5 Cost Reduction Tips For Small Construction Businesses
Reducing costs in a business is imperative to maintaining a positive cash flow, especially for small to medium-sized companies. In the construction industry, maintaining cash flow becomes even more critical because most contracts are only fully paid at the end of the job. With every contract, small contractors often have to wait weeks, if not months, for cash to come into the business.
Needless to say, slow payments can put a heavy financial strain on small construction companies, not to mention the ones that can only take one or two jobs at a time. If this is the case for you, it is likely necessary to put several cost reduction strategies in place to keep cash flow at an optimal level.
Here are some of the best examples.
1. Build good relationships with suppliers
One of the keys to running a successful business is building good relationships with your clients and your suppliers as well. Whether it's a company that supplies galvanized steel structural pipes or something less significant like finishing nails, it will be highly beneficial for your business to create positive professional relationships with all suppliers and vendors.
In doing so, you will be in a better position to negotiate contracts, especially when you manage to establish long-term relationships. Furthermore, a supplier you are in a good relationship with is more likely to prioritize your needs and offer substantial discounts to strengthen the connection further.
2. Implement the 3Rs policy
Reduce, reuse, recycle. Implementing this strategy in a construction business is an excellent way to reduce expenses while minimizing your carbon footprint at the same time. Since construction is an inherently wasteful industry, reducing waste, reusing what you can, and recycling what you can't reuse can cut down on project waste by a significant amount.
Here are certain strategies on how you can implement this type of policy within your construction business:
Improve estimation for construction materials to reduce leftovers
Partner with a recycling company to pick up recyclable construction waste
Reuse any material that can still serve a purpose, whether it's for the current project or the next one
Train employees on how to reduce construction waste
Aside from minimizing your expenses on construction materials, implementing the 3Rs can also reduce costs for storage, transportation, and trash collection.
3. Hire multi-skilled workers
When hiring new workers for your construction business, look for candidates who possess multiple skills or are otherwise willing to learn another field. In this way, you can hire fewer workers and, in turn, decrease labor costs. Not only that, but you can also help your workers expand their skill set and improve their careers in the process.
By reducing the number of people you hire, you can also pay workers more than the average industry salary for applying multiple skills, which can help you attract the best candidates and retain your top-performing workers.
4. Leverage business automation technology
Just like any other business, a construction business has tedious and repetitive tasks that need to be accomplished regularly, such as sending out promotional emails, posting on social media, answering customer queries, and recording data, among many others. Many companies hire employees for these tasks, but why take on more people on your payroll when you can have a machine do it for you?
Business automation technology is now more accessible than ever, which means that automating your most time-consuming manual tasks is affordable and easy. Instead of hiring new people or delegating these tedious tasks to your existing employees, use business automation tools to accomplish these tasks without needing constant human intervention and with smaller margins of error.
5. Buy in bulk
Buying in bulk may not be an option for all contractors, especially small ones, but it can provide many cost-saving benefits in the long run. For one, buying in bulk is often cheaper than buying small amounts as needed, and you have a better chance of securing discounts from suppliers or warehouses. Large orders also mean that you have to transport materials less frequently, which translates to savings in transportation and delivery costs.
Bulk buying is most beneficial for frequently used materials, such as nails, lumber, pipes, and adhesives, among others.
For a small to medium-sized construction company, finances may often be tight due to the nature of the payment process in the industry. Implementing some-if not all-of these strategies is an excellent way of promoting optimal cash flow but without compromising the quality of the company's results.