Steps for a Successful Construction Business in 2024

Adopting technology, finding ways to retain talent and shoring up finances are among the steps to help your business’ success.

When putting the cash flow plan together, investigate each cost line item to see if there are price adjustments to ask for now that inflation is slowing down.
When putting the cash flow plan together, investigate each cost line item to see if there are price adjustments to ask for now that inflation is slowing down.
Amgun, Adobe Stock

Everything in 2024 is moving ahead at breakneck speed. I recently watched Squawk Box, where Cramer interviewed the CEO of Nvidia, who said that almost all technology will need to be replaced to keep up with the latest chips and AI adoption. Quite frankly, I sat there with my mouth hanging open imagining what the world would look like five years from now.

What was most interesting was how the Nvidia chips are being allocated to different industry segments. Nvidia sponsored a user conference, and I thousands showed up representing their area of expertise. They wanted to find out how they could get Nivida products and services working with their current systems. I learned that Nivida chips are designed so that users can keep their current systems and integrate them into those systems to increase speed, efficiency and information availability.

And guess what? Construction-related companies attended to find out how to adopt this new technology. This column discusses the steps to add this technology for construction.

Step 1: Know How Tech Applies to Your Business

How does this new technology apply to your business? All contractors can benefit in terms of time, cost, cash flow and efficiency. If you think you will avoid these changes, I can tell you that you cannot!

For example, a recent Forbes article featured a large national contractor in the stages of making changes to reduce costs and increase efficiency to compete with smaller firms. In other words, the contractor wanted the following:

  • To be faster
  • Use fewer people with robots to help do work
  • Have better bargaining power with vendors and better access to capital along with lower interest rates

If you do nothing, you will find yourself in a competitive market requiring you to shave more profit out of your bids to stand a chance of getting the work.

Step 2: Find Ways to Work Faster While Spending Less

Contractors must understand that times are changing quickly, requiring efforts to find ways to work faster while spending less. At the same time, you should find out what others are doing regarding system changes and project turnaround time. I would be talking to my banker (who should be familiar with the construction industry) to find out what other contractors are doing and where they are spending to change up what they are doing.

The same goes for the other professionals you work with, including your accountant and attorney.  They should be construction experts who can bring ideas to the table to help improve profitability and cash flow. The point here is to work with professionals who know your industry. If you are not, you may want to think about finding some that are.

Do not forget your system providers. They should provide industry-specific data and comparison numbers relative to sales per employee, gross profit per employee, gross margin percentage and operating expense comparisons to industry data.

Find folks who can provide industry data that you can compare to your numbers so that you can see when you start falling behind the curve. You may want to follow public contracting companies because their reporting requirements provide comparative data that you can also use in your operation.

Step 3: Retain Your Talent

Review your hiring practices and all employee-related programs to keep people on your payroll. You need to be flexible in terms of pay and benefits. I also suggest that you go beyond and above to make your employees feel like partners. You can take many steps that will not cost you much but will be appreciated by your employee’s family.

Everybody wants to feel appreciated, have a chance for advancement, be trained on the latest equipment being used, and have a profit-sharing plan or other 401K type plans available with some discussion and training on how to use these plans.

A big benefit that keeps folks around is a high-end health insurance program covering hospital, doctor visits, meds, eye and dental requirements. This type of plan with a minimal employee contribution keeps people on the payroll. There are other types of employee-related plans that I will discuss in July’s column.

Step 4: Organize Your Finances

Make sure you understand your bank arrangements, covenants, interest rates and ability to cover your works in process throughout 2024. A detailed cash flow statement is mandatory to share with the bank.

When putting the cash flow plan together, investigate each cost line item to see if there are price adjustments to ask for now that inflation is slowing down. Review each line item and ask to see what makes up the balance. Everybody is on a program to reduce operating costs. Join the crowd,

Step 5: Review & Optimize Your Insurance Policies

The insurance market is difficult right now. The cost of coverage has increased dramatically. Ask your agent, who should also have significant expertise regarding the construction industry, to review your coverage and policies to ensure that you have what you need at a reasonable price.

Also, ask if your coverage was sent to different companies for a quote. If so, what were the results? In addition, inquire if insurance certificates are required from subcontractors or for equipment rentals and if you are complying with the policy terms.

Step 6: Evaluate Your 2023 Tax Position & Know What to Expect in 2024

Evaluate your tax position for 2023 and know what to expect in 2024. Be aware that there was a change regarding bonus depreciation. It was supposed to be phased out, but that has been reversed and 100% is available for 2023 purchases.