Construction business owners often struggle to manage their finances and consequentially end up making costly blunders. Sometimes it’s because they’re unaware of their business’s financial status or don’t invest enough time and effort in financial management.
Failing to understand the cost and revenue streams in your construction business can lead you to severe financial trouble. Escalating debt, low and steady profits, insignificant investor appeal, and increasing expenses are some of the signs indicating poor construction financing.
Construction projects often fail when business owners fail to meet the expectations of their clients and other stakeholders. For example, if you don’t conduct expense tracking and analysis properly, you might not be able to estimate accurate bids. This leads to unclear markup revenue understanding and long-lasting cash flow issues.
In this blog, we’ve highlighted three common financial slipups made by many construction companies across the US.
1. Cash flow Bottlenecks
Big and experienced construction real estate companies know the importance of maintaining and accelerating cash flow streams. However, this could be a major challenge for new entrants and small businesses. Cash management, like in every other industry, is an integral part of construction businesses too. From managing profits to controlling expenses, several nitty-gritty tasks have to be taken care of every day.
A small misstep in the cash flow management of your construction business can impact the overall performance of the company. It not affects your firm’s financial stability but also limits solvency. A good way to keep your business cash inflow and outflow steadily is by opting for hard money commercial real estate loans in the US.
They help streamline your company’s cash flow by avoiding delayed payments, halted growth, and diminished investor attraction.
2. Not Vetting the Client Properly
Construction business owners often trust new clients and investors too easily. They focus more on the investment scope and amount instead of the risks involved in allowing a particular entity to invest in their construction firm.
Closing deals without a proper background check, credit history analysis, and accurate due diligence can lead your construction firm toward significant trouble. If you want to partner with a potential client, don’t rush the process. Start by talking to any previous company the client has worked with. Hit up suppliers and vendors to get feedback about the client’s payment history.
3. Doing Work Without Documentation
Another common financial mistake construction companies make is working without documentation. Our experienced underwriters can help you prepare legally binding agreements to ensure steady and smooth business operations.
The construction industry is very brutal and hands-on in terms of regulations and competition. Therefore, conducting business activities without following due diligence and underwriting procedures can lead to potential investor or client bail-outs and frauds.
From documenting invoice receipts of the smallest purchases to writing down additional project work, each and every project activity must be documented. You should never make business agreements via handshakes as these undocumented changes and additions can lead to severe financial issues down the road.
Whether you’re looking for an experienced underwriter or a reliable hard money lending company in the US, Commercial Private Equity is here to help.
With our extensive 75-years long experience in the industry, we’ve served countless businesses and individuals close profitable deals by offering them quick and flexible nationwide hard money loans. Our project portfolio ranges from motion picture projects to working gold mines in Utah.
Call us at 4049653625 for more details or apply for a construction loan today!