At Empowered we love ambitious business owners who want to grow their business. However, growing your business doesn’t come without its risks.
Your turnover could be better than ever but this isn’t filtering down to the bottom line or into your pocket, and you are left wondering where you have gone wrong along the way.
If you keep going down that path you could run into real cashflow problems and your whole business could be at risk. However, don’t let this put you off growing your business.
Instead, get ahead of the curve and consider implementing the below…
Cash is king
Cash is the blood flow of the company. It doesn’t matter if you are turning over £10 million if you don’t have cash in the bank to pay suppliers and employees. The construction industry is designed that you will be paying for a lot of materials and labour upfront before you see the return.
On top of that, there are things like retention and VAT reverse charge to consider.
It’s therefore, crucial to keep track of incomings and outgoings and to be able to easily identify any periods you might require additional funding or negotiate early longer credit terms.
Cashflow forecasting for construction businesses is a must. At Empowered we love Float which seamlessly integrates with Xero. It gives you cash flow insights that combine your bills, invoices and actuals with the budget you set.
As you update Xero with real-time information this is pulled through into Float and you can make the most up-to-date decisions possible for your business.
As your business grows you will be taking on more and possibly bigger projects. With the rapid changes in material prices and labour costs, it’s important to ensure when you price and quote that you leave enough wiggle room so that any changes won’t wipe out your profit margin and you end up working at a loss.
This might involve working with a surveyor, reviewing your pricing list monthly or for bigger projects having a pricing model to consult before sending out your quote.
At Empowered we have experience in working on this for clients and as we only work with construction businesses we quickly hear about trends and changes in the industry.
As your turnover grows so will your expenses. This can often mean more suppliers, use of credit cards and more frequent cash purchase. Keeping and processing invoices can sometimes slip through the cracks.
This will impact your real-time data information, result in you not utilising credit terms and potentially result in duplicate or missed payments which could impact supplier relationships.
It will be hard to track the profitability of a project as well if the expenses aren’t recorded until months down the line.
At Empowered we encourage all of our clients to use Dext. It enables businesses to stop wasting valuable time on data entry, processing and filling expenses.
Some suppliers can send invoices straight to Dext by email where the information will be extracted with less manual input and then uploaded to Xero.
From Xero you can then easily see what is due for payment and when. The app is also great for capturing expenses when you are out on the road, no more chasing employees to keep and then hand in receipts.
Employees, subcontractors or both
As more work comes in you might be thinking about hiring additional employees or using subcontractors. There are pros and cons to both.
Apprentices and employees can be trained up to the quality and standard you have set for your business however, as an employee they will have more employment rights for example holiday pay and sick pay.
Subcontractors might be a less risky option in the short term but might be less aligned with your business values.
At Empowered we can help you decide what the best option for you is at each stage in your business growth.
It’s important to track your projected income and expenditure over the year and have a model to compare and refer back to every month or couple of months.
This will allow you to spot any problem or opportunity areas throughout the year rather than when the moment has past to ensure your growth plans are on track.
Not having an annual budget to compare and refer to is like driving to a location without a map. You know roughly the direction you are going but you’re likely to get lost along the way wasting time and money.
Empowered can help you prepare a tailored annual budget designed for your growth plans and review it with you throughout the year. We can then give you actionable advice during the review stage to keep you on track.
Growing and running a construction business is hard but anything worth doing is never easy.
So get ahead of the curve:
- Forecast your cash flow and make decisions early
- Price appropriately for these uncertain times
- Don’t let your expenses slip through the crack
- Consider whether a new employee or subcontractor is best
- Track your growth progress against an annual budget and identify problems and opportunities before the moment has past