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Financial Tips to Make your Construction Business Scalable

For leaders in the construction industry, it may be time to scale up. The construction industry will continue to see healthy growth into 2017, following a 9.5 percent gain in the first half of 2016, the American Institute of Architects, the National Association of Homebuilders and the Associated Builders and Contractors projected at a midyear status update in August.

Lodging and office construction were up 20 percent year-over-year. Commercial spending is on track to increase 6.5 percent between 2016 and 2017, while health care construction is projected to double. The Bureau of Labor Statistics foresees the construction industry experiencing the largest employment increase of all industries between now and 2024. For construction industry leaders, this outlook presents the practical problem of developing a financially sound strategy to scale up in order to keep pace with demand. Here are some ways to scale your business up while staying on budget.

Creating a Vision that Appeals to Investors

A scalable business idea is key when appealing to investors, says Startup Professionals CEO Martin Zwilling. Investors want to know that your business is in a market segment where there is potential for profit and growth, so you should start by doing market research to demonstrate that there is growing demand for the type of construction work you do. Sources of market research data you can use include the Bureau of Labor Statistics, the American Institute of Architects’ annual Consensus Construction Forecast and the annual Dodge Construction Outlook.

In addition to demonstrating demand, you should also show investors that your construction business has relatively low expenses and high profit margins. One of the biggest keys to lowering your expenses is developing a plan to streamline your labor force. You should also research suppliers to find the most cost-efficient way to procure materials. For profit margins, you should aim for profit margins of at least 50 percent.

Implementing Automation

One way to lower your costs to make your construction business more scalable is by implementing automation. Automation is currently transforming the construction industry in several major ways, say Building Design and Construction contributing editors C.C. and Adam Sullivan. Big data analytics is making its impact felt in multiple ways. Perhaps most significantly with 35 percent of costs in construction typically coming from wasted materials and remedial work, big data analytics makes it possible to plan more precisely to avoid these unnecessary costs, says big data expert Bernard Marr. JE Dunn, Autodesk and Microsoft have partnered together to build a predictive modeling platform to facilitate this, known as Lens.

Other automated technologies transforming construction include the use of 3D printing to create buildings more rapidly with more cost-efficient materials, the use of smart materials to build more functionality into buildings and the use of robots and drones to handle repetitious, difficult or dangerous processes. The Automation in Construction journal is an excellent resource to stay current on the latest in construction automation technology.

Outsourcing

Another way to lower expenses to make your construction business more scalable is by outsourcing. Outsourcing is used by successful companies in many industries to lower costs. For example, Microsoft outsources positions such as software architect, software testing engineer, patent research and manager. Amway outsources its sales functions by using a freelance distributor model for direct sales.

You can easily outsource functions that are peripheral to the core of your construction business, such as accounting, tax preparation, payroll and IT. You can also outsource functions that are more closely related to construction but require expertise that you don’t necessarily need to retain in-house, such as 3D drafting or specialized areas of engineering.

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