How to budget for a construction business expansion

Expanding your construction business: Planning your next move
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How to budget for a construction business expansion

When you’re a new business owner, everything seems exciting. Your first client, your first dollar, your first day at work are all important moments to your career. Although you may be operating from a desk in a single room, imagine a future, when your business is booming, employees are bustling and you have more to do than you can afford. .

Unfortunately, many construction companies never reach that point. In fact, about half of all new construction companies fail within their first year of business.

If you’ve built a solid foundation and emerged from your early years with a thriving business, then congratulations!

Now you’re looking to expand your business and wonder what’s next. First, a word of caution: Expanding your business too soon or too aggressively can damage your construction company. The good news is, with some careful planning, you can avoid many common pitfalls.

In this guide, we’ll guide you through deciding when to expand your construction business and how to prepare when you’re ready.

4 Signs You’re Ready to Expand Your Business

Before you go too far with this process, it is important to make sure that you are truly ready to expand your construction business. One of the biggest mistakes you can make is scaling before you’re ready. In this case, you will have exhausted your resources, leaving yourself short of cash and too thin. Here are the most important things to consider before you make the jump:

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first. You have a lot of work

When businesses consider expansion, it’s usually for one of two reasons:

  • Either they have more work than their resources can handle, or
  • They don’t have enough jobs and hope that expanding into new markets will fix this problem.

Usually, only the first type of business survives after expansion. While a new service or territory may be the answer for a small percentage of companies that are running short of revenue, it’s rarely the best solution to the problem. (In this case, it’s better to review your marketing efforts, customer service, and other potential issues before considering expanding.)

However, if your phone keeps ringing and contracts come in faster than you can count, then you’re good to go.

2. Your customers are happy

Obviously you also want happy customers. If you have a lot of repeat customers or word of mouth is your main marketing strategy, then move on to the next point. If not, you can assess the situation and fix the problem before considering expansion.

3. You have more money than time

Did the check arrive (fairly) on time? Are you meeting payroll without any problems? Can you afford to pay yourself? Then you might not have much time on your hands, and that’s okay. In fact, it’s a surefire sign that it’s time to consider expanding your business. If nothing else, you need a different set of hands to tackle some of the work and give yourself space to breathe.

4. Expanding opportunities increase

Maybe your customers are asking for services that you haven’t provided. Maybe a client is asking for bids or estimates for jobs outside of your current territory. Maybe Owner Jane is selling her business and you’re thinking it would be a great addition to your existing offerings. These are all viable opportunities for expansion.

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Expanding your construction business: Planning your next move

Step-by-step budgeting process

Now that you’ve decided expansion is the answer, it’s time to start the process. First things first: It’s time to budget.

What is your business expansion plan?

There are different types of extensions, and it’s important to consider all the different aspects of your own plan. Depending on how you plan to expand, you’ll need to focus on different costs and other considerations. Eg:

  • Are you? planning to acquire another company? If so, you’ll need to consider property closing costs, office and warehouse costs (including rent and utilities), and additional employee wages.
  • You have want to add a few more services to your existing business? If that’s the case, your budget might be simpler. You’ll need to consider things like the materials and labor needed to provide those services, as well as any potential cost increases.
  • Are you? Planning to bid for more work? This plan may require more employees. Consider all the costs associated with those employees and what they will need to take on the extra work. You may need to purchase more equipment, more materials, and more tools.

Whatever you’re thinking, it’s time to put it all on paper. Start with the overall goal of your expansion, then start listing the steps you’ll need to take to get there. Don’t forget the little things like getting permits and business permits for new territories.

Estimate your budget

Estimating your budget may seem like a big task, but it’s pretty simple when you break it down into smaller steps. You already have a master plan for your expansion, so now it’s time to dig into the numbers.

If you need help getting started, get a blank business budget form and fill in the data using your current financial information. When done, you should have a solid starting point for having a budget that reflects your current financial situation.

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Next, using your expansion outline created above, fill in another budget form with your projected costs after the expansion.

You may need to do some research to estimate these numbers. For example, if you will need a new office for expansion, search for available properties in the area to find a good estimate of rent. You may want to work with your bookkeeper or accountant on this planning exercise.

Overall, your goal here is to make sure you remember any possible new costs after an expansion. Typical costs include:

  • Employee salary and benefits
  • Land and/or real estate
  • Acquisition cost if you are buying another company
  • Materials, tools and equipment
  • Marketing and advertising
  • Transportation and accommodation if you are expanding your business area

Now that you’ve outlined your estimated expenses, you should also estimate your future sales.

Come up with your own “best case” and “worst-case” estimates. You may want to fill out several different budget sheets to explore possible outcomes. You can use these numbers to see when your expansion plan will start to turn a profit and how profitable you can expect it to be.

Finally, using the range of numbers determined from your budget estimate, you can research your business finances, apply for the funding you need, and complete the next steps in the expansion process. mine.

Epilogue

Expanding your business is rarely easy, but growth is almost inevitable for any robust business model. If you take it one step at a time and don’t mind the research, you can start scaling your business with a strong budget and the money you need to get the job done quickly. Then you can get back to what you do best: running your business.

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