Managing Business Expenses for Construction Industry Contractors
Any small construction company owner who relies on contract work will be familiar with spikes and dips in work throughout the year. This can make it challenging to manage operational expenses so here are some tips that you can use to try to create a more balanced cash flow for your business.
- Separate Business and Personal Finances – while it may be tempting to dip into your personal finances to help with business expenses at times, this really should be avoided if possible. Keep your personal and business finance documentation separate to make sure that you don’t accidentally mix things up. A separate business account will make it easier to show revenue statements.
- Project Expenses and Income – contract work comes and goes with no guarantee of a regular pay check. When planning quarterly or annual budgets, make sure that you estimate how much revenue will come into your business and what expenses you expect to pay. You can use data from previous years to help with this and to determine any seasonal ups and downs. This will allow you to plan for when revenue slows down and prepare for it by putting funding aside or arranging interim finance.
- Negotiate with Suppliers – it’s vital for business to strategize your purchasing decisions, especially with vendors and suppliers. One of the best ways to decrease expenses is by negotiation to secure the best price for your business. Here are just a few ways to do this:
- Research other suppliers and if you find a better deal ask your regular supplier if they can match it – if not, consider switching suppliers.
- Use annual contract renewals to negotiate a better deal with your suppliers to reduce your costs.
- Be honest with suppliers about your budget to see if they can offer a better package.
- Consolidate purchases to reduce overall costs.
- Expand Your Services – if possible. Do some research and reach out to current clients to see what other services they would like your business to provide. However, make sure that you project just how much offering new services will cost you (in terms of both time and revenue) to make sure that the benefits outweigh the costs for your business.
- Research Sources of Finance – if you’re getting a steady stream of revenue you may be able to apply for additional capital that will help your cover operational expenses, cash flow gaps and inventory costs whilst waiting for invoice payments. Research lenders or work with a business mentor to determine how best to access additional funds when you need them to keep the business ticking over during slower times.
Maintaining a steady cash flow is more challenging for businesses with an inconsistent revenue. With access to the right resources, smaller construction companies can attract new clients without taking time or revenue away from existing projects. More clients means more revenue so finding a way to manage expenses will benefit your business in the long term.