environmental responsibilities, with proper safety and training, and last but not least mental health, problems in the construction industry can begin to be resolved and positive impacts can be made in attracting and preserving the right talent this industry desperately needs.

Within the construction industry, there are several myths I would like to bust! One of them is to change the negative perception around taking out a loan or needing funding! As businesses start out or begin to grow and scale, obtaining additional financing or securing small business construction loans to support cash flow to take on new projects and get mobilized with labor and materials should be seen as a strategic and smart move, as long as it is executed correctly!

Having a solid financial partner can strengthen your business and set you up for success far into the future. Whether you have been in business for years or just starting out, focusing on the financial aspect of your business should be one of your highest priorities. One of the first steps in securing a loan for your small construction business is setting up a relationship with a bank. This is not just opening a bank account – which, yes, is part of it! But the first part is opening a bank account at a bank where you can speak to a live human who understands your business, your industry, and your goals. That is the foundation of being able to gain access to capital and a future lending program.

To obtain a strong lending or banking partnership, it will be imperative to get your financial documents in a clean and manageable order. You can do this in a number of ways, but I highly recommend finding a good accountant and solid tools and resources to manage your cash flow.

According to the SBA (Small Business Administration), only 13% of loan requests were approved at big banks in 2021. That leaves the alternative and private lenders to fill the gap. “No one should be everything to everyone.” Banks and lenders all have their own specialties and consumers they can best support. That is why in the construction world, we have to think “outside the box” and really focus on the relationships we cultivate with one another. We need to find unique lenders to partner with us for financial support and ones that understand construction, our challenges, and what it takes to be successful in the industry. By the way – this means the same for me at MF. If the average bank doesn’t like the construction industry, they definitely don’t like a private lender to set out making small business construction loans to contractors in the industry. My advice here comes from first-hand knowledge and personal experience.

What does it mean to be bankable? A “bankable business” is one that has a strong focus on some of these key areas:

A solid financial track record highlighting your ability to be profitable
Stable and predictable cash flow that is efficiently managed and supported through clean financial documents. Your cash flow reports should allow the business leaders to predict, estimate, track, and execute a variety of financial decisions in order to continue to grow and protect your business. Your financial documents include tax returns, income statements, and balance sheets.
You should care about your credit reputation, as it demonstrates your integrity and discipline in repaying loans and paying bills on time, which ultimately lowers your financial risk and can reduce your cost of borrowing money.
Lastly, you want a relationship oriented, dependable and knowledgeable leadership team who will make responsible decisions, display honesty and trust, and continuously build strong relationships to grow the integrity of the company with a variety of business partners.

When opening a bank account, you will need the following, so be sure to keep these documents in a safe and easy-to-locate place:

Articles of incorporation
Proper forms of ID like driver’s license for any owner of 25% or more of the business (and spouses)
Operating agreement (shareholder, K1 schedule)
Evidence the business is in good standing with the state in which they are formed (this can be done through your state entity search)
Business Profile- Which is an application highlighting what your business does, what it sells, where you are located, who you sell to etc.

This may sound like a lot, but it is in fact easy to do as long as you spend the time to organize it and manage it! Securing small business construction loans when needed for a construction business can be beneficial in multiple ways, as it provides the capital necessary for growth, stability, and operational efficiency.

First and foremost, it can help with your cash flow management. Construction businesses often face fluctuations in cash flow due to project-based revenue cycles, seasonal slowdowns, or delays in client payments. A loan can cover operational costs—like payroll, materials, and equipment—during these periods, ensuring the business can meet its commitments without interruptions. This stability helps maintain credibility with clients, suppliers, and employees

It can also allow you to build your business and invest in equipment and technology to best serve your business and client’s needs. Construction requires substantial investments in specialized equipment, vehicles, and technology, all of which may be necessary to stay competitive. Loans allow businesses to invest in updated machinery or adopt new technologies, such as drones or construction management software, without depleting cash reserves. These investments can improve efficiency and reduce long-term costs.

Lastly, securing small business construction loans can help you scale and expand. Securing a loan can empower a construction business to take on larger projects, enter new markets, or add to its workforce. Having access to capital can be pivotal when bidding on significant contracts or taking on projects that require upfront expenses, positioning the business for future growth and new revenue streams

Ultimately, a well-structured loan can enable a construction business to grow steadily, navigate industry-specific challenges, and stay competitive, all of which contribute to its long-term success. The largest takeaway from this should be number one, it is ok to take out a loan, and number two, ensure you keep good records and organization of your financial records!

America was built upon the foundation of freedom seekers. Our forefathers were able to create this country from their bare hands, paving out the roads to begin their journeys, building the homes to house their families and constructing the buildings that became their towns. The America we look back on was beautiful, intricate, and strong. As generations have gone on, our culture has evolved. Technology has advanced our world, expensive material costs outweigh the quality of materials used, and most importantly, the reduction of skilled, motivated and passionate people in the workforce required for America to continue building has dramatically impacted our world! With the next generation of youth reluctant to get their hands dirty, and nearly 40% of the current construction workforce predicted to retire in the next decade, we have a huge labor shortage crisis on our hands. Without construction workers, how will we solve traffic problems, build up new infrastructure to support growing populations, or repair homes after catastrophic storms damage cities? Is the future of the construction industry destined for destruction or prosperity?

No one has a crystal ball, but if we look at statistics, construction projects around town, or talk to young students exploring their future career, the answer may be scary, BUT with some changes there is an opportunity to change the tides and build America back up again!

1.) We need to work together to help change the perception of what a career in construction is really like

2.) We need to work with business partners to make building costs more affordable, but do so without jeopardizing quality craftsmanship and materials, and

3.) We need to embrace technology in a way that helps us drive efficiency and sustainability for the future!

The construction industry, for many, is viewed as a “second” place option they must go when they failed on a “traditional” pathway, or that it is a “less than optimal” line of work, somehow less noble than that of a college-educated person in an entirely different field. The truth is, they are wrong, and we need them to know that. The construction industry is a place the smartest and most aspirational people should gravitate to. This industry has more, or as much, to offer than any other industry. After all, where else can you enter a workforce with a clear path to making a 6-figure salary, transition to any aspect of business, or even in the same role but to a larger company, or start your own business to perform the work you have learned? The stories told about the construction industry oftentimes paint an incomplete picture. Telling the truth about this industry, that this career is a pathway to the modern “American Dream.” This American dream spirit will hopefully always imply a way for Americans to achieve success, through hard work, opportunity, but while “Marriage, owning a home, and having children are lower priorities than they were in the past. Being happy and fulfilled and having the freedom to make significant life decisions top the list of important elements of the American Dream of today’s young people.¹” Attracting the new generations to this dream through construction will help bring itself back and at the same time attract the next generation into prosperity to ensure growth in the future of the construction industry.

In order to maintain the building demands our culture has placed upon us, we are in dire need of retaining and recruiting the next generation of workers to continue rebuilding America. We need to focus on educating, training, and attracting people to the construction world. We need them to know how this career path can benefit them AND impact the world in which they live. We need to talk to them about how much money they can make at every level or position. We need them to know what it looks like to have a career path in construction – how they can transition it from laborer to manager to executive to owner. We need to tell the truth and reverse the stigmas associated with failing construction businesses. The only way they can see this is if we join together and share the stories and fruits of their labor. We must talk to other people about the good work you do, bring young people out to the job sites, let them test drive the excavator, and see the world from the roofline of the skyscraper that has been erected. We need people outside of construction to do their part too!

Next, we need to blend practices of the past, which gave the construction world a solid foundation to build upon, where pride went into everything that was touched. Don’t you agree that buildings built 100 years ago have a different look and feel compared to what we see today? When I pass by our courthouse downtown which was started in 1899, I am still touched by its beauty, radiating in formality, simplicity, order and tradition.

It was the effort and labor of construction workers that foster all of this history that still stands today. As we look at growing cities, new structures seem to be going up as fast as possible and many look like a standard box, some being complete eye sores. Moving forward, we need to combine tradition with modernization in order to continue to prosper into the future. It is no secret that the cost of materials and the speed at which structures need build is a major factor affecting this, but it can be overcome.

We need consumers, developers, environmentalists, lenders, banks, elected government officials, and of course developers to be proactive and change the expectations. We must stop just trying to mass produce buildings and place new infrastructure with the cheapest and lowest quality materials, not to mention the design and architecture of the structures and buildings. It would be impossible if construction companies, developers, and architects refused to change their ways, but if they are willing to be strategic and use modern materials, it is possible with a technique called “retrofit architecture.” Blending the old with the new, ultimately sustainably supporting our American legacy. A fantastic example of this can be seen in NYC with Alpolic Metal Compositie Materials, which were used in a new NYC wearehouse project in the Chelsea neighborhood.

“The Warehouse project has stayed true to the heritage of the building while infusing elegance and modernity. It is a marvel and a true study of mixed material use that has created a new icon in New York’s Chelsea art district. It stands as proof that bringing older buildings into the modern era doesn’t require a total tear-down. Retrofitting can often provide a fresh new life at significant cost savings. The goal was to maintain the historic integrity of the original structure while creating an environment inspired by innovative technology and materials, designed to support a modern way of living and working.²”

As you look around different cities and towns across America, the historic buildings look vastly different than most of what is built today. The buildings and infrastructure of the past have definitely weathered some storms, but they all seem to stand the test of time better than some of the eye sores often built today. I know, I know, easier said than done, especially since higher quality typically comes at a significant cost, and reality proves not everyone can or will pay the premiums. Which brings us to another potential challenge for this industry in the future, inflation. This obviously will impact every other industry, and is not just unique to construction.

As we discuss rising costs, controlling prices and decent interest rates, the economy plays a huge part in this, and it is hard to control. Construction contractors are then impacted by the bidding process, which also has a direct correlation to business cash flows on projects and profit margins to keep them afloat. With so many drivers affecting inflation within the construction world, the future will be dependent on elected officials both at the local, state, and federal levels that will help prevent inflation from rising. There is no crystal ball or safeguard for this, so contractors should plan accordingly for the future.

One thing to focus on for the future is to ensure you don’t place all your cards in one basket when it comes to suppliers. Focus on building strong and trusted relationships with multiple suppliers, so you can expand your network and have options in challenging times. The other thing to do is ensure you have strong records of your financials and cash flows. In fact, according to SCORE, “82% of all small businesses fail due to cash flow problems. When money gets tight, paying yourself, your bills, the payroll and other financial obligations can be extremely difficult. This is why companies of all sizes keep a close eye on cash flow, or the net cash and cash equivalents currently flowing both in and out of your business. ³” When money gets tight, paying yourself, your bills, the payroll and other financial obligations can be extremely difficult. This is why companies of all sizes keep a close eye on cash flow, or the net cash and cash equivalents currently flowing both in and out of your business. Mobilization Funding’s entire business is set up to help construction and manufacturing contractors stay cash flow positive. There is a plethora of resources and a free online cash flow tool to keep track of all your individual projects cash flows. In keeping strong records and understanding exactly what cash is moving in and out of your business, it will help you make informed decisions like which projects to take on, and which ones to say, “No” too. The future health of the construction industry will be dependent on these businesses staying afloat. Additionally, with high interest rates and inflation rising it’s becoming both more challenging and more necessary to secure funding – not a great mix huh? As a result of this contractors are taking on projects where their margins might not be as high or they don’t have the best cashflow structure, but they think winning a bid will help put more money in the bank. This strategy is actually a recipe for disaster, as not taking into account the costs of completing those projects will leave them in the red, well into the project and trying to dig themselves out. Strong records of financials and thoughtful selection of the projects they take on based on their cash flow situation will help make them bankable in the future. Mobilization Funding is structured precisely so that our loan programs provide funds according to the contractor’s cash flow cycles. Money is provided when gaps in cash flow appear and repaid back when the contractor is paid, and the cash flow is positive. Contractors having a strong grasp and understanding the their financial structure and cash flow cycles of their projects will help sustain the industry and defy the odds of failure for the future to come!

Finally, the construction world must be able to embrace and utilize technology to increase efficiency and find more sustainable ways of building that will also ensure protection of the environment for the next generation. One way that technology is helping to make construction more sustainable is through 3D printing and prefabrication. “3D printing allows for components to be printed directly from digital models, eliminating the need for traditional manufacturing processes. This not only reduces the amount of energy and resources used in production but also increases accuracy, leading to fewer errors and less waste in excess materials. Technology will help play an important role in creating new materials to aid in construction materials. Marsh says, “Expanded use of robots and machine-assisted applications can help revolutionize the construction sector.⁴” Robotics don’t have to replace our skilled workforce, but they can help make them more precise and efficient. For example…. What if all of the younger generation knew that Bulldozers, Excavators and other Heavy Equipment can all be operated with GPS and Robotics now to ensure that what they are trying to accomplish is done within a matter of inches and even millimeters. That dirt in one very precise spot can be picked up and dropped in another very precise spot at certain and specific grade that was determined in the office. Don’t you think those facts might be more appealing to the younger generation when they are considering a role in the construction industry? Technology has opened countless opportunities for making construction more sustainable in the long term, by streamlining processes and utilizing fewer resources than ever before possible. This will dramatically affect the way we continue to build when needed.

Whether you are in the construction business or not, everyone can make an impact! It is time to do your part! In doing so, America will have the talent and manpower it needs to embrace technology in construction, to seek out sustainable methods to help protect the environment, to value quality materials over cost or quantity, and help preserve the greatest country on Earth! It will give the next generation the opportunity to work hard to create something new, to reap rewards, and to achieve the American dream this country was founded upon.

References:

1. (Wilson, 2023 https://www.closeup.org/for-young-americans-the-american-dream-resonates-differently/).

2. ALPOLIC. “Can Classical and Modern Architecture Coexist?” https://www.alpolic-americas.com/blog/can-classical-and-modern-architecture-coexist/.12/6 /21. Aug 7, 2024.

3. Sutter, Brian, SCORE, The #1 Reason Small Businesses Fail – And How to Avoid It, https://www.score.org/resource/blog-post/1-reason-small-businesses-fail-and-how-avoid-it.

4. Plan Radar. “ Technology is Paving the way for Sustainable Construction.”

https://www.planradar.com/ae-en/technology-is-moving-construction-towards-sustainablity/#:~:text=3D%20Printing%20and%20Prefabrication,less%20waste%20in%20excess%20materials. Jan 2023. August 7, 2024. the construction industry as a whole.

There’s one word that has been popping up for a while now. Inflation. Inflation is the rise of materials, labor, and equipment. Not only does it raise costs, but it also heavily impacts the bidding process and cash flow on your projects. What numbers worked then don’t work now, and being adaptable to inflation is critical for your business, especially construction inflation.

Inflation is also impacting your team and their families. As a business owner, team leader, or even if you are just leading yourself, it is a mistake to underestimate the impact this can have on your team or individual performance.

Key Drivers of Construction Inflation

Material Costs: Volatility of prices for steel, lumber, concrete, and copper.
Labor Costs: Skilled labor shortages and state minimums driving up wages.
Regulatory Changes: Compliance with new regulations increasing expenses.
Energy Prices: Higher fuel and energy costs affect operations.

Think about the impact these things can have on someone’s ability to do their job? For sure, it does not make their job easier, and it is likely making it harder. This could lead to someone feeling less confident, insecure, or unhappy. These are traits that could potentially lead to mistakes.

Why Inflation Matters for Bidding

Accurate bidding is essential for profitability, and construction inflation directly impacts the bidding process:

Cost Estimation: fluctuating prices make accurate cost prediction challenging.
Contract Clauses: Price escalation clauses can mitigate risks but deter clients.
Competitive Edge: Effective inflation management offers a bidding advantage.
Profit Margins: Accurate inflation projects are critical to maintaining margins.

What is my recommendation on how to combat Inflation?

This isn’t to scare you away or start prepping for the worst. My advice here is to educate yourself on these factors and how they are impacting your business, your business processes, systems and you team. Collectively create the plan, for when things do hit the fan, as we all know, proactive is better than reactive.

Market Analysis: Stay up to date on material and labor forecasts.
Supplier Relationships: Understand and secure pricing and material availability. Make sure you have a plan for backup suppliers, and create a wider network to lean on.
Create a strong Contract: include price adjustment provisions to protect your margins, negotiate terms, and provide clear reasons for any adjustments you need.
Advanced Procurement: Buy materials early at fixed prices or negotiate on higher quantities that could give price breaks. Do what you can to avoid rapid cost spikes.
Efficient Team and Cash Flow Management: Complete projects on time, understand where the money is going each week. Take time to map out the possibilities and make adjustments that are efficient to the project and business.
Do not be afraid to say “NO” to a project: This is not the time to try and thread a needle to take on additional risk. Go into every project eyes wide open.

Know your strategy. Understanding what the market is doing and establishing solid relationships could not be more important as we move through high material costs, labor shortages, and as continuous changes impact the construction industry as a whole.

Been pondering the question “What is retainage in construction?” without an answer? Read on.

What is retainage?

Retainage is a common word all subcontractors and construction-related businesses need to be aware of AND account for in their cash flow statements. The meaning comes from the words root, retain, or to hold. With contracted work, it is very common for the project owner or their bank to hold retainage back from the GC’s contract and, therefore, for the GC to withhold or not pay out a percentage of the contracted price until specific milestones are met, or the project is fully completed. When you think about the uncertainty in construction work from labor challenges, material shortages, and weather delays, this makes perfect sense as to why a portion of funds, retainage, would be held until the end of the project. This “security deposit,” if you will, ensures the contractor completes the work in its entirety and does it to the satisfaction of the GC and the overall scope of work outlined for the finished project. Generally, retainage ranges from 5-10% of the project’s contracted price. Oftentimes, payments are paid to the subcontractors in progress payments, of which retainage can be held out from each payment, OR one lump sum is held until the end of project completion. The GC and the subcontractor will agree upon the exact percentage ahead of time, and that amount will be stated in the contract.

This covers the basics of “what retainage is in construction.” However, it is important to mention that there are some legal considerations based on state regulations for retainage rules. In the state of New Mexico, withholding retainage is not allowed, whereas in Texas, there must be a 10% retainage on all private construction projects. In the state of Florida, with regard to any contract for construction services,” a public business can only withhold a maximum of 5% of the payments as retainage. When determining what retainage to establish, be sure to check out your state’s laws. If contracts violate the local and state laws, then the contracted amounts can risk becoming invalid. Paying close attention to how retainage is designated within your contracts is extremely important. There have been a lot of lawsuits and manipulation when it comes to contractors and developers underpaying for work being done.

How can retainage in construction affect my cash flow?

Retainage is common practice and therefore, contractors are aware roughly 5-10% of their payments will not be received until a later time. However, when not properly accounted for in their financial statements, this can create working capital challenges. For example, a plumbing contractor may finish work on their building, but the project will not be completed for another 6 months (sometimes even years!!), leaving 10% of their full contract value payments not hitting their bank accounts for a significant amount of time. Consider this: 10% of the contract may be as much as 50% or more of the actual profit from this job. Meanwhile, the plumbing contractor needs to move on to other projects and oftentimes, they are short on cash, waiting on the retainage from prior projects to come in. This is why understanding the query “what is retainage in construction” while utilizing a cash flow template that is well structured in timing the inflow and outflow of cash on a weekly basis is imperative. Retainage must be accounted for on each project within cash flow statements. Let’s review how to properly account for retainage in your financials.

Incorporating retainage into your cash flow statement

When you have the cash flow of every project estimated and scheduled, you have a solid foundation on which to build your business’s profitability. When inputting data into your cash flow tracker, look for a tool that will auto-calculate each of your pay apps net of retainage. Otherwise, deduct your retainage percentage from every expected pay app when you are accounting for how much cash will actually be coming into your bank account. Your cash flow tool should have a function for when you will actually be paid by your customer. Contractors include the full amount they are invoicing each month, including the retainage amount, but it is then deducted when determining the amount to be paid in cash for that invoice. In other words, it is earned at the time you invoice but then held till it is due when you meet the milestones. You GET retainage when you submit a FINAL invoice for retainage at the end of the project AFTER the project has met the requirements to invoice retainage per the contract. The moral of the story, proper recording is key! Your cash flow tool needs to have the functionality to show when that money is coming into the business. Or you can just use the one that we created and have on our website for you (https://mobilizationfunding.com/cashflow/). Our tool keeps track of the percentage of retainage you enter and when you expect the retainage to be paid. It is important to update the dates you actually receive the funds. If the retainage payments are delayed, other project cash flows may also need to be re-estimated, especially if you are relying on the funds to get started on other projects.

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.

If you found this blog helpful and informative, you may also enjoy our newsletter. Click here to subscribe and get more tools and resources sent directly to your inbox every two weeks.