Profitability Pitfalls to Avoid
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Staying profitable while also growing is extremely challenging in the construction industry. Between narrow margins and a talent drought in the construction industry, it can seem impossible to maintain profitability when you’re ready to scale. We sat down with experts to get some advice for teams looking to begin their growth journey. Ben Conry, Co-Founder and Head of Customer Success at Flashtract, along with Josh Levy, Co-Founder and CEO of Document Crunch, shared three profitability pitfalls to avoid and how to overcome them.

Lack of Bandwidth

Is hiring the only way?

The project management, operations, and back office teams struggle differently with bandwidth, but often the solutions can be similar. For PM and operations, most single office companies can effectively manage approximately $5-$10 million in project volume per project manager. Once they surpass that, the team begins to struggle. A way to manage that stretch is to implement new tech. One Flashtract user brought on new technology (including Flashtract) focused on communication, document storage, and automation which allowed them to up their minimum project volume from $7 million to $15 million per project manager. That’s not incremental when that average changes for the entire PM team. Another, more traditional option, is to utilize project administrators and project assistants. They assist the PM team, focusing on keeping the team moving forward.

The back office struggles because of heavy, manual processes. AP and accounting teams struggle especially, since as project volume increases, paper increases as well. Many offices are relying on spreadsheets for a lot of their back office work, so growth creates immense strain without an additional hire or new tech. While an additional hire is helpful, it doesn’t really improve the team’s efficiency overall. Growing without increasing overhead unnecessarily is a difficult balance to strike, and when not done well can detriment a construction team’s profitability. While hiring seems like the obvious option, exploring automation is a more fiscally responsible choice. Not to mention, making existing team member’s jobs easier and more enjoyable.

Contract Complexities

Is the job site in sync?

A key correlation for successful project outcomes are project teams that understand how to administrate the project and the contract. Things happen on the job site every day that require management or administration of the contract. However, the back office team typically handles the negotiation and signing of the contract. So keeping the job site team “in the know” isn’t really happening, which can cost the company money. Additionally, project teams are often intimidated and don’t want to deal with the contract. A typical thought is “we have a great relationship with the owner, we’ll resolve it later”.

As an example, something as simple as a rain day can cause the project to lose money. Contract terms may allow for a certain number of days, but the jobsite team has no visibility into that. Project teams don’t understand their rights and that can lead to taking a discount later or not getting entitlement. That owner can hold retainage over a weather claim. Not having retainage released can kill that project’s profitability. Something that seems so simple occurring on multiple projects can compound quickly and significantly.

Lack of Process

Do both the back office and job site teams have trackable and replicable process?

As a small team, every team member has organizational knowledge that typically isn’t documented and therefore isn’t standardized. Each team member may have a different way of doing the same task. Making an effort to document processes will save the company pain and money down the line. Having the full team working as efficiently as possible keeps organizations profitable. The back office typically leads the process effort. If efficiencies start in the office, it’s much easier for the project team to follow suit. Additionally, If the team onsite understands what the project contract allows, problems can be solved onsite instead of losing time waiting to get answers from the office team. Consistent approach leads to certainty of results.

Profitability pitfalls to avoid: what’s most important?

Empower the field team.

The construction industry is all about execution. So running successful projects from the field is important. Understanding risks and rights from the field, not just the office, allows for successful execution and profitability. The old fashioned way to do this is to hire a resource to review contracts and documents, but a faster and more efficient way is to bring in technology to empower your existing teams. Document Crunch is a great solution for keeping the field educated and empowered to make faster decisions onsite.

Process will make or break a growth plan.

Don’t avoid dedicating the time upfront to create replicable processes and training, or you’ll pay for it later. New processes are also harder to implement once the growth phase starts, so the opportunity cost of time and money spent up front should be considered. Especially with the first growth cycle. Going from one offices to two is one of the biggest challenges noted by company owners, but if you do the initial work then additional growth moves are easier later on. Keeping your business profitable.

A way to empower teams is to bring in construction technology. Automation can drastically improve a team’s profitability. Flashtract was created with this in mind after the founders observed heavy amounts of repetition, manual tasks, and disconnection between general contractors and their subcontractors. Bringing in a point solution like Flashtract adds efficiency without additional headcount or extensive training. Keeping teams focused on building, not billing. To learn more about Flashtract, request a demo here or in the chat function.

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