Construction Business Growing Too Quickly? Here’s How to Fix It
So, you think you’re growing too fast. What can you do and how can you avoid it again?
The first step in undoing unsustainable growth is to acknowledge you’re growing too fast to begin with. We covered four telltale signs that your construction business is growing faster than you can handle. If you’ve made that determination, you’re in the right place. We spoke to construction industry veteran Ernie Adams of 1 Priority Environmental Services to get his perspective on turning unsustainable growth into healthy growth.
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How Do You Turn Back After Rapid, Unsustainable Growth?
If you feel like you’ve been growing too quickly and need to turn back:
- Take your meds, and a few deep breaths.
- If you cannot meet your customers’ needs due to rapid growth, you may need to talk to them about giving the work back. Acknowledge that you will probably lose a customer, but it will ultimately be for the best for all parties involved.
- When you talk to your customers, try to cultivate maximum transparency about the situation you’re in. It’s better than being vague about why it seems like you can’t do your job.
- Keep your crews busy with only moderate amounts of work, so that you can at least generate revenue to pay back who you owe.
- Potentially look for a sub who can take over your contract. Even if there’s a lot of pride to swallow, at least you’re helping find someone who can take over what you temporarily can’t provide.
How Do You Achieve Healthy Business Growth?
Sometimes it pays to be a conservative risk taker who prefers constant sustained growth. He opts to stay where the limits of his capital are. Other subs could benefit from doing the same.
Healthy growth starts with being selective about the projects you’re bidding. You should establish healthy growth goals for your company, then evaluate whether a given project aligns with those goals. Always assess the state of your cash flow and schedule before you take on a new project. If you don’t have enough time and a good cash flow solution to handle a project, then don’t take it.
Raise Your Margins
If you’re trying to scale down, but still tempted to bid on a given project, then raise your prices. If you can make enough money to make that pinch worth it, and you still get the project, then it might be okay to proceed. But if they won’t meet your payment requirements, it’s okay to move on. Raise your margin, and use it as the standard that helps you weed out lower tier work.
Establish a Realistic Timeline with Healthy Goals
The first step toward sustainable business growth is a concrete plan that puts your growth goals on a timeline. You need to establish where you want to go, with reasonable goals at a slow-and-steady pace. If speed and profit are your number 1 priorities, you might be overestimating the true capabilities of your company. You can’t be motivated by money alone.
Beyond this, how can a business owner calculate their optimum size and pace? This is a complex process and we couldn’t possibly cover it in its entirety in just one blog article, so we’ll do a flyover view instead.
- The first step is deciding how large of a company you want to be. 5M a year, 10M a year… 30M a year? Set your ideal number as a 5 or maybe 10 year goal.
- Next, decide what kind of margins you’d like to operate at: Do you want to be a 30M a year company at 2% margin, or maybe a 10M company at a 10% margin? Not to say high revenue companies can’t have margins, but crunch the numbers to find out what it would take to achieve that profit.
- Once you have an idea of how much revenue you’d like to generate, you have to ask yourself how many crews you can afford to employ. The business owner has to constantly be aware of the capabilities of their labor force. If, for example, you currently have 5 crews doing 1M/year, then to get to 5M a year, you have to 5X your crew. Don’t convince yourself that you can get to 5M a year by only doubling your crews. As mentioned, you’ll strain your labor force, and disappoint your clients.
It’s best when a business owner is working on their company, not in their company. That’s where a lot of burnout comes from, he says, when they’re trying to do it all. Growing too quickly, or growing out of control, will keep you on a figurative hamster wheel, one that can be difficult to get out of. By all means, grow to the heights your company is capable of, but don’t chase growth for the sake of growth. Make a commitment to clear-headed, sure-footed business growth that takes all key factors into account. Your customers will thank you.
About Billd: At Billd, we provide a payment solution that enables commercial construction contractors to free up cash for material purchases while enjoying the flexibility of 120-day payment terms. You get financing for commercial materials upfront with the freedom to pay it back at your own pace. Learn more about how we can help eliminate your company’s cash-flow problems so you can win more bids and grow your business.Learn More