10 business lessons contractors can learn from

 June 4, 2020     UFG Insurance    Surety 
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Construction is a complex business full of eternal optimists.

The COVID-19 pandemic is certainly creating a shakeup in the construction industry in both the short and long term, but still, optimism remains. Contractors should take time to reflect upon the lessons learned in pre-pandemic times.

Here’s what not to do, otherwise known as 10 business lessons contractors can learn from.  

1. Bid on jobs that are too big or too far outside your core expertise.  

Taking on too much or agreeing to terms on a project out of your scope may not be the best idea. You may not have the time, know how to plan for it or know who to subcontract in order to get it done correctly. Focus on what you’re good at and do it well. 

2. Bid on jobs that are out of your normal geographic area of operations.

Taking jobs in unfamiliar areas is a great way to blow your bonding. You may want to consider the length of the project and how long the team will have to be away from home. Construction already involves long hours, let alone sleeping on a subpar mattress in a hotel. Your employees probably appreciate sleeping in their own bed more than you—or they—think. 

Article: How much does a surety bond cost?

3. Reduce or remove profit margin from estimates just to get work. 

We understand the need to get projects on the schedule, but at what cost? Eliminating profit just to get work on the books is not a sustainable strategy and it doesn’t allow you to grow your operation the right way.

4. Buy all new equipment or maintaining a fleet of equipment that’s not getting used.

If you’re going to purchase all—or even some—new equipment, make sure you have a plan so your used equipment isn’t sitting around incurring depreciation. Getting the equipment off your hands may help your bottom line and debt ratio. 

5. Rush to staff up and forget the overhead.

Every staff member you add comes with overhead. There is a balance between the right amount of workers so the team doesn’t feel overworked yet projects are completed on time. Another important factor to consider is adding the right person or right position to maximize the efficiency of the team. 

6. Allow internal accounting and controls to fall behind. 

Cash flow can be very important for contractors. You must find a balance so you can bid new projects, but also continue to receive paid invoices and pay for materials used and/or subcontractors.

7. Become overbooked and undermanaged.

Mentioned above, cash flow is key, as is finding balance—our phrase of the day. Sometimes the backlog is nearly non-existent and other times the backlog is full this is especially true if your work is seasonal. Managing for the ups and downs can have a dramatic impact on your business. Improving internal reporting can help to identify weaknesses and areas of opportunity. 

Read: 5 tips to help grow your independent contractor business.

8. Sign off on onerous contract terms just to get the work.

Having a staff attorney or a law firm in your network that specializes in construction is also key. Before signing a contract, someone should review all contract terms so you’re not stuck with a deal that doesn’t truly benefit your business. 

9. Work with clients who have burned you before.

“Fool me once, shame on you. Fool me twice, shame on me.” This one’s pretty self-explanatory: don’t work with a client who didn’t give you anything less than a good experience before. A frustration fee may not cover the full amount for your sanity. 

10. Trying to hide problems from your surety.

When problems occur, such as threats to your bank credit or problems with a subcontractor, make sure you inform your surety partner. Keep them in the loop so they can help you resolve the issue and avoid a default. 

Preventing contractor default is key to the surety industry. As your partner, UFG Surety wants to help you instill best practices to work smarter, not harder. Our expertise as your bonding company can help position your company to avoid the above common mistakes that can destroy your bonding. 
 

The information provided is for informational purposes only. Every attempt is made to ensure that the information is accurate; however, it is not intended to replace professional advice. For more information, see Disclaimers & Other Legal Documents.