ForConstructionPros.com

As you know, it's a tough market out there. Unless you're in a very special niche, you're likely experiencing a very active bidding process for every bid you submit. Unfortunately, many contractors, in an attempt to get work, price themselves right out of business. How does this happen? Because they end up being awarded the work at a level that produces negative cash flow. In short, they bid the job to get the work, but don't adjust their cost structure to produce positive cash flow.

To gain better insight into this problem, I contacted our friend Ken Hedlund of Somerset CPAs. Ken is a CPA and consultant who spends all of his time in the construction industry. As you would expect, he and his team have been very busy educating contractors on how to become or stay profitable in this market environment.

I asked Ken the following questions: what options do contractors have to select from; how can they achieve or maintain profitability; and how can they adjust to the market?

Ken believes you have three options:

1. Keep your price stable, reduce overhead where changes are obvious and make the same or more money, knowing you will likely have less volume/revenue.

2. Go with the flow and reduce margins to get the work.

3. Raise prices and get whatever work you can, knowing it will be profitable. (Due to increased competition, this is not likely a viable option in the current market.)