Overcoming Inflation Challenges in the Construction Industry
How to Overcome Inflation Obstacles & Improve Cash Flow
Inflation has become a global reality that affects our daily lives – from grocery store shelves to the local gas station. Unfortunately, this economic pressure isn’t solely limited to everyday items; contractor and construction firm costs have also skyrocketed in recent years due to inflationary pressures. We’re here to provide you with reliable facts and knowledge so that navigating these turbulent times can be done confidently!
Defining Inflation
As time passes, buying power decreases: your dollar today won’t get you the same tomorrow. Inflation is a measure of this diminished purchasing ability – rising costs for goods and services that make it harder to purchase everything we need daily.
Causes for Inflation
Inflation in America is the result of numerous conditions converging. From disrupted supply chains to production bottlenecks, goods have become scarce, and prices are surging – pushing businesses into a corner where they need to raise costs to stay afloat. These escalating expenses affect your profits and client satisfaction.
How Inflation Impacts Your Business
Despite the economic downturn, construction costs are still on an upward trajectory. In January 2022 alone, several items in the sector saw their prices rise significantly compared to a year prior – including asphalt paving materials which soared by 5.2%, lumber and plywood products with a 4% jump, and cement at 2%. Experts expect these increases will continue as we proceed with 2023.
Inflation significantly impacts construction businesses and those connected to them, from employees to suppliers. Everyone experiences its effects differently – depending on their situation – as prices for supplies rise or salaries increase with mounting pressure in the market. Business owners need to stay aware of inflation trends to be prepared when it comes time to make tough decisions about adjusting costs and contract bids. Inflation can affect:
Clients
Offsetting inflation can be challenging for your business, but it is important to consider the impact of raising prices or stretching timelines on clients. Be mindful that customers may bear much of the burden when you adjust to protect from rising costs.
Sales
Your sales team’s success depends on various moving pieces. If you increase project price points but maintain client satisfaction, your commission-based staff may gain from inflationary shifts in the market.
Skilled Labor
Inflation can create an unpleasant ripple effect, impacting traditionally hourly skilled labor. As daily costs like food and shelter climb, their wages fail to keep up, leaving them struggling for financial security and potentially pushing for higher pay.
Supply Chain Partners
Amidst inflationary pressures, your suppliers have been forced to raise prices. Though this may seem inconvenient now, it could cost you more than money if those partnerships become strained long-term. Keep the relationship strong and take proactive steps to protect yourself against rising construction material costs!
Construction Firm Owners and Contractors
Being a construction business owner can be challenging, especially if you’re not ready to adapt. With inflation causing higher expenses and thinner margins on projects, failure to adjust could mean disaster for your company’s future success.
Overcoming the Obstacles Inflation Presents
Communication
To ensure smooth sailing on any project, it is imperative to have effective communication with all stakeholders. This means being upfront and honest about potential changes in cost estimates, delivery dates, or timelines and documenting everything thoroughly. Taking the proper preemptive steps can help avoid uncomfortable pitfalls down the road.
Better Track and Control Costs
With so many construction companies failing to keep close enough tabs on their expenses, bidding for projects and running a profitable business can become an uphill battle. Devine Consulting can help you with careful cost management because you’re destined to struggle without it.
Don’t Compete Based on Price
Don’t undercut yourself – when submitting a bid, make sure the price you give your clients is sustainable. Going too low on prices can be disastrous overall and leave little room to maneuver if unexpected expenses or inflation occur. At the same time, show clients they’re getting more than their money’s worth. Make sure to emphasize your areas of expertise, superior quality, or swifter turnaround time – all traits which will help you stand out as a valuable asset!
Diversify Services
Are you struggling to source materials and hire employees to meet your timeline? The situation may seem impossible, but there is a way out of this inflation storm: consider diversifying the types of clients and services that you offer. With some creativity, you can overcome even seemingly impossible challenges!
Accurate and Early Planning
Aim for efficiency, no matter how daunting the project may seem: take the initiative and jumpstart pre-planning; ensure designs are finalized so materials can be purchased easily – these strategic moves will ensure your projects run smoothly!
Ensure Ample Stock of Supplies
Make strategic purchases to ensure you’re prepared for any potential shortages. Stock up on the essentials that may be hard to get down the line and create a steady supply chain between your business, suppliers, and customers so nothing gets wasted!
Implement a Cost Escalation Clause
When bidding on projects, it is essential to consider the inflation risks and use them to price proposed contracts correctly. This includes factoring in the additional margin or informing clients upfront about how prices could change over time with a cost escalation clause. This way, they can make informed choices when awarding bids – enabling swift award procedures that help lock in competitive pricing for materials and supplies!
Improve Financial Management with Professionals
Contractors in the construction business face unique financial complexities and should seek out experienced, professional accountants to ensure their accounts are managed correctly. From indirect costs to complex situations, our professionals have the expertise required for expansive budgeting operations. With turbulent economic conditions, staying ahead of the curve is vital by creating robust financial management processes.
Manage and Improve Your Cash Flow
Consistent cash flow is essential to provide stability in times of uncertainty, but it’s a struggle with which many construction companies are all too familiar. With these challenges in mind, thoughtful management of finances becomes paramount to keeping businesses afloat – especially during troubling moments like now.
Work with Your Financial Professionals
Inflation can significantly impact a business’s financial health, making it critical for companies to stay on top of their finances. A bookkeeper can play a vital role in helping a business manage inflation by providing accurate financial information that enables the business to make informed decisions about pricing, inventory, and expenses. By keeping detailed records of all financial transactions and monitoring cash flow, a bookkeeper can help a business identify areas where costs can be cut and profits can be increased.
A bookkeeper can help a company stay on top of tax obligations, ensuring the firm does not incur penalties or fees due to missed deadlines. Overall, having a bookkeeper can help a business navigate inflation challenges and maintain financial stability. An accountant can help you manage your finances during tough times and ensure you are still making a profit.
Your accountant can help you budget properly and ensure you are operating cost-effectively. This valuable professional will also be able to advise on reducing costs, increasing profits, and identifying areas where money is being wasted.
Partner with Devine Consulting to Weather Inflation
For over a decade, our Accounting and Financial Controller Services have successfully partnered with contractors and construction companies to make their businesses thrive. Even during tough times, we are here to provide reliable support that you can always depend on – whether with direction or advice!
Let’s get started today on weathering times of inflation! At Devine Consulting, your success is ours! As true partners in this journey with you, we are dedicated to providing comprehensive accounting and financial controller services explicitly tailored to meet both current goals as well as future aspirations. Schedule your consult today!
