Firstly, let’s set the scene:
There are 5.7 million SME’s in the UK as of the latest statistics from 2017, which is approximately 197,000 more than in 2016. The combined annual turnover of SME’s was £1.9 trillion (51% of all private sector turnover in the UK). SME’s account for 99.5% of the businesses in every main industry sector, and staggeringly, nearly a fifth of all SME’s operate in the construction sector.
Why the Construction Industry is Set for Massive Growth
There’s no denying that the construction industry as a whole is picking up and getting busier, as concerns over Brexit uncertainty appear to wane and housebuilding activity surges.
Technological advancements have already improved the industry, with modular building and 3D printing leading the new paradigm in construction techniques. As we watch the evolution of 3D printing technology as it moves into printing concrete, it’s not hard to see how the industry is going to shift in the coming years. The question is less whether or not machines and AI will be taking construction workers jobs, but rather more a question of when.
The net effect of this on the industry is that the cost of producing buildings is going to decrease, and the speed of fabrication is going to increase… all the while require fewer ‘boots on the ground’ to achieve the same end goals.
The Biggest Problems for Construction Businesses
For those businesses that move with the times and stay ahead of the game, these changes will be anything but disruptive – they bring with them more opportunity, to achieve great results, with less effort. One of the biggest challenges in the industry is man-power; finding and retaining good staff, both on and off-site, is an ever growing challenge.
The availability of high quality site operatives has been killing UK construction businesses since the global financial crash of 2008/2009. The reason? Well, quite simply, the construction industry was put on it’s knees, and so the youth coming up through the educational institutions at the time were training in the trades. Why? There was no work available, and so no prospects for them once they completed their training. When they looked out into the world, construction was seen as a dying industry, with no jobs, no funding, and no hope. So they stopped training to be plumbers, carpenters and electricians which led to a massive decline in the numbers of students applying for and taking those vocational courses.
We’re only now seeing the net effect of this, manifesting as a distinct shortage of workers that I would argue is being felt my most businesses in the industry.
That said, things have been picking up for some time now, and although this has ultimately added to the resourcing issues, with companies becoming more and more reliant on agency workers to fill their on site quotas as they get busier, it’s also starting to feed people back into the industry at the bottom. More and more people are training in the various trades now than they were five years ago because they can see a resurgence in the industry, however this will take some time to filter through to the various sites and construction businesses operating throughout the UK. In the next few years, as those currently being trained come out of the other side of their training and education, we’ll start to see more and more qualified men and women joining the ranks in the industry, but how do we get through the next few years while we wait?
Construction business owners are faced with the dilemma of more and more work coming their way, less competition around to compete for the work (due to a large number of firms and sole traders exiting the market during the hard times), yet a stagnant pool of talent from which to recruit as their businesses grow.
Finding great people has always been a challenge in the industry, but now more so than ever as we get caught in what looks like a perfect storm of more work, a revived industry, yet a frustratingly slow influx of new talent to replace the ranks fallen during the economic crisis.
The Challenges We Face
The challenges we face in growing our construction businesses are simple to name, but not necessarily so simple to solve:
- Finding the right people; both on and off-site
- Control of costs
- Maintaining profit margins
- Operational delivery; quality control, training, health and safety and meeting project deadlines
- Maintaining a steady flow of revenue
These five challenges haunt the hallways of most, if not all, construction companies both in the UK and worldwide.
The only answer is for construction business owners to start thinking differently, and to think differently we need to start asking higher quality questions of ourselves, the industry as it stands today, and what the industry will look like tomorrow. Should we be looking for more effective recruitment techniques? Or should we be looking at investing in the cutting edge machinery that is set to change the face of the industry in the next decade?
Well, the answer is multifaceted but surprisingly simple.
- Plan ahead and start building your substitute bench NOW; instead of simply thinking of the people you need right now (a big mistake I see many business owners/operators making in multiple industries), plan your growth and start to ask what staff and what levels of certain trades you’re going to need in 3, 6 and 12 months from now. Never stop collecting CV’s and interviewing interesting candidates – add the promising ones to your substitute bench so you can call on them when you need them; the bigger your bench the better – your staff are the life-blood of your business
- Know your numbers; if you don’t know your numbers in detail, then you have no hope of successfully managing and controlling your cost base. Wastage is a big issues in the industry, so operating your projects on a ‘just-in-time’ basis is critical for cashflow. Over-ordering, and mis-ordering is another big issue in the industry, with site yards often being filled with materials that have been over-ordered or ordered way before they are actually needed, and this is killing the cashflow of your business. Don’t pay for things before you need them, and make sure you negotiate the best credit terms possible with your suppliers – the more business they help you do, the more business you can in turn do with them, so it’s a win win when they give you the credit you need
- Pricing and quoting projects is key to profitability; know the difference between mark-up and margins – they’re two different beasts which catch a lot of people out. A 30% mark-up does not produce a 30% profit margin. For example, if we start with a base cost of £1,000 for a small job, and add a 30% mark-up, we get a sales value of £1,300 – however, our profit margin is 23.1%. Make sure you know the difference and how this relates to your bottom line. Turnover is vanity, profit is sanity. Track these numbers very carefully throughout each project to ensure you stay on budget, and that if you start to go over you can catch it and make amends quickly. Know your numbers, and control costs – make sure your teams on site aren’t over delivering to the point where it’s decimating your bottom line, and your project schedule – over delivery is fine, so long as the project stays on budget and on time
- Make sure you build out the support team as much as you build out the delivery team; sure, the boots on the ground are the ones actually installing and ultimately delivering the product, but without the right support team behind them they are guaranteed to go over budget and finish late. Each and every project should have a support team consisting of project management, purchasing support, employee support and direct site management and oversight. Together, this team works with site to make the project delivery a success, and if any element of this power team is missing or operating below par, it is likely to be fatal for your project
- Departmentalise your admin staff, and make sure you have a sales team that’s focused on just that – sales! It’s so easy to drop the ball and take your focus and attention off sales and marketing activities when your cup is full and the business is operationally busy – even stretched. I know, I’ve been there. The problem with this is that when no one is selling the business during those busy times, people forget who you are, leads go cold, and work dries up. What often happens is that more focus is put onto delivery than sales, and then once that set of projects completes, there aren’t any new projects to move on to… and thus such businesses end up being subject to the whims on the market, and suffering massive peaks and troughs in their levels of activity, and ultimately their revenue. This is terrible for cashflow and profitability – make sure you have a sales team (even if that’s just one person) who have their eye on the sales ball all year round
The Best Growth Strategy for 2018 and Beyond
As we become more and more connected as a species (there are currently over 2 billion people using Facebook alone), the markets evolve and change, and so must our approach to growing our businesses. One of the most successful approaches in this fast moving environment is to become an expert business – did you hear of the story of the plumbers who put out a short Facebook video explaining how to defrost a condensate drain on a boiler when we had the last cold spell? It went viral and was watched by literally millions all over the world. How much business do you think that company has got as a result of that one video? This is the power of positioning yourself and your business as an expert in your field – generalists seeks clients, clients seek experts…
Would you like to find out more about how you can position yourself and your business as an expert and industry leader in construction utilising the power of social media?
Would you like to find out how I grew my family business from £2.2 million in turnover to £6m in turnover in just three years?
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