As the economy continues to grow and the construction labor market continues to tighten, many contractors are faced with an exciting question.
Should I Try to Grow My Business?
Growing your business comes with both risks and rewards. Growth can bring increased profits, greater visibility in the community, and the opportunity to build a more stable financial future for you and your family.
However, growing your business also brings risk. Greater demands on your time, increased complexity in managing your finances, and greater scrutiny when things don’t go according to plan.
Before you grow your business, here are five questions you should ask as you assess whether or not your business is ready to grow.
1. Do You Have a Plan?
Saying that you want to grow your business and actually growing it are two different things. Growth can be rewarding, but it can also be challenging. This is why it’s important that you create a business plan that accounts for your plans.
If your goal is to book more projects at the same budget level or to take on projects with a larger budget, you should ask yourself:
- Do you have the financial profile to get larger bonds?
- Do you have the cash flow to cover initial costs when your bid is accepted?
- Do you have the back-office support to manage these projects?
Before attempting to expand, it’s a good idea to take a hard look at your finances and back-office to determine the answer. Once you’ve done that, develop a realistic business plan that will allow you to grow in a way that doesn’t hurt your credit rating or puts undue stress on your finances.
Before making any decisions, it’s always a good idea to talk to your insurance agent, bond provider, banker, and accountant.
2. Can You Get the Bonds You Need?
More projects (or larger projects) mean that you may need to increase your surety bonding line. If you are dealing with debt or credit issues, this may stretch the limits of your bonding line. In some cases, you may need to pay a high bonding premium or factor requests for collateral into your growth plan.
3. Do You Have the Sufficient Cash Flow?
Growing a business requires investment. Whether its new equipment, paying more team members or hiring more staff, every growth plan requires capital. Once you get bonded for a project, you’ll also need additional capital to cover the initial expenses.
Even if your business is profitable on paper, if you’re carrying too much debt, you run the risk of running out of money when you need it most.
Improving your cash flow may also be tied to how you manage your finances. The following are just a few factors that can affect your profits, and by extension, your cash flow.
- Collecting on Accounts Receivable
- Making payments to vendors on time to avoid penalties
- Taking advantage of early payment discounts
- Managing change orders
Having an effective project accounting team can make all the difference in these areas as you plan to grow your business.
4. Are You Licensed and Certified?
Clients are savvier than ever before, and with 24/7 access to the internet, they have more information about you and your competitors available with a click or a swipe.
This is why it’s important that you make sure that your business is licensed and/or registered, and that you keep your licenses up to date.
It’s also a good idea to get certified. More and more clients want their projects to be energy efficient, not just for the environmental benefits, but also because it can save on their utility bills in the future. Getting LEED certified or being a Home Energy Rating System (HERS) rater can show potential clients that you have the know how they are looking for.
5. Do You Have a Marketing Plan
Growing your business is great, but if no one knows that you’re ready, then you won’t get the projects you need to grow.
Marketing can take many forms. It can include upgrading your print materials, building or updating your website to entice and capture more leads, traditional print and billboard advertising, digital marketing, personal outreach to general contractors or taking advantage of networking opportunities to grow your customer base.
Grow Your Business with Ox Bonding
Working with Ox Bonding can help. Our Contractor Credit Program is designed to fully assess a contractor’s potential, both on the job site and in the back office.
Our team of underwriting experts can determine a bonding line that works for your business, and unlike other companies we don’t require collateral.
In addition, our Project Accounting Service can help you to better organize and manage your back office, and our Requisition Cash Advance service can help you to better manage your cash flow issues so that you have the funds you need to get the job done.
In our next article, we’ll review some of the personal consideration that you’ll want to take into account as you think about growing your business.
Ready to put Ox Bonding’s experience to work for you? Download an enrollment application or call us today at (877) 55-THE-OX.