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Managing a Construction Business

Knowing how to manage a construction business is the key to being a successful contractor.  There are many ways to enter the construction field with extensive opportunities for a rewarding career in the industry.

The US Bureau of Statistics provides an Occupational Outlook Handbook where you can find entrance requirements, salary, job descriptions, job outlook, and more for the construction industry.

A construction company can be just an owner, an owner using subcontractors, or an owner with employees, with more variations depending on the number of people involved.

There’s more information about running your own construction company in the article called The Lifecycle of a Construction Business.

Getting Started

Carpenters can enter the construction business with a desire to learn and the agility to perform physical work. Hands-on learning in the industry is the best way to prepare for owning and managing a construction business. Score, community colleges, and libraries are good places to learn more about managing a construction business.

Preparing to Own a Construction Business

Learning construction may take 2 to 5 years or longer to have enough knowledge to manage a construction business.  Plus, a business or construction certificate or degree will improve your success.

Electricians, plumbers, HVAC, and specialty contractors have additional education and licensing requirements.

Contractor Licensing requirements vary from state to state. Levelset, a cloud-based platform that offers payment facilitation for construction companies, has compiled a Guide for Licensing in each state.

Skills Needed to Manage a Construction Business

As an owner, a large part of the day is talking on the phone and coordinating projects.  Sales, customer service, and planning get juggled throughout the day. The day’s filled with interruptions, so the ability to move from one task to another under pressure is essential.

Necessary skills:

  • Being organized
  • Construction know-how
  • Understanding finances
  • Problem-solving ability
  • Good time-management
  • Great communication skills

Financial Investment

Putting time into learning and understanding how to manage a construction business is a great start. Establishing a construction business also takes a financial investment.

The basic setup for a startup construction business:

  • Vehicle
  • Tools
  • Storage
  • Office space
  • Insurance
  • Licensing

Managing a Construction Business Office

The office is where the behind-the-scenes work happens and where the project begins. It’s where the paperwork for the construction business gets handled.

Basic office setup:

  • Cell phone
  • Desk
  • Filing boxes/cabinet
  • Computer
  • Printer
  • Office supplies
  • Internet
  • Accounting software

Administrative functions

All the activities of the office are called administrative functions. In a construction business, administrative activities facilitate work on the projects, help the company comply with laws, and support the company’s growth.

 Administrative tasks:

  • Handling correspondence
  • Drafting contract paperwork
  • Ordering office supplies, materials
  • Product research
  • Maintaining technology
  • Filing paperwork

Sales Functions

Sales functions keep the company operating. Selling for a construction business involves:

  • Relationship building
  • Understanding the requirements of the project
  • Being able to present and finalize contracts

Sales tasks:

  • Prospecting
  • Meeting with potential customers
  • Calculating and writing up an estimate
  • Presenting the estimate
  • Closing the deal and entering into a contract

Learn more about Establishing Hourly Rates and The Terms Estimate, Quote, Bid, Proposal, Explained.

Accounting Functions

In a construction business, accounting tracks the company’s finances and the profitability of each project.

Accounting tasks:

  • Invoicing
  • Paying bills
  • Paying taxes
  • Paying employees
  • Preparing financial statements

Learn more about What Accountants Do for Construction Companies and how to Audit-Proof Your Business.

Human Resource Functions

The laws around employees are extensive, and the paperwork is immense for a construction business. Look to Score and your state Department of Labor and Industry, state Department of Economic Security, and IRS for guidance.  

Human Resource Tasks:

  • Onboarding
  • Payroll & Benefits

Here’s some helpful information on Hiring Employees for your Construction Business.

Managing a Construction Business In the Field

The contract outlines the work to be performed. The goal is to complete the project on time and within the budget defined by the agreement.

There are job site interactions with clients, material suppliers, subcontractors, and inspectors. Communication between all people involved is a regular part of keeping the project moving forward to completion.

Scheduling

Scheduling is an integral part of managing a construction business. A forecasted schedule is prepared and coordinated with the homeowners and everyone involved with the project. The anticipated schedule can and often does change; however, the contract can involve penalties for not meeting completion dates.

There is scheduling for:

  • Appointments with potential clients
  • Meetings with homeowners, designers, architects
  • Walk-throughs with subcontractors
  • Inspections with city Inspectors
  • Labor work schedules
  • Material deliveries

Project Management

Project management is the oversite of all the project’s details; it’s the budget and the labor and materials from beginning to completion.

The budget for the project was determined during the estimating process with a contract agreeing to provide the labor and materials for a specified cost. Project management keeps the project in line with the project’s budget.

Labor

Managing a construction business means managing people, budgets, and unplanned obstacles. Many factors play into whether the labor hours will stay within the budget; weather, equipment failures, site conditions, code issues, and a host of other situations.

Labor tasks:

  • Showing up on-time
  • Setting up tools and workspace
  • Performing work according to the contract
  • Cleaning up and packing up

Following safety guidelines is priority one on the job site. For guidance, read Job Safety and OSHA.

Materials

  • Purchasing materials
  • Picking up or receiving delivery
  • Making returns

Tools and Equipment

  • Purchasing
  • Maintaining
  • Inventory

Learn about Cargo Trailer Theft and how you can protect your assets.

Finalizing Projects

Following through is vital to the success of the construction business. Before collecting the final payment, there are a few things to wrap up.

  • Final inspections
  • Closing-out permits
  • Paying subcontractors
  • Completing lien waivers
  • Thank everyone!
  • Ask for referrals

Learn more about managing at the Start of the Year and Year-end for your Construction Business.

Because history is fun, enjoy these articles, History of Systems for Measuring Length and

History of the Tape Measure.

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Cargo Trailer Theft

Contractors know that thieves like to steal cargo trailers, and protecting them is a constant concern. Whatever may be behind the four walls in a cargo trailer is a target and a challenge to protect.

Protecting Cargo Trailers

Slowing down cargo trailer theft requires diligence and multiple layers of protection. Thieves watch for vulnerabilities and have ways to cover their tracks. Thieves may pick locks, steal cameras, disconnect lights, or attempt to remove identifiers from trailers.

Create a theft prevention policy and procedures

  • Assign tools, if you have a crew
  • Limit (avoid) loaning and borrowing
  • Use lists to keep track of tools
  • Establish a pack up process
  • Establish a lock-up policy

Set up layers of protection

  • Place a lock on the hitch as well as the doors
  • Put cameras on the trailer and at fixed locations pointing to the trailer
  • Enhance lighting
  • Use anti-theft equipment (wheel locks, coupler locks, GPS tracking devices)
  • Make access to the hitch difficult, such as parking a vehicle in front of the trailer
  • Remove a wheel if the trailer will be parked for an extended period
  • Hide trailers from traffic and walkways
  • Use buildings and tall fences to your advantage
  • Secure the trailer to a fixed object or use an anchor, if possible
  • Use security fencing, if possible

Identification

  • License and register trailer
  • Advertise business with decals and lettering to make identification easy
  • Weld business name and number on the trailer near the hitch
  • Use fluorescent paint for marking; it is difficult to cover with other paints

Insurance on Cargo Trailers

Auto insurance covers trailers during towing; otherwise, there is no coverage for the trailer unless the trailer is listed on an automobile policy.

Insurance on Tools in Cargo Trailers

Commercial property insurance is coverage for equipment inside a building. It does not cover equipment that moves around from one location to another.

Inland marine insurance or equipment floater insurance, also known as contractor tool and equipment insurance, is optional insurance that can be added for the loss of tools and equipment that move from one site to another location. It does not cover stationary tools. Inland marine insurance has a deductible and a coverage limit. This is separate insurance from the business policy. Inquire with an insurance agent to add coverage for tool and equipment transported in a cargo trailer.

I recently received a quote, which conveniently works well for calculating. The premium was $500 a year with a $500 deductible for coverage up to $5,000. Here is an example of how a loss payout works. We could all assume an insurance company would not renew the policy if claims were turned in four years in a row, and we certainly hope no one would have that type of luck.

 PremiumDeductibleCoverageLossPayout
Year 1$500$500$5,000$5,000$4,500
Year 2$500$500$5,000$7,000$4,500
Year 3$1,000$500$10,000$2,000$1,500
Year 4$1,000$500$10,000$12,000$9,500
Total$3,000  $26,000$20,000

Tools are listed as either unscheduled coverage or scheduled coverage, based on the tool’s value.

  • Unscheduled coverage – blanket coverage for tools with a value of under $1,000 – $1,500
    • Has a set coverage limit and deductible
    • Most insurance companies only offer cash value for unscheduled coverage
  • Scheduled coverage – the policy will list each item and its value
    • Cash value – pays on the depreciated value
    • Replacement value – pays to repair or replace at the actual cash value

Policy Exclusions

  • War, government seizure, nuclear hazard
  • Pollution damage
  • Changes in temperature or humidity
  • Loss of documents
  • Strikes
  • Earthquakes and floods
  • Wear and tear

Policy Endorsements

  • Flood and earth movement
  • Electrical and power supply disturbance coverage
  • Upgrade value
  • Loss of income

Recordkeeping

  • Keep an itemized tool inventory recording purchase date, name, serial number, and purchase price
  • Mark equipment with the business name and phone number
  • Take pictures of the inside, both empty and filled with tools
  • Take photos of each side of the outside of the trailer
  • Weld or engrave the business name and phone number on the frame

Act Quickly if Your Cargo Trailer is Stolen

The quicker news spreads about the theft, the more potential for covering the stolen trailer. The chances of recovering a stolen trailer and contents are best within the first 48 hours after the loss.

If serial numbers on tools are provided to police, police are able to search pawn shop databases.

  • Immediately report the loss to the police
  • Contact your insurance company
  • Appeal to social media
  • Search locally lost and found Facebook groups
  • Monitor Facebook marketplace and Craigslist

Tracing Cargo Trailers

Some states don’t register trailers, and some states use a sticker on the tongue rather than a license plate. Even though licensed, thieves can remove the license plate quickly and sell the trailer. Reselling stolen trailers is very easy because there isn’t a national stolen trailer registration like vehicles.

Recovering from a Stolen Cargo Trailer

Time is money. Stolen equipment is a setback financially for replacing tools and losing work time. Even with insurance, the loss will not be fully covered, and it can take some time to receive payment from the insurance company.

The loss of everything a person has worked for is devastating and feels violating. It is understandable to have a difficult time with this setback. Well-meaning people may question how it happened and why this or that wasn’t done. They may even suggest that you give it up. While this is a setback, it is difficult but not impossible to bounce back.

The ability to recover from a loss is dependent on your ability to secure financing. You are in a much better position to recover with a high credit score, assets, and savings.

Loans

Loans, this one is tricky. Banks will look at the financial health of a business. The banks look for profitability and at credit scores. SBA does not offer loans for the replacement of stolen equipment. 

Credit Cards

Be careful with credit cards. Credit cards are an easy go-to for quick money. However, credit cards with high-interest rates should be reserved for emergencies and considered after other options have been exhausted unless they can be paid back quickly.

Crowdfunding

Crowdfunding allows the community to support and help you get up and going again. Gofundme is a personal fundraising site. Grab attention with a well-written appeal. Let clients, friends, and family know about your crowdfunding effort and ask them to pass along your request through their social media.

Yard sales

When you started your business or even before that, you may watched yard sales.  As you know, this can be an easy way to pick up hand tools and the occasional corded tool. Great finds can also be found at estate sales and online marketplaces. 

Friends, Family, Clients

You may be amazed at the generosity of others. Those around you may not realize the prediction you are in and may be willing to help get you to get up and going again. Let others know, share your story. You may be able to borrow tools temporarily, or someone may let go of their old tools. Friends or family may have resources available to provide you with a short-term loan. Clients may even be willing to put a deposit towards future work.

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Life Cycle of a Remodeling Business

The life cycle of a remodeling business has four phases: Development and Startup, Growth and Expansion, Maturity and Succession, and Exit. A contractor will be successful if they can navigate each phase of the business life cycle.

Plan for navigating a remodeling business.
Remodeling Business Life Cycle Plan

A remodeling business establishes itself in the marketplace during the Development and Startup phase. When the company reaches the Growth and Expansion phase, workflow processes are efficient, and the company embraces growth opportunities. In the Maturity phase, the company is well-established with a stable client base. The final stage of the business life cycle is the Succession and Exit, when the company is passed to a future owner or closed.

1. Development and Startup

The Development and Startup phase includes pre-planning and launch. It is the period from inspiration through getting the business up and running. Before becoming a business owner, learning the trade through training, work experience, or a combination of both is essential. Building a solid foundation is crucial to moving into the Growth and Expansion phase.

Business Name and Formation

The company name is chosen during the Start-up phase of the business.

The business name should:

  1. Be descriptive
  2. Uniquely yours 
  3. Memorable
  4. Easy to spell and pronounce
  5. Conform to state naming rules

Perform a name search through a search engine screening, your state’s Department’s Secretary of State, and the United States Patent and Trademark Office. Choosing the name of the business is an important step. It can be a time-consuming process to go through a business name change.

Limited Liability Companies (LLC) and Corporations register with the Secretary of State. Check with your state’s Secretary of State for business formation requirements. You may need to consult an attorney to determine the correct formation for your situation and to assist with the registration.

Contractor registration and licensing requirements vary by state. In some locations, registration and licensing are at the local level.

Start Up Assistance

A business plan is used to provide guidance and direction for a company and required to obtain a business loan or grant. A business plan template is available through the Small Business Administration. The SBA has two types of business plans: a detailed traditional business plan template and a lean startup business plan which concentrates on crucial business plan components.

Assistance is available for startup businesses. The U.S. Small Business Administration (SBA) administers assistance through Small Business Development Centers. There is a network of over 900 Small Business Development Centers offering counseling, training, and technical assistance. This cooperative effort is between the private sector, educational, community, and federal, state, and local governments operating with a lead organization in each state that coordinates with community subcenters. A great place to start is with SBA and Score.

Score is an SBA partner with chapters throughout the U.S. They offer individual help for business startups by providing business plan writing, marketing assistance, and a mentorship program. Support is also available through the unemployment department, library, and other organizations in your community.

Enlist Professionals

A key person in the business will be a qualified accountant. Checks and balances are the process and procedures set in place to keep everyone accountable and assures no one has total control. A CPA can perform a year-end review to access accounting performed in-house. Proper accounting involves adjusting entries to match the tax return. This step consists in making general journal entries to close out the year. A skilled bookkeeper can make the entries, or a CPA can provide adjusting entries to the bookkeeper.

An attorney serves a vital role in avoiding liability issues. An attorney can assist with the business formation paperwork. They can draft contracts and lien paperwork and deal with collection problems.

Develop a Brand and a Niche

Find a niche in an area where you are comfortable and capable of performing high-quality work. Differentiate your company from others by becoming an expert in a particular area.

Market to the types of jobs that you want. Providing a specialty helps to define how and where to market. A fence and deck builder might seek pre-fabricated homes, landscapers, or developers. A remodeler may find trade shows and community involvement are the best way to market.

2. Growth and Expansion

Scaling a remodeling business for growth and expansion requires planning and investing. The remodeling business is establishing itself in the market. The number of projects is increasing, and the company is growing. Expansion needs to be systematic and strategic. Working with an accountant to plan for incremental growth will help maintain proper cash flow.

Client relationships are developing in the growth and expansion phase, and scheduling may challenge the company. There may be a need to add office staff and management positions. This growth may require moving into a larger office space and upgrading equipment leading the company to seek out loans.

Cash Flow

Cash flow represents the money coming into and leaving the business. The timing of project schedules, payroll schedule, and expenses affect cash flow. Projection, budget, and job costing reports help to forecast cash flow. The management of cash flow requires regular monitoring.

Control cash flow with a solid contract with clear payment terms. A deposit on contracts is typical. The deposit is a flat amount or a percentage charged to pay for costs, such as materials, before beginning work on the project.

Include a due upon completion clause in the contract. If the project is over an extended period, set up progress payments at regular time intervals or stages; accepting payments by credit/debit or PayPal can help to prevent collection delays.

Collecting Payments

Tips for collecting payments:

  • Determine the payment method before the beginning of the project and communicate payment timelines.
  • Require the final payment to be paid upon the completion of the project or within a short timeframe, such as three days.
  • Avoid dealing with delinquent customers and unpaid balances by offering an electronic payment method.
  • Mechanic’s Liens offer a mechanism to collect unpaid receivables. There is a legal procedure to file a lien, which varies by state. The first step to a Mechanic’s Lien is a Preliminary Notice providing the client information on their rights. Correctly filing paperwork for a Mechanic’s Lien allows for a lien against the property for failure to pay. 

Growing Incrementally

Expenses may outpace revenue if growth is not controlled. Adding employees adds to the company’s indirect expenses for training, insurance, administrative costs, and more. A company must weigh whether there is enough work to support an additional employee and the potential for a slowdown. Allowing overtime or hiring temporary employees may be a better short-term solution.

Minimize Cash Flow Issues

Cash flow is the timing of the money coming into and leaving the company. A properly estimated job should bring in the revenue needed to cover expenses. However, because of timing, outgoing costs may be due before receiving payment for the work.

Minimize this issue by taking advantage of credit lines for materials. Lumberyards may allow until the 10th of the following month to make payments. Lumberyards may even offer a discount for paying early.

A business credit card helps to build the credit score for the business. Use credit cards effectively by paying balances by the due dates to avoid paying interest.

Reinvesting

Equipment is one of the best investments a remodeling business can make. Having proper equipment makes work more efficient and improves the balance sheet. Equipment is a fixed asset for the company with tax advantages.

Saving

Like personal finances, a business should establish a strategic and diversified approach to saving to cover emergencies. Liquidity is the ability to meet expenses with readily available funds, mainly cash and short-term investments. By building a contingency fund, money will be available to help to cover unexpected cash flow issues. Lenders use liquidity to determine creditworthiness.

3. Maturity

Maturity is the stage of the business lifecycle before the owner retires. The company has weathered ups and downs in the economy and is seeing another generation of workers moving up. The remodeling business has established its brand at this stage of the business life cycle, and revenue is dependable and predictable. As an owner, if you planned right, you’ve delegated tasks and established a retirement plan.

4. Succession and Exit

After a career of fixing homes, the day has come; it’s retirement time—no more demands from customers, subcontractors, and all the government agencies. 

Wrap up commitments:

  • Finish jobs in progress
  • Collect final payments
  • Make final payments to employees and subcontractors
  • Pay taxes
  • Cancel insurance

A sole proprietor can close business checking accounts after all transactions have cleared the bank. They will close out any registrations with the state and file a final tax return. If there are employees, a qualified accountant or payroll specialist can assist with completing the final filings and paperwork.

Filing Articles of Dissolution with the state will end a business entity. An LLC, partnership, or corporation will refer to the Operating Agreement for the succession, transfer, and exiting procedures. The company should consult an attorney if it plans to shut down, sell, or transfer ownership.

The IRS guides the final steps for closing a business. Click here for the IRS steps to fulfill federal tax obligations.


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