Introduction
As a construction company, it is important to be aware of the common financial mistakes that construction companies make. By being aware of these mistakes, you can avoid them and keep your construction business financially healthy. In addition, construction companies can learn from the mistakes of others to avoid making the same mistakes.
1. Not having a budget
One of the most common financial mistakes construction companies make is not having a budget. A budget is an important tool that helps construction companies track their income and expenses. Without a budget, construction companies are more likely to overspend and get into financial trouble.
2. Not tracking expenses
Another common financial mistake construction companies make is not tracking their expenses. It is important to track all expenses, both big and small. By tracking expenses, construction companies can better control their spending and avoid financial problems.
3. Not getting paid on time
One of the biggest financial problems construction companies face is not getting paid on time. Construction companies often have to wait 30, 60, or even 90 days to get paid for their work. This can put a strain on construction companies’ cash flow and cause financial problems.
4. Not having enough insurance
Another common financial mistake construction companies make is not having enough insurance. Construction companies should have insurance to protect themselves from financial losses due to accidents, injuries, or property damage.
5. Not having a contingency fund
Another important thing construction companies should have is a contingency fund. A contingency fund is money set aside for unexpected expenses. construction companies that don’t have a contingency fund are more likely to experience financial problems when unexpected expenses arise.
6. Using a wrong financing construction loan company
Construction companies should be aware of the common financial mistakes construction companies make when it comes to financing their construction projects. construction companies should choose a construction loan company that is reputable and has experience in providing construction loans. In selecting a construction loan they should take a look at the following:
- The construction loan company’s reputation
- The construction loan company’s experience
- The construction loan company’s fees
- The construction loan term
- The construction loan interest rate
If construction companies are not careful in selecting a construction loan company, they may end up paying more in fees and interest rates. This can lead to financial problems for construction companies.
7. Applying for construction loans from the wrong sources
When construction companies are seeking construction loans, they should be careful about the sources they apply to. Applying for construction loans from the wrong sources can lead to construction companies paying more in fees and interest rates.
Some of the wrong sources construction companies should avoid include:
- Loan sharks
- Construction companies that are not licensed or registered with the state
- Construction companies that are not insured
- Construction companies that have a history of fraud or financial problems
Applying for construction loans from these sources can lead to construction companies paying more in fees and interest rates. This can lead to financial problems for construction companies.
8. Not having a project plan
One of the most common financial mistakes construction companies make is not having a project plan. A project plan is an important tool that construction companies can use to track their progress and ensure that they are on track to meet their financial goals. Without a project plan, construction companies are more likely to make financial mistakes and get into financial trouble.
Some of the things construction companies should include in their project plan are:
- Their financial goals
- Their income and expenses
- Their construction schedule
- Their marketing plan
- Their sales plan
Construction companies that don’t have a project plan are more likely to make financial mistakes and get into financial trouble.
9. Doing Work Without Documentation
Construction companies should always get documentation from their clients before starting work. This documentation should include the scope of work, the budget, and the payment terms. construction companies that don’t get this documentation from their clients are more likely to do work without getting paid. This can lead to financial problems for construction companies.
10. Not Getting Paid for Change Orders
Construction companies should always get paid for change orders. A change order is a document that construction companies receive from their clients when the scope of work changes. construction companies that don’t get paid for change orders are more likely to do work without getting paid. This can lead to financial problems for construction companies.
11. Invoicing Late & Missing Bank Draws
Construction companies should always invoice their clients on time and make sure that their invoices are accurate. construction companies that don’t do this are more likely to miss bank draws. This can also cause construction companies to run into financial problems.
12. Not Tracking Receivables
Construction companies should always track their receivables. Receivables are the money that construction companies are owed by their clients. construction companies that don’t track their receivables are more likely to miss bank draws. This can also cause construction companies to run into financial problems.
These are some of the most common financial mistakes construction companies make. By being aware of these mistakes, construction companies can avoid them and keep their construction business financially healthy. For more financial knowledge, get in touch with one of our professionals at Funding Bay.
