The construction industry — along with the whole of the American industrial sector — is facing incredible uncertainty. States and counties alike have asked general contractors to change the way they run their businesses in the wake of the pandemic; some have been prevented from doing business altogether. The timeline toward the country’s return to complete normalcy is uncertain.
What is certain, though, is that this is as important a moment as any to take any steps you can to ensure the financial stability of your general contracting business. The big picture implications of the pandemic might feel overwhelming: that’s just another reason why it’s crucial to start handling the small stuff that you can control when it comes to bolstering your financial security as a small business owner. Read on: we’ve got four easy but crucial steps you can take to leave your general contracting business better positioned to weather financial storms.
1. Getting the right credit card for your business.
When it comes to choosing a corporate credit card, ‘simple’ might be a deceptive term. There are a seemingly endless number of options available to small business owners — many of which offer cash-back rewards. Consider your use case: if you’re making a lot of business purchases from a particular hardware store, for example, see if they have a store-branded card that will offer you additional cash-back incentives on those purchases. On the other hand, if you aren’t tied to a specific vendor, but still want cash-back, look for business credit cards that offer a broader set of rewards, even if they’re lower at specific merchants.
Choosing the right credit card for your business should be based on more than where you’ve opened bank accounts, or avoiding annual fees. Picking the right one could save you hundreds of dollars — if not more — annually.
If you find yourself using credit cards to supplement disruptions in cash flow, whether because of delay in payment or otherwise, look for credit cards that let customers pay balances up to 60 days after statement closings with no added interest. (Many will have an annual fee, so be sure to factor that in when figuring out whether or not it'll save you money.)
There are other options; cards that emphasize air travel, hotel stays, and cash back for spending. Make sure to check out welcome bonuses that could sweeten an already good deal. Bottom line: do your research. It’ll pay off.
2. Taking a look at your taxes.
Filing taxes as a small business owner can be incredibly complicated, especially if you’re classified by the IRS as an independent contractor (and are therefore filling out a 1099 each year in lieu of a W-2).
There’s a fair amount of background knowledge required to do your taxes properly. Properly estimating how much you might owe both federal and state governments if you’re filing out a 1099 at the end of the year, for example, could save you the yearly sticker shock you might find yourself continually bracing for. Knowing what kind of deductibles you’re eligible to claim could have the opposite effect.
The point is: take a close look at how you’re filing your taxes. If you’re clueless, it might be worth it to take your paperwork to a professional — even if it’s just for a single year, so you can get an idea of what the numbers should ultimately look like.
3. Performing proper job costing.
“Job costing” is a term you hear often in the construction industry — it’s the process of calculating exactly how much a project will cost you. Typically, job costing takes into account the cost of raw materials, wages, and any necessary overhead. Where general contractors tend to go wrong, though, is overlooking the true cost of labor: factoring in variables like overtime pay, workers compensation insurance, and payroll taxes is critical to job costing accurately.
It’ll help to have records of costs for a series of previous projects, so job costing is a process you can undertake even if you’re not actually on the job site at the moment. Once you’ve got a real sense of what your true operating costs are, you can place bids accurately. Doing so will simultaneously allow you to refine — and possibly expand — your profit margins as a business. And when it comes to financial stability, that’s a sure step in the right direction.
4. Assessing — and then adapting to — change.
This is not to say you must have foreseen the economic impact of the pandemic in order to adapt accordingly. It’s about working with what you know now, not what you wish you’d known then.
Start by coming to terms with the way things have changed: if practicing adequate social distancing between crew members might slow the pace of work, for example, consider redoing your job costing. You may not be able to alter the bid you placed on the project, but doing so will grant you a better understanding of how the altered way of doing business could impact your bottom line. It’s important to research other ways your business could be impacted, too: has the price of raw materials gone up? Do you have the same kind of access you previously had to those materials? (Shipments of items, for example, have seen delays across the country — how does that increased wait time change things for you and your projects?)
You might also consider how to work around change, whether that’s asking your subcontractors to work around staggered schedules to reduce foot traffic on job sites or finding ways to safely store raw materials so they can be ordered far in advance of when you’ll need them.
Most importantly, keep your customers informed about any changes, especially if they’ll impact the cost or schedule of any ongoing projects. Using home remodeling apps like Punch List can help -- your clients will always have the most up-to-date information about project progress, costs, and can ask clarifying questions directly.
Taking this time to solidify and assess your business’s finances means you’ll be less likely to find yourself surprised as the circumstances around the pandemic change; you’ll be better positioned to weather whatever does come your way.
These are unprecedented times. The pandemic’s far-reaching impact has touched almost every aspect of daily life, and created challenges for the construction industry outside of your control as a general contractor. Like we said, though: that’s exactly why, when it comes to your business’s finances, it’s important to focus on the things you can control.