28 April 2020 6 min read

Why do contractors fail? 3 Solutions for General Contractors challenges

 

General Contractors are a brave species to roam the Construction Industry, yet often they go extinct. Why does that happen, and how can they prevent it?

The year 2020 sounded like it will be a marvelous year for the construction industry and especially for the General Contractors: The AHR Expo 2020 Economic + Industry Report asked the respondents of their survey for business heading into the new year. Most respondents were very optimistic for 2020: 79% reported their prospects to be good/excellent; 75 % expecting business to increase, and 25% expected business to increase more than 10%. Considering how Coronavirus has affected us until now, sadly, their predictions may not come true..

Being a Construction Contractor means facing a lot of risks and difficulties - it is a dangerous yet rewarding career. If you ever speak to a contractor about their job they will tell you how many challenges they face and how many dangers they face everyday - not only the obvious ones but also the ones hidden beneath the surface, waiting for them like an iceberg. Let’s take a look at them and possible solutions below!

Why do they fail?

We are here today to talk about why the Contractors fail and how they can learn to adapt, in order to keep their business profitable and growing. Every year thousands of contractors, whether in business for 2 or 20 years, face bankruptcy and business failure. According to BizMiner, of the 1,021,350 general contractors and operative builders, heavy construction contractors, and special trade contractors operating in 2014, only 722,281 still were in business in 2016 — a 29.3% failure rate.There are multiple reasons for it (and their global location does not matter). Here are a few of them:

Projects overload
The Contracting companies are always, eternally hungry for more. More work! More Projects! More of that means more money, but they never take into consideration the assets they have (money, machine or human). They assume they can get the Project and then hire on the fly, as you go… Well considering the heavy labor shortage many companies fail. Of course, the deployment of robotics could help, but tell me who has the money for that nowadays?! Another factor that comes in to play is the extension of one’s scope of experience - taking a project in a new specialty area, requires a lot of research and training.

Financial Management problems
Contractors take on big projects in the hopes of making a good deal. Now the problem is that even before you are paid, even before starting the project, you have to put money in the project you took over. Additional troubles may arise, like not being able to take credit so you can pay your team and your suppliers in time before the project money comes in. There are very few cases in which the contractor gets paid (partially) up-front, so this is a great risk that the Contractors are assuming.

Process planning and management issues
Construction Industry businesses usually are handed down from generation to generation so a lot of information may get lost along the way or processes will be changed. A well-known fact is that upper and middle management must be firm and well-positioned, otherwise the whole enterprise turns into chaos (eg. inadequate supervision, lack of understanding of company policies and procedures).

3 Solutions for General Contractor Challenges

Generally speaking, the right-fit software (like construction ERP systems) might get you through your tribulations easier. Let me give you 3 ways:

1.

Planning ahead
Taking too many projects on at once may cause issues with handling current staff details. What we suggest is not to panic because there is a labor shortage in the market, but rather think ahead:

Become a mentor
During the summer months the students are always looking for extra work that they can do, and in that way, you can give a helping hand to the young ones but also raise your own team from scratch. You can even create a program inside your company for that - it will also do wonders for your PR team and will definitely look good on Social Media communication

Think outside of the box
Find a new workforce, look at the female employment market - only about 10-11% of the construction industry is female. There are plenty of skilled workers out there, working on construction sites (or training to join the industry).

Make sure you invest in a good construction ERP system
A cloud-based ERP system will allow you to work from any place, at any time, as long as there is internet connectivity. There are plenty of construction management software systems for builders and contractors so there should be no issue in finding one that is suitable for you. Make sure you pick the one that focuses on the types of projects that you have and the processes attached to them. It will allow you to track your projects, at any given time, and see how they are fairing - what is the next step that needs to be taken, who should do which tasks and where? It is all there for you to see and stay on top of things!

2.

Managing finances
Cash flow and staying on top of accounting is key, so having a General Contractor management software by your side should be your top priority! A good construction ERP system should allow you to keep track of your finances and know, at any moment, the Financial Health of your projects at a first glance. The construction management software for builders and contractors that you will choose should have integration possibilities with the top market accounting systems (eg. Xero, Quickbooks, Sage). It should allow you to create, edit and send financial documents to your clients and to the companies that you work with. The general contractor management software should allow you to plan out and approve your budget - create the Bill of Quantities online and send it to your client remotely. You will have all the details in one single location, readily available for the members of your team - access granted by departments, to make sure the financial data is safe from prying eyes.

3.

Focusing on project management
Construction Management software for builders and contractors that are available on the market are focused on the Project Management side: making sure you have the Programme of Works settled down and input in the system; that the Scheduling is done properly by avoiding the double booking of the assets (a quite common mistake!) and resource mismanagement taking place; that the company stays on top of the Production Control - no matter how advanced the project it, no matter how many processes are attached to it, you will have it all in one place and easy to track it all. General Contractor management software exists so that you can breathe easily, so that you can focus your time and energy on more pressing/important matters. Even if you have just inherited the company, you still have this covered: bring to the front all the long serving employees of your company, settle down all types of projects and the processes attached to them. Discuss how the company works, understand it and implement it in the cloud-based ERP system of your choosing. This way you will have it all written down and agreed with the whole of your team - all you need now is to execute according to plan and keep an eye on the Financial Dashboard to see the Financial Health of the projects you are running.

We are aware that working as a General Contractor is challenging as the responsibilities at stake are high, but it can also be very rewarding. We recommend thinking towards the future, even in such dark times - when the threat of Coronavirus is upon us. This shall pass… but what matters is how we will rise from this challenge, from this “meteor” hitting us. Do we adapt?

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