7 Common Mistakes Contractors Make When Growing Too Fast

Everyone makes mistakes in business, but mistakes made while growing your construction business can risk the long-term health of your company and harm its survival. It’s easier to make mistakes when growing, especially when growing rapidly, as you’re still getting the business up and running as well as finding your footing in the construction industry. 

To help newer California contractors navigate growth, we’ve put together a list of the common mistakes contractors make when growing too fast.

Is Growing Too Fast Bad?

First, we should discuss if growing quickly is in and of itself a bad thing. Growing your construction company is a goal for many contractors, but the problem is that growing rapidly intensifies all the usual issues of running a business that the company may not be equipped to handle yet. Being a newer business means having a smaller staff, less equipment, and more expenses piling on before being able to afford them. This often leads to poor customer service and complaints due to not being able to keep up with the demands.

In general, growing too fast means much more on your company’s plate than it can manage.

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Mistakes Contractors Make in Growth

Most new businesses fail within the first two years and more than that within the first five to ten. Those numbers alone drive fear into the heart of many contractors wanting to begin a construction business. Luckily, part of the reason they close shop is due to making several common mistakes, and knowing what they are can help you avoid them.

Having A Quality Business Plan

Many contractors think they have a business plan when in reality, it’s closer to an idea or general direction they want to take their company. It’s important to sit down and invest your time into a well-developed and stable strategy that includes financing, management, staffing, as well as many other areas. A business plan requires careful planning that allows you to see the full potential of your company, from target customers to market analysis, organization information, and annual goals.

Mistakes made here primarily occur due to not taking the time to have a well-thought-out business plan or sticking to one despite changing circumstances.

Having Adequate Financial Preparation

One of the most common mistakes contractors make is having inadequate financial preparation, neglecting to plan how much capital they need to successfully grow their company and keep it in operation. To avoid this, you should assemble financial projections and make a one-year plan that can then be expanded or changed when needed. Furthermore, making a plan for a best case and worst case scenario if things don’t go as planned financially, will help you pivot more successfully as opposed to trying to come up with a plan on the fly when the road gets rough. Adequate financial preparation also includes estimating construction jobs properly, making accurate cost predictions.

Modernize Your Business and Work

Contemporary technology, equipment, and programs may seem like an extra cost a newer company can do without, but they can also help contractors avoid financial mistakes, as well as ones on the job site. Investing in modern technology helps you handle higher volumes of work, be more efficient, and be more able to compete with other contractors that have been around a little longer than you.

Upfront costs can be off-putting, but it’s a wise investment to make.

The Effect Growth Has on Insurance and a Surety Bond

Surety bonds and insurance are both absolute musts for a contractor, but the former depends on more factors and is especially important to growing your business if you’re interested in public works. Getting prequalified for bonding and increasing your bonding capacity depends on elements such as your working capital, the cost of the project you want to get bonded for, your credit, and the debt you have. If you’re growing your business too quickly, it can quickly become more challenging to get the bond program you need because these factors more easily suffer.

For more information on what sureties look for when considering a surety bond for a newer contractor, we strongly encourage you to read here: What Sureties Look For When Bonding Newer Construction Companies – CSBA

For insurance policies, it’s important to review them and ensure they’re up to date and cover all the new projects you have, so unexpected costs don’t surprise you. It’s also important to note that one of the biggest mistakes a contractor makes with surety bonds is going to see their insurance agent for help with bonding. If you’re considering using your insurance agent to get bonds or grow your bonding capacity, we strongly encourage you to read here: Surety Bond vs. Insurance Policy: What’s the Difference – CSBA

Taking Advantage of Outside Help

Many contractors make the mistake of not consulting professionals in other areas related to the construction industry. An example of this is not consulting a surety expert or using a CPA with construction accounting experience. It’s understandable why contractors make this mistake, trying to not pile on any extra expenses, while focusing on getting customers or better bids instead. However, consulting professionals with expertise in areas you don’t have can make your goals much easier to achieve.

Choosing the Right Construction Jobs and Contracts

Whether your company is growing steadily or rapidly growing, getting jobs is always exciting and it’s easy to forget about what kind of jobs are appropriate or will help your business be a success. Not all projects are good projects, and it’s important to recognize the ones your company can’t handle just yet and that can lead to facing extreme financial consequences.

You should review every contract and every new project you have, understanding what is required and the impact they will have. Choosing what bids to accept is part of an overall business strategy that may slow your growth, but can ensure steady and successful growth over time.

Long-Term Planning

Just like with a business plan, long-term planning is imperative. The mistake contractors make as their company grows is getting lost in the day-to-day operations. While it’s important to engage in the daily operations of your company, getting lost in the daily tasks means neglecting the long-term plans and staying on track.

You can avoid this by always planning ahead, anticipating bad situations as well as the good ones, such as future costs, realistic goal expectations, and building on successes.

An Expert Tip to Avoid These Business Mistakes

One of the biggest mistakes a newer contractor can make, whether they are growing their company steadily or it is growing too quick, is not consulting professionals, as mentioned earlier. One area often neglected is talking with a surety specialist, perhaps thinking that it’s too early to talk with a surety expert when you’re just getting up and running. This idea is usually because a contractor thinks a surety agent only walks them through the bonding process and nothing more.

Here at CSBA, we don’t only help prepare you for the surety bonds you need, we also help you plan ahead to grow your bonding capacity and reach the goals you have for it. We invite you to explore the CSBA Difference and why newer contractors and established ones of varying sizes have partnered with us for over 35 years.

Dan Huckabay
About The Author

Dan Huckabay

President

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