10 Ways to Reduce Construction Expenses and Boost Your Bottom Line

One of the most important aspects of running a construction business is keeping an eye on cash flow. You need a steady stream of capital to purchase supplies, pay workers, and ultimately, keep your business afloat. Minimizing your construction expenses is one way to keep your business out of the red. And implementing these ten cost-saving measures can lead to a healthier bottom line.

1. Go digital

When it comes to managing the back-end of your business, you can’t afford to waste time — or money. If you’re still using old-school systems, consider going digital with your paperwork and time cards instead.

Keeping your paperwork centralized in the cloud has multiple benefits. You can skip the expense of purchasing in-house servers and licenses, as well as the ongoing maintenance costs required to back up your data. And a cloud-based document management system makes it easy to access documents from wherever you are — whether it be your couch or a construction site.

Digitizing time cards can also be a cost-save, allowing you to maximize your productivity and that of your workers. You can quickly identify the amount of time spent on specific tasks and eliminate any labor inefficiencies, getting projects done faster, and increasing overall profitability in the process.

2. Consolidate high-interest business debt

If you’ve taken out short-term small business loans to bolster working capital flowing or long-term loans to invest in growth, making that debt less expensive could benefit your construction business’s bottom line.

Rolling multiple loans into a single loan with a lower interest rate means less interest paid total over the life of the loan. It’s also easier to keep up with a single loan payment each month, which can make accounting less stressful.

3. Consider alternatives when buying equipment

Equipment may be the lifeblood of your contracting business, but think twice when it’s time to replace something. Rather than purchasing equipment outright, you might consider leasing it instead.

Leasing can be less capital-intensive than buying equipment, and it may be easier to qualify for compared to financing. If you have to replace equipment regularly, it can also be more cost-efficient than getting a loan every time and piling up debt.

You could also invest in used equipment, rather than new, if you’d prefer to buy what you need. Secondhand equipment may be cheaper while delivering the same results, assuming it’s in good condition.

One more tip: leverage the equipment you already own to increase cash flow. If you have vehicles or equipment on hand that you’re no longer using, consider whether you can sell and use the capital to strengthen your bottom line.

4. Focus on customer experience

Advertising can bring in new leads and clients, but it costs money to do it effectively. If you’re trying to keep construction expenses at a minimum in your construction business, word of mouth could be your best tool.

Customer referrals can help boost revenue if they lead to a steady stream of new projects. Getting those referrals hinges on creating the best experience possible for current customers.

Some of the ways you can do that include:

● Offering incentives, such as loyalty programs or discounts
● Adding a personal touch with handwritten thank you cards or holiday cards
● Being responsive to customer questions or complaints
● Sending out regular email or paper newsletters

While you’re giving extra attention to your current customers, don’t neglect to warm up cold leads. Test out different follow-up methods — like phone calls, emails, or mailers — to see what’s most effective in converting cold leads to customers.

5. Take advantage of tax breaks

Tax deductions and credits can help to offset some of your construction business expenses. For example, the 20 percent pass-through deduction allows qualifying sub-contractors whose businesses operate as pass-through entities to deduct 20 percent of their income right off the top.

Other commonly deducted expenses for contractors include:

● Marketing costs
● Interest paid on small business loans
● Equipment purchases
● Travel expenses

One important tip to remember is to identify workers correctly as employees or independent contractors. Reporting worker incomes on Form 1099s allows you to sidestep paying certain employee taxes, but it could lead to trouble if the IRS views those workers as employees.

6. Renegotiate terms with vendors and suppliers

One of the easiest ways to reduce construction expenses may simply be asking your vendors and suppliers for a better deal on material costs or interest rates for vendor tradelines.

How successful this approach is in reducing expenses depends mainly on the relationship you have with your vendors and suppliers. If you’ve been working with the same vendor for several years and you’ve always paid your invoices on time, they may be more willing to cut you a break compared to a supplier you’ve only been working with for a few months.

You can also lower expenses by shopping around for better deals on key services, such as cell phone service, internet, and insurance. Look for companies that offer lower prices on bundled packages or discounts for switching services to save money.

7. Manage materials more efficiently

Reducing material waste is another effective way to bring down your overhead. Using prefabricated materials, for example, can reduce labor costs since there’s less need to construct on-site.

Construction project management software is another option. With a CMS program, you can more easily manage every aspect of a project, including how materials are purchased and used. If a particular aspect of a project needs to be changed, for instance, you could use your software to communicate that change to your entire team, saving time and money in the process.

8. Automate business processes

Automation can lower expenses if you’re able to streamline time-consuming processes. For example, you could automate payroll, budgeting, and accounting or the method you use to submit project proposals. Putting these processes on autopilot can reduce administrative costs as well as minimizing the potential for error.

9. Buy in bulk

Aside from reducing waste, you may be able to lower expenses and save money by purchasing supplies in bulk. The key to making this strategy work is to get the lowest per-unit price possible.

Again, this is where asking vendors and suppliers for a discount may be to your advantage. They may be inclined to cut you deal if you’re placing a larger-than-usual order for supplies and materials. Just make sure that you have a plan for utilizing materials, so the money isn’t wasted. A good rule of thumb to follow is calculating the potential return on investment for any purchase, materials, or otherwise, you plan to make for your business.

10. Eliminate money leaks

Last but not least, review your monthly budget for your construction expenses line-by-line to see if there are any recurring expenses you may be able to do without.

If your construction business is susceptible to seasonal swings, review your budget again as the season slows down to see what you can cut. Trimming back the number of laborers, for example, or reducing your advertising budget can help you stay on solid ground with cash flow until business picks up again.

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Bio: Samantha Novick is a senior editor at Funding Circle, specializing in small business financing. She has a bachelor’s degree from the Gallatin School of Individualized Study at New York University. Prior to Funding Circle, Samantha was a community manager at Marcus by Goldman Sachs. Her work has been featured in a number of top small business resource sites and publications.