How construction companies can grow top-line revenue and improve their bottom line Featured

8:01pm EDT August 31, 2011
How construction companies can grow top-line revenue and improve their bottom line

Although Northeast Ohio’s construction industry is struggling, some construction companies are still succeeding.

Those that are doing so are taking a hard look at what they do and how they do it to stand out from the crowd and give themselves a competitive advantage, says Roger T. Gingerich, CPA/ABV, CVA, partner-in-charge of the Real Estate & Construction Group at Skoda Minotti.

“You need to examine your current scope of work and determine your strengths to help maximize your bottom line,” says Gingerich.

Smart Business spoke with Gingerich about several steps contractors can take to grow top-line revenue and improve their bottom line.

What can contractors do to grow their business in the current market?

The most important thing is to look at the scope of your work and determine what you are really good at. Take a hard look at whether you are better served by focusing on general contracting, or whether it makes sense to get into a different segment or trade of the construction process. Can you take on more of the project instead of subcontracting some parts out? Doing so can help you grow the top line.

Challenge the scope of the work you’re doing, and consider whether there are new skills you should add for work in different areas. Or perhaps it makes more sense to get out of areas in which you are spending resources and not making money, negatively impacting your bottom line.

What areas can a business focus on to increase its chances of success?

Two areas with the highest potential for construction opportunities in Northeast Ohio are institutional — universities and health care — and governmental, in the form of municipalities, states, government buildings and public schools.

Also consider finding an underserved niche. For example, not a lot of construction companies are building student housing. If you can find your niche and get really good at it, you will have more opportunities. Other niches include national chains, restaurants and pharmacies. If you get really good working with a certain brand or a type of chain, that can afford you the opportunity to secure a lot of work over a short period of time. In addition, national chains that are rebranding hire contractors that can do multiple stores over a short period.

Should construction companies steer away from the private sector for now?

No. No matter what, even when times are slow, you need to be developing relationships within the private sector. Stay in front of people you have done work with in the past. Even though they are not building today, there will come a day when they start to spend money on capital expenditures again. While staying front and center might not mean new business today, it may mean business five or 10 years from now.

Also, introduce yourself to people with whom you haven’t done business to build new relationships for when things turn around.

What are some other strategies to grow your business?

Bid volume. Look at your business’s history and see what percentage of bids you win. If you historically win 10 percent and you want to be a $10 million contractor, you need to bid $100 million worth of work.

Bid a higher volume of jobs with the goal that if you can secure what you have historically secured, you should be able to drive revenue.

Should local contractors keep their sights solely on Northeast Ohio?

No. To be successful, you have to be mobile. You have to go where the work is. If certain geographic markets have more work, you have to be open to bidding on jobs out of state.

The challenge is that when you go into new markets, you don’t know the players. You may have to hire unfamiliar subcontractors. As a result, you need to prequalify subcontractors and work with your bonding company.

It’s not as simple as saying, ‘I’m going to go into North Carolina and do work there.’

You have to register with the State, and there’s a lot of red tape. If you do it right, though, there are opportunities to succeed.

How can government programs help some businesses succeed?

Not everyone qualifies, but those who do can benefit from being designated a small business enterprise, woman business enterprise, minority business enterprise or disadvantaged enterprise. Doing so give gives you the opportunity to bid on projects with less competition than you otherwise would face.

How can a business position itself for growth as the economy begins to recover?

Part of growing is surviving tough times. Make sure you’re doing a good job managing overhead. Fewer jobs means you’re making less margin, which means less overhead you can cover. You have to run lean, cut back on overhead and work with your banks and bonding company so when times get better, you can get a bond or a bank loan when you need it.

You have to be able to demonstrate that you’re managing overhead and that you’re willing to put equity into the company if it needs an infusion of capital because banks are more likely to loan to you if they see you’re putting skin into the game. Show banks that you’re sophisticated, that you have a good financial reporting process in place and that you are budgeting well.

All of those things are important in a tough market to weather the storm and put yourself in a better position to grow as you come out of it.

Roger T. Gingerich, CPA/ABV, CVA, is the partner-in-charge of the Real Estate & Construction Group at Skoda Minotti. Reach him at rgingerich@skodaminotti.com or (440) 449-6800.