Skip to main content
_FB_2018-Icons-finalized-cleaned-up_new_FB_2018-Icons-finalized-cleaned-up_newGroup 9
Back
Scroll to top

Small Construction Firms: Avoid These Four Trouble Spots

Running A Business 2 min read
Construction table with blueprints, hard hat and tools

Ready to talk to an expert?

First Bank’s Travis Bailey helps a variety of small businesses with their financial needs, including small construction firms – the kind that might build 20 to 25 homes per year, or construct local residential leasing complexes. We recently spoke to him about four financial trouble spots for small construction firms.

1)     Not having enough cash on hand.

In the wake of the housing crisis, liquidity is extremely important. Liquidity helps sustain a business until inventory is sold. And it helps fund future projects. In the past, a bank might have fronted 100% of the costs for new construction, but now we won’t advance our money until 20% of a project is complete.

As a bank, we want to see a construction firm that can effectively deal with managing costs, has a reasonable timeframe to achieve income generation, and has enough capital to cover expenses, the down payment (of 20%), and potential cost overruns (typically budgeted for 10%).

2)     Increasing inventory without justification.

It’s too much risk for too little reward. One item that is very important is managing inventory and projects in process.  Many construction companies, both large and small, jump into projects that look strong on paper; however, they turn out to be a major drain on capital.  Take the time to research and review each project to make sure you have adequate capital on hand and that the overall work will benefit your bottom line.

3)     Choosing multiple banking partners.

If you work with multiple banks on various aspects of your business, there’s a chance that one bank could structure a deal badly and impact the financial dealings of your other banking partners. At First Bank, we believe that being relationship-driven truly sets us apart. To us, our customers are more than just another name on a bulletin board.

4)     Not listening to your banker.

Choose a banker that you can trust through the good times and the bad. A good banker might not always tell you want you want to hear. But they can help you learn what you need to know.

Ready to talk to an expert?

Share:
First Bank’s Good To Know Logo
Sign up for our newsletter and be the first to know about new tips, insights, and products from First Bank.
First Bank may use this email address to contact you about products, services, and promotions.

You may be interested in...

Image for tile. 4 Questions to Ask Yourself as a Business Owner As a business owner, there are an endless number of questions you could be asking yourself to keep your business on the right path. Here are four questions that successful business owners consider when planning for the future: Am I setting SMART business goals? How can I invest in my staff? What are the strengths, weaknesses, opportunities, and threats of my business? What does growth look like for my business? Download our printable questionnaire to help you brainstorm ideas for your business as you read this article. 1. Am I setting SMART business goals? Every entrepreneur has aspirations for their business. That’s the easy part. Achieving those goals is where it gets tricky. Have you heard of the SMART acronym? Goals that are Specific, Measurable, Achievable, Relevant, and Timely ensure that you will be more successful in accomplishing them. Think of your SMART goals as the road map to your success. Giving yourself a specific and measurable direction will help to hold yourself accountable. Outlining achievable goals that are relevant to your business will ensure you are moving your business in the right direction, and having a set timeline will encourage you to stop dragging your feet and get moving! Set your own SMART goals Here is an example to get you started: Increase our total number of Instagram followers 15% by the end of the second quarter Social media is a powerful tool for your business. A growing social media community can correlate to a growing bottom line for your business. More followers could mean more potential customers and deepening relationships with current customers. Additionally, your business gains credibility and a competitive edge against other businesses in your industry. Specific Increase how many followers you have on Instagram by 15%. Clearly define the goal and what needs to be achieved clearly and concisely. Avoid broad statements. Measurable Increase in followers from 5,000 in the first quarter to 5,750 in the second quarter. Determine how the goal will be measured so you can track the progress. Establish specific metrics, either something quantitative, a numeric value that can be assigned; or qualitative, based on its overall quality. Achievable You already have someone on staff managing your social media and keeping up 8 min read