Anyone who has spent time in the construction industry knows that construction mistakes are inevitable. Mistakes while building can be costly and major hassles, but mistakes on the business side can be even worse. Depending on the issue, the impact could range anywhere from being less profitable to going out of business, or even worse! To learn how you can avoid them, here are the top 5 mistakes that construction companies make:
Never Saying No
When new building opportunities arise, it’s natural to want to accept every new project that comes your way. After all, it’s not always easy to get new projects (especially for new construction companies), and the revenue from new projects is how your company stays open and grows. However, construction companies that never say no to new projects might end up biting off more than they can chew. Taking on a commercial project when your expertise is in residential work may lead to poor results. Another recipe for disaster is agreeing to develop a new phase of a neighborhood before your company has the ability to scale to that level of construction planning and execution. Furthermore, you may be wasting time and resources by accepting low-profit projects when you could be spending your time on higher-value projects. Always remember that there’s an opportunity cost when you accept a project and don’t be afraid to turn a construction project down if your team would be a better fit for other jobs that you could have lined up.
Choosing the Wrong Lender
There’s a lot more that goes into a successful financing partnership than getting approved for a construction loan. Does your lender make it easy to get funding for multiple projects once you’ve been approved? Does your lender pay loan installments quickly at agreed-upon milestones? Does your lender improve your cash flow by wrapping down payments, fees, and closing costs into the loan? If not, you may be creating financial headaches for your company that impede growth or grind your projects to a halt. These construction loan dangers are avoidable with the right lender.
Operating Without a License
While the laws and regulations vary from state to state, it’s safe to say that you should not operate a construction company without the proper licensing. Some new or small construction companies may think that the government won’t find out or might feel like the time or money needed to obtain a license isn’t worth it yet. Don’t put yourself at risk, though. In Florida, it’s a first-degree misdemeanor to contract without a license, and if convicted, you would potentially receive one year of jail or probation, as well as up to $1000 in fines and possible civil penalties. Convicted twice? That could land you five years in prison. Consult your local and state laws, as well as your lawyer, to make sure you are always operating with the proper licensing.
No Business Plan
You can never know if business is going according to plan if you don’t have one. This is true for any business, but especially in construction where planning is the foundation to success. A solid business plan will outline your company’s goals for the near-term, mid-term, and long-term future, with the strategies and steps you believe you’ll need to take to reach your goals. If you want to build new construction homes in planned neighborhoods, but your company currently only does renovations, a business plan will help you reach your goals more efficiently. For example, you may be more prepared to turn down a large volume of renovation jobs in order to get your foot in the door with a smaller number of new construction real estate projects. Your business plan may be adjusted over time if you develop new goals, but the fastest way to success is to have a plan for guidance.
This is another mistake that companies make in many industries, not just construction, but flawed contracts may be devastating to your construction company due to the high cost of building. We hope that you’re using contracts for all of your projects and partnerships, but if they aren’t airtight, they may not be helpful to you when a dispute arises. A bad or flawed contract may impact your right to sue for breach of contract, or could result in doing unplanned work without being compensated, or worse. Contracts are complex, so make sure every contract you sign has been reviewed by a lawyer, and have your lawyer draft your company’s contracts to make sure your company is properly protected.
No one is able to completely avoid construction mistakes, but you can increase your chances of avoiding complications when you’re familiar with the typical issues that can arise. To be a successful builder, you need the right lender. If you need financing for new projects or to keep your projects on track, contact Snap.Build today.