However, given the cyclical nature of construction, assumptions that hold true during slower periods may not hold when project demand accelerates. Project-by-project budgeting, fluctuating material prices and labor availability challenges make it difficult to predict and allocate resources accurately and effectively.
As contractors navigate the “peaks and valleys” of the construction cycle, avoiding three common mistakes can help maintain growth momentum and prevent avoidable strain:
- Cash Flow Blind Spots When Workload Increases
Cash flow may be more challenging to manage when project volume increases quickly. During slower periods, some contractors rely on borrowing between jobs to cover labor, equipment or overhead. Larger jobs often require significant upfront mobilization costs, and without disciplined forecasting and timely billing, a shortfall may be more challenging to identify. Regularly monitoring cash flow by contract size, timing and billing structure keeps working capital aligned with the contractor’s goals and provides a stronger foundation for larger opportunities. In certain situations, it actually may require infusion of additional capital or possible a request to the company’s bank for a temporary or permanent increase in available line of credit. - Relying on Outdated or Incomplete Cost Data on New Bids
Every bid is built on assumptions about labor, materials and subcontractor pricing. In busy cycles, those inputs can shift quickly, which means the costs or productivity expectations from the last project may not apply to the next one. When those changes aren’t communicated or updated, estimators may base bids on outdated assumptions, creating a gap between what the job was priced to deliver and what is required in the field. Keeping cost data current and sharing field updates regularly helps contractors price work accurately during growth. -
Not Reviewing the WIP Schedule Frequently Enough
With more jobs running at once, underbilling, fading margins, or shifting timelines can surface quickly. If the WIP is not reviewed regularly, these issues may go unnoticed until the financial impact becomes more difficult to control or correct. Consistent WIP reviews help contractors communicate real-time job performance with lenders and protect profitability as project volume rises. Keeping these schedules up to date provides an early warning system and helps ensure that financial decisions reflect the true status of each job. It is recommended that WIP schedules be prepared and analyzed at least monthly.
“Periods of high demand allow contractors to reinforce the systems and best practices that will support them in slower months.”
Periods of high demand allow contractors to reinforce the systems and best practices that will support them in slower months. Using growth periods to sharpen forecasting, improve job visibility, and update cost data helps contractors sustain momentum, not only through the current workload but also as market conditions shift.
For more information, contact Ronald J. Eagar, CPA, CCIFP Partner at Grassi, at reagar@grassiadvisors.com, through www.grassiadvisors.com or at 516-336-2460.
