Inflation is growing at an alarming rate and shows no sign of slowing - and construction is vulnerable.
Held hostage to material price hikes, labour shortages, and low margins. It's tough. Let's look into some strategies you can implement to ease the inflation pain.
According to some sources, 40% of construction companies don’t track their spending.
Yet, getting good spending visibility is a necessity in taking good care of your business finances.
Only once you know where, when and how much is spent can you start making informed financial decisions.
Not to mention that in times of uncertainty, knowing exactly how your money is spent and if you’re staying within the budget will help you feel more confident while planning ahead.
In times of disruptive changes in the market, it’s more likely to make rash decisions that will ultimately prove to harm long-term growth or, at least, not bring the best return on investment.
That’s why it’s very important to create a clear distinction between strategic and non-strategic expenses.
If you can think through your long-term goals, you will be able to determine which expenses support this goal - so that when trying to cut costs, you will look somewhere else.
Check these reviews: The top 7 software and tools for construction budgeting.
Now that you’ve determined your long-term strategy and you have a detailed picture of your spending, you are in a great position to decide where to cut expenses without much pain.
Take a look at the tools your team uses - maybe you pay for a subscription that nobody really uses but you didn’t have time to cancel it.
Can you reevaluate your actions and processes? With growing labour costs and a general shortage of skilled workers, eliminating work is the number one way to cut costs.
Try to look at your operations with a clean-state mindset and critically evaluate both what activities your team is performing and how they are being done.
Look for space for automation and optimising activities necessary for smooth project execution.
Once you review your processes, it’s very likely you will find some repeatable tasks and operations that could be automated.
Introducing automated workflows, intelligent document management or even using reporting tools instead of having to put reports together manually can help you and your team save a lot of time and stress.
Not to mention that moving your data to the cloud will make it much easier for everyone to access the information they need.
Check these reviews: A high-level look at construction budgeting with some recommended tools.
The construction market is very competitive, which leads companies to bid on unsustainably low-profit margins. It can quickly turn bad when prices go up.
Competing on the price alone can very quickly take away your profit and put you in a tight spot if the inflation rate grows.
Instead, you can try to increase the competitiveness of your offer by bringing in value beyond the price.
Focus on the experience and quality, speed of delivery, sustainability of your projects or even excellent communication with a client.
If it’s possible, try to purchase all materials you’ll need right at the start of a project.
With the inflation in material costs and supply chain issues, you can save a lot of money, time and stress if you stock up on materials right at the beginning of the process.
This stops the costs you estimated when signing the contract don’t get thrown out of the window with the spike in prices two months into the project.
Cash Flow issues are one of the biggest causes of insolvencies in the construction industry and the result of unavoidable lag between work and payment.
It’s crucial to establish a good monitoring process over your company’s finances and establish financial metrics that are updated and regularly inspected.
Take care of your team. Inflation affects all of us on a personal level with costs of living getting higher and uncertain social and economic situations putting everyone under a lot of stress.
Reliable and highly skilled professionals are fantastic assets - don’t lose sight of that. Also, take good care of yourself too.
The best way to overcome inflation pain is by understanding your financial health in real-time. Chuck in reporting, dashboards and a single source of truth - you give yourself the best chance of success.
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