4 financial management tips for builders in an economic downturn

Your construction business is a for-profit entity.

You started this thing to make money — and that’s great.

Of course, there are other reasons you became a builder: to serve your community, to grow as a leader and to do what you love. While that deeper why provides meaning and motivation for us, if making money in construction isn’t alsoat the top of your list, you might be in trouble.

Profits are a slippery business. Sometimes it can feel like what you made on paper and what’s in your bank account don’t quite line up. Sometimes top-line growth doesn’t translate to bottom-line growth. Sometimes the market roars and you make money hand over fist; other times you need to run lean and stay hungry.

As we face an economic downturn and prepare for a recession, it’s important for your construction business to be ready. Buildertrend and Breakthrough Academy have partnered together to help. Check out these money management tips to boost profits, scale your business and improve your construction systems.

1.  Be flexible

When it comes to knowing what’s next in the market, your guess is as good as ours. We can’t tell you what’s going to happen, and anyone who tries should be skepticized. However, looking to the past can help us identify trends to take the next smart steps.

You and your construction business will inevitably go through a recession at some point – this is a mathematical certainty. Look at even the simplest graph of macroeconomic performance, and you’ll see that surviving the dips is part of the game.

Substitute your panic and worry with a mindset of acceptance – or even curiosity – toward a changing market.

2. Know your numbers

Although you can’t predict the future of the market, you can know your business and its financials.

When you look at the businesses that prevail through rocky market conditions, they tend to have one thing in common: They know their numbers inside and out. Invest in sophisticated systems and advisors so you can have the visibility you need to navigate whatever comes next.

Here are a few important key performance indicators to keep your eyes on:

• Revenue: Be sure to look at revenue numbers quarterly. Compare them to your budget, as well as the previous quarter’s revenue and the revenue for the same period the year prior.
• Gross Profit Margin: Builders should also check their gross margin every quarter and compare it to their target goals, as well as previous years’ numbers.
• Fixed Expense Ratio: Since fixed expenses don’t typically fluctuate too much, it’s important to look at this number as a percentage of revenue. A benchmark percentage for a residential building company is about 15%.
• Net Profit Margin: The industry benchmark for net profits is a 10-15% margin. The best way to achieve your goal net profit margin is to focus on margins and ratios instead of just revenue.

Buildertrend is a comprehensive platform that allows you to know your numbers with confidence. Financial tools like Bids, Purchase Orders, Estimates and our QuickBooks integration keep your numbers visible and your business on track.

3. Take a financial management refresher

That being said, now is a great time for a refresher in all things financials. We’ve put together some of our favorite content on the topic for you to learn, enjoy and feel secure in your home building financial future.

Contractor Evolution Podcast – Episode 68: “Thee Profit Killers and How to Avoid Them”

Breakthrough Academy has systemized over 450 businesses just like yours. One of the most important key performance indicators we track to assess the health of a business is net profit.

When we look at the aggregate data, three stand-out expense categories seem to be killing margins left, right and center. Curious which ones they are? Check out Episode 68 of Contractor Evolution to find out.

Contractor Evolution Podcast – Episode 18: “Tax Strategy for Contractors (Because You’re Probably Doing it Wrong)

You have a silent business partner in the room that extracts their share of profits every year:  the IRS (or the CRA for Canadians).

What most entrepreneurs don’t realize is that tax law is not black and white. There’s a lot of strategy and planning that can and should go into your annual accounting cycle. 

In this tax episode with Ben Dixon of Renaissance Group, we talk about the best corporate structures for construction companies, how to pay yourself, the “lease vs. buy” debate and a whole host of other tactics aimed at saving you more when tax season rolls around. Check out Episode 18 of Contractor Evolution for more.

Contractor Evolution Podcast – Episode 31: “Is Your Bookkeeper Competent?”

Accurately tracking financial data and using it to make the right decisions requires great accounting infrastructure – and the right person to do it diligently.

The good news is that person doesn’t need to be you. Your responsibility is to assemble the right people around you to get this done successfully. It’s hard to find the true pros out there, so we brought on our friend Morgan Ray of Bookkeeping For Trades to help.

She’ll discuss how to find a truly excellent bookkeeper, what your monthly bookkeeping cycle should look like and how to keep your business safe from embezzlement and fraud. Check out Episode 31 of Contractor Evolution here.

Live Web Class: The Financial Secrets of 8-figure Contractors: How to Boost Net Profit – and Prepare for the Next Recession

We’re hosting a live web class on Oct. 3 to help you unlock the financial secrets you need to boost your construction business. Benji Carlson from Breakthrough Academy will share the three simplest financial systems you can use to increase your profits, improve cash flow and scale up – even in a down market. Register now for the FREE course (space is limited).

4. Accurately track your finances with a great construction software platform

Getting a grip on your company’s numbers is a surefire way to be ready for anything and everything. To be prepared, invest in a solid software platform that has everything you need all in one place.

With Buildertrend’s new estimating and takeoff features, accurate numbers are second nature. Save time with digital blueprints, remove the guesswork from your estimates and rely on helpful financial tools to set your business up for success.

Ready to get your financials in order?

Schedule a demo today and see how our takeoff, estimating and financial solutions can revolutionize your construction business.