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What are the Financial Challenges in the Construction Industry

Construction is a business that’s unique in many respects. If you’re operating a business in this space, then you’ll face a distinctive set of challenges and obstacles involving finances in the construction process. Given enough time in the industry, most business owners will find themselves faced with most of these. Before that happens, it’s worth being aware of what these problems look like, and how they might be counteracted.

The involvement of a third-party consultant with experience in finances in the construction industry might help to mitigate many of these problems, however – and there are concrete steps that might be taken directly by business leaders, too.

Interrupted cashflow

Any given construction project means managing a complex flow of cash. Larger projects might require the contribution of dozens, or even hundreds of specialist labourers – and these might be employees or contractors. If your clients aren’t paying you promptly, then you might find that you struggle to pay your contractors properly. Having enough cash in reserve, therefore, is critical. As such, funding should be a high priority for construction bosses.

Funding

Even a small construction project will tend to involve a significant financial outlay. If you’re throwing up something large, like an office block, then you’ll have to coordinate huge amounts of labour and materials. What’s more, since these project often unfold over years, or even decades, you might have no idea what the economic environment will be like when the project finally wraps up. What happens if commodity prices rise sharply? What about the base interest rate? Planning for a range of contingencies, therefore, is essential.

Getting the finances necessary to get your construction firm trading might be difficult, since many of the problems faced by construction firms are not well understood by lenders. Thus, even if your business plan is immaculate, you might still face a struggle in securing funding.

Making accounting neat

If a construction project is sufficiently large and complex, it can present a significant administrative and accounting challenge. How are you going to track your spending effectively. In most cases, the first and last weeks of a given project are the most difficult for accountants, since there’s a need to determine which employees were responsible for what work, and what expenses the company is liable for. If the employees themselves haven’t been prompt and meticulous in filing their expenses, the task is made even more difficult. For this reason, keeping track of everything, and ensuring that the project remains within budget, can be nigh impossible.

This is a problem that’s been made simpler by the introduction of automated accounting software like QuickBooks. But even in this case, your accountants are sure to spend long hours reconciling everything at the end of any given project.

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