Bob Nagle, CPA, CGMA, is a principal based in Rehmann’s Farmington Hills, Michigan, office. Specializing in assurance, tax and business consulting, Nagle serves an expansive roster of clients in construction and ready-mix concrete, distribution, manufacturing and technology. He began his career in public accounting in 1985, and has served a wide range of industries throughout his career. Visit rehmann.com.
Uncovering opportunities for growing any business, no matter the industry, requires that leadership be open to the idea of change. Technological advancements, a changing economic climate and movement within the industry are all contributing factors that can alter the outlook of any business.
When searching for ways to increase business volume and capabilities, the ability to embrace technological parity and effectively planning for it are critical. This is particularly true for the construction industry, as new technologies routinely change the type of equipment and machinery used for any one job.
Further, as urban landscape and planning evolve and more innovative designs are proposed for developments, construction companies often find themselves faced with having to expand their capabilities to meet changing project needs.
Planning & Finance
Business planning in construction can be highly volatile. The industry is often held hostage by trends, such as unpredictability in skilled labor, especially because construction businesses often employ part-time or contract workers to satisfy project demands. Coupled with changing project timelines and budgets, financial and business planning can become challenging.
The uniqueness of each project often results in shifting deadlines or additional measures that must be taken before completion. When project start dates are pushed back, planning for and accepting new business projects increases risk. As a result, a company may be forced to reject other projects, negatively impacting the business’s cash flow. Additionally, large increases in under-contract work and due cash still being processed can severely mitigate a business’s ability to plan for the future, making it vital to have a process in place to account for changes and have the capacity to react quickly.
One way to navigate through the risks and challenges associated with the industry is to build a strong relationship with a financial advisor who can provide support to companies and business owners by developing an ongoing review of the strategic business plan.
An annually reviewed plan with flexible solutions can provide a guide to understanding ever-changing budgets. Establishing a process for adapting the annual business plan in accordance with changing factors provides business owners with better insight into what portion of the budget they can truly use to invest in technological advancements and other solutions.
Valuation & Your Future
Determining the company’s greatest pain points and concerns, as well as its greatest strengths, is key in determining existing and potential business opportunities. A true valuation of the company provides a scale from which business opportunities can grow.
A number of different methods and strategies should be considered when valuing a business, all of which depend on the particular circumstances of each business and its owners.
Two common methods of valuation are evaluating discounted cash flows or taking a market approach. With either method, the balance sheet should be cleaned up as much as possible to arrive at a fair and accurate enterprise value. For these valuations, the business owner can lean on his/her financial advisor’s professional advice and assurance of accurate information. The financial advisor should either be credentialed for business valuations or willing to lead the effort in seeking assistance from other professionals.
Another critical strategy for defining the future of a construction business is exploring the hopes and fears of the owners and other parties holding equity in the company. As one explores the funds available to take on a project, investment or other venture outside of the company’s typical scale, it is vital to calculate and clearly outline the division of equity.
This proves particularly valuable when the time arises for an owner or top executive to leave the company. Paying out equity without harming the needs of the business is essential to navigating through any ownership or leadership succession. Too much capital pulled out of a business can leave the company in distress and make it difficult to move forward successfully. Even worse, losing experienced company leaders and executives, without having a tested succession plan in place, can significantly stunt its growth.
Due to the risk of changing deadlines and an unstable workforce, ensuring the protection of the owner’s personal assets is important, as owners often need to secure bank guarantees at the beginning of a project.
The various risks associated with any construction project in the industry’s current labor condition make keeping an owner’s personal assets out of agreements in bank guarantees imperative.
Ultimately, when exploring potential business opportunities, investing in the right products, brainpower and projects will help open doors for future business. And having a plan for asset allocation—or the distribution of future earnings—will help achieve long-term business goals.
Technology in the field has allowed construction companies to be able to react quicker and better judge how jobs are progressing. By tracking construction activity data, such as capital planning and change management statistics, construction managers can better plan for the future.
Effective resource planning is key to allowing your construction company to continue to grow and maintain sufficient profitability levels. Through working with a financial advisor, evaluating opportunities to increase business volume, implementing technological advancements, and managing processes adaptable to changing factors, you can position your construction business for a strong, fruitful future.