Virtus Knowledge Base

Construction Trades Under the Trump Administration

gmsieber@virtusss.com (Gregory Sieber) — Tue, 07 Jan 2025 20:33:33 GMT

Strategic Considerations for Construction Trades Under the New Trump Administration

As the Trump administration implements its policies, midsize construction contractors in Florida face unique opportunities and challenges. During the Biden Administration, Florida has enjoyed a vibrant construction sector, fueled by strong migration from other states and excess funds from Government spending programs. While proposed regulatory and tax changes present additional support for a robust construction sector, changes in migration and potential labor shortages could throw a wet blanket on the party.

Florida may encounter shifts as the economies in other states become more favorable, potentially slowing the inflow of new residents and businesses. This slowdown could dampen demand for residential and commercial construction projects. Key policy areas to monitor include proposed tax reforms, deregulation efforts, labor market dynamics, and the evolving monetary landscape. Contractors must align their strategies to navigate these changes effectively over the next four years.

In this article, we explore some possibilities for the coming administration along with some strategies for consideration.

INCOME TAX POLICY REFORMS: The administration's agenda emphasizes lowering corporate income tax rates and simplifying the tax code. For both C Corporations and pass-through entities such as S corporations and LLCs, potential rate reductions could result in significant savings for business owners.

Strategic Implications :
Reassess corporate structure to optimize tax advantages.
Consider reinvesting tax savings into technology, equipment upgrades, or workforce development to boost competitiveness.

CAPITAL GAINS TAX REDUCTIONS: A key part of the Trump plan is to stimulate investment and bring corporations back to the U.S. through reduction of capital gains taxes. Lowering capital gains tax rates could incentivize investments in construction-related assets.

Strategic Implications :
Review investment strategies to capitalize on tax-advantaged opportunities.
Evaluate asset disposition strategies to maximize after-tax returns.
Consider your exit strategy. If capital gains taxes are reduced, it may be time to prepare your business for merger or acquisition. This is a multiyear process, so if you are considering it, you need to start preparing the business at least two years in advance.

DEREGULATION INITIATIVES: The administration’s focus on deregulating industries like energy, transportation, and manufacturing could stimulate infrastructure development and create new project opportunities. However, Industries such as technology and finance may face increased scrutiny, indirectly affecting funding availability for large-scale construction projects in Florida.

Strategic Implications :
Position the company to enter deregulated markets or expand service offerings within Florida’s metropolitan areas. Understand which industries will benefit and begin marketing yourself in those areas.
Monitor changes to environmental and safety regulations that could impact project costs and timelines.
Diversify your client base to minimize exposure to heavily regulated sectors.

LABOR MARKET DYNAMICS: Florida’s construction sector is experiencing labor shortages exacerbated by restrictive immigration policies and demographic shifts. Changes in migration from other states could further impact labor supply and overall demand for new projects.

Strategic Implications :
Invest in building relationships with people or organizations that can provide labor.
Focus your business on work that you can keep running consistently rather than trying to do many different things. Odds are that if you cannot provide consistent work for your field staff, they will be gone, never to return.
Plan to adjust your pricing and estimates to account for higher labor rates.
Invest in workforce training and retention programs.
Explore partnerships with local trade schools, vocational programs, and community colleges to develop a sustainable talent pipeline.

INTERSTATE MIGRATION: We are already seeing a slowdown in the migration of people from states outside of Florida. Queries with Gemini and Chat GPT show net migration into Florida dropped from 2022 (294,064) to 2023 (126,000) and slightly again in 2024 (112,000). Newsweek reports, Florida's population increased by 467,347 between 2023 and 2024, making it the second-highest numeric gain in the country, behind Texas. This was a decrease from 2023, when 194,438 people moved to Florida, and 2022, when 317,923 people moved there. Further, the Consumer Price Index (CPI) and Cost of Living Index for Tampa Florida has risen significantly in recent years from being slightly below the national average in 2021 to above the national average in 2024.

Strategic Implications :
It is reasonable to expect that residential construction will slow in Florida in the coming years. Don’t think the boom will last forever.
We have all seen the increase in prices on everything from groceries to homes and property taxes have skyrocketed along with homeowners and flood insurance rates in many areas. It is reasonable to assume that these factors will both reduce the amount of migration into the state as well as shape the demographics of those migrating inward. It is likely that Florida will see a relatively higher percentage of relatively wealthy individuals into the state, generating more demand for high-end residential homes and a significant drop in mid to lower-end single family homes.

FINANCIAL AND MONETARY CONSIDERATIONS: We can expect to see a lot of change in financial and monetary policy. We will surely see more manipulation of interest rates. We may see tariffs on foreign goods, and there is a lot of discussion around the adoption of a central bank digital currency (CBDC) or shifts toward a gold or silver-backed monetary system could alter financial operations.

Strategic Implications :
Tariffs and tax incentives should drive construction of factories and offices in the United States as corporations move operations back home. Florida is a popular state for corporate headquarters and some types of manufacturing. This could well drive strong commercial construction.
There is a wide range of financial tactics available to construction contractors and the list is growing all the time. You have many options for project funding, management of your retained earnings, and payment to your vendors and subcontractors. Have a financial expert on your team who can help you manage finances to squeeze the most out of every dollar.
You should strengthen relationships with financial institutions to maintain awareness of monetary trends and implement sound strategies. Make friends with you banker.
Monitor bond market trends, to predict municipal infrastructure spending.

CONCLUSION: The construction market in Florida is going to change. You had better prepare! The Trump administration’s agenda presents a mix of opportunities and challenges for midsize construction contractors in Florida. We believe it is vitally important to develop a strategy that accounts for this changing marketplace. Companies that understand these changes are likely to experience tremendous success while those that do the same old things are likely to struggle. By staying informed and agile, companies can position themselves to capitalize on favorable tax policies, regulatory changes, and market trends. The potential slowing of migration to Florida as well as an associated shift in demographics underscores the importance of strategic diversification, labor development, and financial planning to sustain growth in this evolving environment.

Recommendations

Work with your CPA to develop a tax strategy based on the possible scenarios. Consider changing your filing status to a C Corporation.
Hire a financial consultant to help you build a cash optimization plan accounting for how you leverage your assets, earn interest, leverage buying terms, pay your subs, establish payment terms with your customers, and optimize your tax situation. A small percentage change increase from effectively managing the funds that flow in and out of your business can make all the difference.
Develop a plan to go after industries that will benefit and prepare for a reduction in lower end residential construction.
Consider selling your business if capital gains rates are reduced. Again, this is a significant undertaking if done correctly. To get the most for you company, you need to work with someone experienced in mergers and acquisitions, years in advance to ensure your strategy, your contracts, your customer base, your technology, and your staff are attractive to potential buyers.
Many coastal counties have serious infrastructure problems. If you are in this space, get informed and work on becoming part of the solution.
Invest in workforce development and technological innovations to address labor shortages. Develop strong relationships with sources of labor and make sure you have a Spanish speaking person on your operations team.
Consider shifting your focus to something that can rely more on automation and less on labor. Similarly, buying better machines that require fewer laborers could keep you in business and actually cost less.
Consider launching a commercial services division to take advantage of the massive amount of service work needed to maintain all the commercial properties and infrastructure built over the last two decades.

At Virtus, we help our clients understand and implement the strategies identified above. We provide you with an expert business office from C level to administrative support for a fraction of what it costs to hire in-house. If you need help with these or any other business management topics for your construction company, please let us know. We are here to help.

Auth: G.M. Sieber, Virtus Support Services

For a PDF copy of this white paper, please contact us at info@virtusss.com

Choosing Good GC Partners

gmsieber@virtusss.com (Gregory Sieber) — Tue, 05 Nov 2024 19:06:46 GMT

Vetting General Contractors, As a Sub

As a trade contractor, you probably do most of your work for General Contractors, so you know there are good GCs and bad GCs. You also know that getting involved with a bad GC that is either incompetent, unethical, or both can ruin your entire year. Here are a few tips from our experts at Virtus Support Services to help you find the good GCs and avoid the bad ones.

Evaluate Past and Current Contracts: A Request references from their customer base, ask to see their licenses, accreditations, and history, and check their references. Look for any public data on complaints or disputes. Ask for a referral from a contractor for whom they have done work. Next, search social media for independent, unbiased, and unfiltered feedback.

A contractor's license can be verified along with formal complaints in Florida at: www.myfloridalicense.com.

Look at Their Current Backlog: It’s smart to make sure a General Contractor understands your scope of work. One great way is to ask other subcontractors who perform well if they would recommend a certain GC or if they have others they recommend and ask to be introduced. Another way is to request to examine a potential contractor’s log of previous, current, and future work.

Seek Partnerships: When looking for work with General Contractors, look for partnerships more than looking for work. Good GCs look to build solid long term relationships with skilled, reliable trade contractors. They know that effective relationships with quality subs may cost a little more at bid time than always going with the low-bidder, but it saves significantly in delivery.

Ask About Their Safety Practices: A General Contractor’s approach to safety will tell you a lot about their culture. If they see safety as a hassle, rather than an important practice, it tell you how they view the workforce in general. Unsafe operations not only put the General Contractor in a dangerous position they can also leave you, exposed to liability and potentially force an inspector to close the job site. Review their safety protocols. Ask how they keep their job site crew focused on safety without compromise. Ask for their EMR; this gives insight into the subcontractor’s safety history.

Inquire About Their Leadership and Project Managers: Does the leadership of the company have a track record of success? Do they have a solid construction background? Do their PMs tend to work for them for many years or do they come and go? Look for GCs where the leaders are knowledgeable builders that want to deliver quality and PMs stay with the company.

Inquire About Their Bonding: If a General Contractor cannot get bonded or has a low bond limit, they are either very small/young or they have a history of poor financial management. Bonding sureties perform a lot of due diligence before issuing a bond. It makes sense to take advantage of their work in determining the credibility of a GC.

Ask About Quality Control: Ask the General Contractor if they have a written quality control program that is followed on their projects. If they do not have such a plan, it tells you how much they focus on quality and gives you some confidence their will be problems on the project.

Assess Their Contract Wording: It should go without saying that you should never work for a GC without a written contract. When reviewing a contract from a GC look for signs of them being fair and thorough. If a contract has nothing but one-sided and unfair terms, that is a bad sign. Ask to have some of them changed and see how they react. Also, if the contract seems poorly written or a hodge-podge of terms from various contracts, this tells you they are not sophisticated with contracts. They have probably signed bad contracts with owners and that will flow down to you.

For most trade contractors, effective General Contractor relationships are critical to success. We encourage you to take this seriously. Apply the tips above and please avoid getting into contracts with unethical General Contractors. It seems that over half of the clients that come to us for help do so because they are recovering from a General Contractor that ripped them off.

At Virtus, we have a number of relationships with ethical, quality centric General Contractors and we are good at vetting new ones. If you need help with this or any other business management for your construction company, please let us know. We are here to help.

Auth: G.M. Sieber and Gerald Green, Virtus Support Services

For a PDF copy of this white paper, please contact us at info@virtusss.com

How to Get Paid On Time for Construction Trades

gmsieber@virtusss.com (Gregory Sieber) — Thu, 03 Oct 2024 15:09:07 GMT

Getting Paid on Time for Construction Trades

Getting paid on time is key to the success of every business. Managing predictable cash flow ensures the consistency and enables you to optimize the value of every dollar. Unfortunately, predictable cash flow from timely payment is also one of the most challenging aspects of operating a construction business. Subcontractors, in particular, often face challenges when it comes to timely payments. Here are some essential tips to help you secure your payments without any delay.

Favorable Contracts: A great place to start is with Clear Contracts and Agreements. Before starting any project, ensure that you have a well-drafted contract in place. This contract should clearly outline the scope of work, payment terms, deadlines, and any conditions for payments that may include acts of God or damages from others. The more explicit you are in detailing your expectations, the less room there is for misunderstanding. Do not be afraid to push back on retainage amounts, pay-when-paid, liquidated damages, and other clauses that can impact you being paid what you are owed in a timely manner.

When reviewing a contract. Understand the Payment Schedule and follow the outlined instructions on when, how, and who when submitting invoices. The last thing you would want is to create a delay due to a clerical error by sending the invoice to the wrong person or department. A structured payment schedule not only helps you manage your cash flow but also gives the client clear expectations about when payments will be made.

If you are unfamiliar with contract language or uncomfortable negotiating contracts, find someone who can help or reach out to us at Virtus Support Services. One bad contract can ruin an entire year of work. You are better off with fewer good contracts than more contracts if one of them ruins the bunch.

Communicate Effectively: Maintain regular communication with the general contractor and any other relevant parties throughout the project. Update them on your progress and flag any potential issues that could affect the projects schedule. Good communication can help build trust and lead to timely payments!

Keep Detailed Records: Document everything related to your work on the project. This includes contracts, change orders, correspondence, photos/ videos, and any approvals or inspections. Having detailed records can protect you if disputes arise and can serve as proof of work completed, which is vital when requesting payment. A great way to keep all your submitted documents, notes and photos organized and in one place or to use Google drive or other file sharing services. This will also allow your team to share information with your company and the general contractors team.

Send Correct Invoices Promptly: As soon as you complete a milestone or the agreed-upon work, send your invoice immediately. Make sure you follow contractual invoicing instructions and contact your customer’s AP department to see if there is anything you can add to your invoices to make their jobs easier. Ensure that your invoices are clear, itemized, and include all relevant details such as your payment terms, due date, and payment methods. Prompt invoicing encourages timely payment.

A ccountability: Make sure your project manager understands that he is absolutely accountable for not just submitting pay applications on time, but actually being paid on time. Part of your project manager’s incentive pay should be tied to payment being received on time . Make sure crew chiefs, field engineers, and any other personnel in the processes leading up to pay applications understand the important of accurate and complete documentation as it relates to being paid on time.

Follow-Up: If a payment is late, don’t hesitate to follow up with the client. A polite reminder can often expedite the payment process. Make this a core practice to follow up a few days before the payment due date and again a few days after if you haven’t received it. Do not have your company owner or CEO make collections calls. This is a sign to general contractors that you are small and not likely capable of executing meaningful collections. It also places leadership in the role of being the bad guy and you do not want that. Let someone else take on that role. Have a person on staff or outsource collections.

Lien Process Paperwork: Make sure you file Notices to Owner within the required deadline and use Notices of Intent to Lien when payments are late. Make sure you understand the lien laws in your state and make sure you use the lien process.

Multiple Payment Options: Make it easy for your clients to pay you by offering multiple payment options, such as bank transfers, credit cards, or online payment platforms. Always offer the option that costs you the least amount to facilitate the payment first. research has shown the more convenient you make the payment process, the more likely you are to receive payments on time.

Build Relationships: Establishing strong, professional relationships with clients can lead to better communication and improved payment practices. Treat clients with respect and professionalism, and they are more likely to reciprocate by honoring payment terms.

Understand Retainage: Retainage is a percentage of the payment withheld until the project is completed to the contracts satisfaction. Make sure to clarify how much retainage will be held and the conditions for its release to avoid surprises at the end of a project.

Know Your Rights: Familiarize yourself with the laws and regulations regarding payment in your jurisdiction. Knowing your rights as a subcontractor can empower you to take appropriate action if payments become delayed or denied.

Getting paid on time is essential for the success of any business. By implementing these strategies, you can enhance your chances of receiving timely payments and build a more sustainable business. Remember, clear communication, detailed contracts, and proactive follow-ups are your best allies in ensuring that your hard work is rewarded promptly.

Auth: G.M. Sieber and Gerald Green, Virtus Support Services

Download copy of this white paper or please contact us at info@virtusss.com

Tips on filling out pay Apps for General Contractors

nicole@virtusss.com (Nicole Englert) — Wed, 11 Sep 2024 20:07:11 GMT

Filling out pay applications for general contractors requires attention to detail, accuracy, and thorough documentation.

Tips on filling out Pay Apps

for General Contractors

Filling out pay applications for general contractors requires attention to detail, accuracy, and thorough documentation. Here are some tips and tricks to ensure a smooth process:

1. Understand the Contract Terms
Payment Schedule: Know the agreed-upon payment schedule, including milestones and retainage.
Required Documentation: Be aware of the documentation needed (e.g., lien waivers, progress reports, change orders).

2. Use Standardized Forms
AIA Forms: Use standard forms like the AIA G702 (Application and Certificate for Payment) and G703 (Continuation Sheet) to maintain consistency.
Software Tools: Consider using construction management software that offers templates and automates calculations.

3. Accurate and Detailed Work Descriptions
Itemized List: Break down work completed in detail on the continuation sheet (G703) to replicate the schedule of values.
Clear Descriptions: Use clear, concise descriptions for each line item to avoid confusion.

4. Maintain Up-to-Date Records
Daily Logs: Keep daily logs of work performed and materials used.
Photographic Evidence: Take photos of progress to support your claims.

5. Track and Document Change Orders
Approval: Ensure all change orders are approved in writing before including them in the pay application.
Documentation: Attach copies of approved change orders to the pay application.

6. Review for Accuracy
Calculations: Double-check all calculations, especially for retainage and previous payments.
Reconciliation: Ensure that the amounts claimed align with the work completed and materials delivered.

7. Submit on Time
Deadlines: Be aware of submission deadlines to avoid delays in payment.
Advance Preparation: Start preparing your pay application well in advance of the deadline.

8. Include All Necessary Attachments
Lien Waivers: Include partial or full lien waivers as required.
Supporting Documents: Attach invoices, delivery receipts, and any other supporting documentation.

9. Communication
Clarity: Communicate clearly with the project owner or architect about any discrepancies or questions.
Follow-Up: Follow up after submission to ensure the pay application is being processed.

10. Retain Copies
Records: Keep copies of all submitted pay applications and supporting documents for your records.
Backup: Maintain electronic backups in case of disputes or future reference.

By following these tips and maintaining meticulous records, you can streamline the process of filling out pay applications and reduce the risk of payment delays or disputes.

Clients of Virtus Support Services enjoy accurate on-time pay apps managed by their dedicated Construction Manager.

Are you reading your General Contractors MSA? Tips to keep yourself out of trouble.

nicole@virtusss.com (Nicole Englert) — Thu, 15 Aug 2024 13:52:21 GMT

One bad contract can ruin your entire year!

Things to watch for

Don't be afraid to redline and comment on things you want changed in the agreement.
Familiarize and understand the payment terms within the agreement. Keep in mind that many contractors have unique payment processes and paperwork that need to be strictly followed to ensure on-time payment.
Always look for the insurance and bond requirements. Verify your company meets these requirements before signing. Take note of when these should commence and end.
Watch out for cross-over clauses where your money can be withheld. If you don't understand it, ask about it!
When in doubt, ask your lawyer questions! Don't let your GC pressure you into signing.
Don't be afraid to consult an attorney or expert before signing a contract.
These are just a few of the things Virtus will detect when reviewing your contracts. We have a comprehensive checklist of problematic contract clauses derived from hundreds of contract negotiations. At Virtus Support Services, we help ensure you don't sign bad contracts.

Change Order Tips

gmsieber@virtusss.com (Gregory Sieber) — Mon, 05 Aug 2024 17:25:40 GMT

Here are a few tips for effective management of change orders

Change orders can be a challenge in the construction industry, but they are a necessary part of the business. Don’t let your fear of change orders or simple mistakes cause you to leave thousands of dollars on the table each year. Here are a few tips to help you get the most out of change orders.

When signing an agreement with your customer, make sure the change order process is discussed
Make sure everyone on your work crew understands the scope of work and that other things need to be identified to your chief as a potential change order
It is better to request smaller change orders as they occur than to let them build up and then ask for a larger change order
Remember to include any associated permitting, bond, insurance, or other fees when calculating the amount of a change order
Do not start work until a change order is approved in writing

Our staff at Virtus Support Services is here to help you with change orders and just about any other back-office function you need.

3 Reasons Contractors Should Outsource

Thu, 16 Feb 2023 21:58:15 GMT

TIME, MONEY AND REPUTATION.......

In theory, a construction project follows a tried-and-true process: Estimate a job, win the bid, do the work correctly, keep up with paperwork, and get paid – all on schedule and under budget. Unfortunately, a construction job isn’t nearly that simple or straightforward. In this article, we will reveal just how damaged that process is. The 2020 National Construction Payment Report: Spring Spotlight on Jobsite Coordination shows just how the construction industry has grown to accept a status quo that’s far from ideal; from coordinating work on the job site to chasing down slow payments, we implement systems and processes designed to improve workflow, communication, payment collections, and ultimately, your bottom line

How challenging is coordinating job site work?

Coordinating all the puzzle pieces on a construction project requires processes that support open, transparent communication and a high degree of collaboration. Those processes are required between contractors, subs, suppliers, field workers, and back office staff. Unfortunately, poor communication and planning are causing the process to break down – costing your construction business time, money, and reputation. Although plentiful, delays in a construction project are usually preventable. Communication and coordination between the general contractor and their office are notoriously difficult. We estimate that nearly 70% of contractors feel that poor job site coordination often causes projects to run over budget or past deadlines. This leaves much room to improve. How does your office process stack up against the status quo?

Wasted time

Research has shown that construction businesses are losing more than 1 full day of work every week due to inefficiency. Two-thirds (66%) spend more than a quarter of their work hours waiting for paperwork to be processed. These hours and days add up over the year, and can eat into cash reserves. Paying workers to wait or spending time coordinating working hours with their teams only adds to a contractor’s cash burden. The lack of jobsite coordination and efficiency between a contractor and its office ends up preventing contractors from doing the work they were built to do. Some contractors interviewed say that their company spends less than half of their time doing actual construction work, and 85% report spending more than 1/4 of their time tracking & reporting on project progress.

That’s a lot of wasted time! Spread the workload and designate your time to what you do best and let Virtus do the rest.

Loss of money

Communication is critical to the bottom line in an industry with super thin margins. Wasted time and energy leads to higher costs and lower profit. Research shows nearly 60% of construction businesses say that failing to complete a project on time and on budget due to poor upfront planning results in lower or delayed payments for their work. When we asked contractors about the factors most critical to getting paid on time; planning and coordination between the office and field staff came out on top. “Meeting timelines,” said one. “Passing building inspections,” said another. “Timelines and details.” and lastly “Doing it right the first time.”

Loss of reputation

Reputation and relationships are everything in the construction business. GC’s and owners want to make payments and keep the work moving forward, and subs want to do great work and get hired for more jobs in the future. At Virtus, we have found more than half of construction businesses (55%) say that failing to complete a project on time and under budget damages their reputation.

It’s common knowledge that construction projects rarely go exactly as planned. Change orders , bad weather , failed or delayed inspections , and other slowdowns throw a wrench into best-laid out plans. Every project manager has a threshold for how much delay is acceptable. Proper planning, resource allocation, and communication are paramount for contractors to ensure their work stays under that threshold. Jobsite efficiency is critical to maintaining relationships and protecting a business’s reputation.

The staff at Virtus Support Services have extensive experience with project coordination related to the construction industry . We work daily with general contractors, subcontractors, owners, and builders, in contract lifecycle management, payment collections, estimating and quantity takeoff management, and more, related to all phases and trades in construction. Right from the start, we will assist with the drafting of contracts, supply agreements, and credit applications and work with you every step of the way for efficient project execution. If a payment dispute should arise during the process, we will provide collection services and work to protect your interests to bring your project to completion. Contact us for further information!

Subcontractor’s Guide to Navigating an Increasingly Difficult Environment

Wed, 26 Oct 2022 17:18:13 GMT

Tips for navigating cash flow

The effects of COVID-19 continue to ripple through our already crippled economy, and the construction industry has not been spared. Two years on, supply chains remain broken, affecting the availability and the price of materials critical to projects large and small. Skilled laborers left the industry during the pandemic, worsening an already severe shortage, and increased consumer and business construction demand has pushed most subcontractors’ bottom lines to the breaking point.

To get a more macro view of the growing challenges impacting the industry, Billd’s National Subcontractor Market Report provides an in-depth review of industry trends impacting the construction industry and how they affect subcontractors’ ability to navigate an increasingly difficult environment.

Top 3 Hurdles

The 2022 National Subcontractor Market Report asked respondents: What do you believe will be the most significant risk to your business in 2022?

Issue #1 - listed by 40% of respondents is the availability of skilled laborers.
Issue #2 - listed by 30% of respondents, is material price and volatility posed a significant risk to the business.
Issue #3 - listed by 16% of respondents, is material lead time delays.

These three issues can be directly linked by one common thread -- access to financial capital. Two out of the Top 3 challenges facing subcontractors are related to materials and their costs, with the No. 1 issue being the availability of skilled workers to complete projects, in which cost will also play a crucial role.

Subcontractors Utilizing 21 ^st Century Solutions

While subcontractors are satisfied with their credit options and financing options, they do feel the pressure of paying for substantial material and labor costs upfront, making managing cash flow difficult.

According to the data, 59% of contractors intend to rely on cash to fund business growth in 2022. However, half stated cash flow remains a major challenge for most subcontractors.

This year’s report shines a light on a core construction industry fault – a broken payment cycle that continuously places subcontractors into a difficult cash flow position compared to their counterparts. Subcontractors are often the last to receive payment for their completed work which impacts their ability to bid on potential projects. In this current volatile market, cash on hand does not offer reliability and security to pay for materials and labor upfront, much less provide the ability to finance a business’s sizeable expenses when it comes time to scale operations.

However, things may begin to change for the better, thanks to financing solutions specifically created for subcontractors. These new financing solutions come in the form of low interest loans with 90-day terms, instead of the 30-day industry standard. These longer terms still allow suppliers to be paid upfront, while also providing flexibility to manage other needed purchases and help lock in the best prices with the negotiating leverage of a cash buyer.

When it comes time for labor costs, new, reliable advance financing tools have begun to infiltrate the marketplace. These new pay advance options will help subcontractors address rising labor costs in the construction industry, and the severe impact it has on cash flow and overall liquidity of commercial construction projects. They stabilize cash flow and allow subcontractors to continue to grow their business.

Halfway through 2022, we have a have already seen how rising material prices, continued supply disruptions and the labor shortage have impacted subcontractors. For subcontractors to have a chance to be successful, they will need more tools in their financial arsenal belt to help them negotiate the complex, painfully broken payment cycle. Subcontractors are left to support the $1.4 trillion industry while they are left with limited cash flow solutions. For subcontractors to succeed and thrive through the next market cycles, they will need to be supported by financiers specifically created for them and who provide sufficient credit limits needed to do the best work of their lives.

Are You Struggling With Inflation During This Recession

Wed, 19 Oct 2022 16:49:05 GMT

As a contractor, here are some good tips and guidelines to help navigate this recession

Supply disruptions and inflation from COVID lockdowns, more disruptions and inflation from the war in Ukraine, high-priced gasoline, higher truck prices due to microchip shortages, and increased wages to cope with the higher prices resulting from all of the above are pieces of the economic storm we’re in. What’s a construction business to do?

We’re at a point when we have to pass along price increases for materials and consider higher wages for employees, knowing they’re paying more at the pump and the grocery store. The temptation is to raise our prices. By doing so, however, we enter the vicious spiral in which our response exacerbates the original problem. Raising prices excessively to combat inflation eventually reduces demand and exacerbates recessions. It’s possible the Federal Reserve can stem the effects of the recession by raising interest rates and tightening monetary supply, but don’t count on it—not because it’s the government, but because it’s a difficult task.

Even if the Fed can engineer a “soft landing”—avoiding the severe downturn and long-term recession—there may be serious consequences. Raising interest rates and reducing stimulus can decrease demand for goods and services and cause asset deflation. Higher rates discourage borrowing, which means fewer homes (new and old) and remodeling projects are sold. With asset deflation, the stock market and housing markets lose value, and spending is curbed because people feel like they have less money. We have seen stock prices plummet between 10% and 25%. Is housing next? The interest rate on a 30-year-fixed-rate mortgage is now 6.25% (as of this writing), not unreasonable historically but high when applied to all-time-high housing prices. The Mortgage Bankers Association reported in September that mortgage applications were down 14%. Housing prices may be coming down, but then longtime homeowners will feel they have less money, recent buyers may end up with homes worth less than the purchase price, and people looking to buy may not know what to do. Demand destruction in housing could be a kick in the teeth for the residential construction industry.

For those of us in construction and remodeling, with continued inflation, we get hurt; with reduced inflation (reduced demand) without a recession, we get hurt; and with reduced inflation with a recession, we get hurt. Employment is high, unemployment is low, and households have cash, so there is hope. But, even so, what do we do when we may get hurt no matter which scenario plays out?

Resist the Urge to Add to Inflation

On December 21 last year, I priced out a good-quality wood screen/glass combination storm door for a client. The estimate came in at $650, $693 with tax. The door was in stock. I added $500 labor to measure, order, pick up, deliver, demo, dump existing, and install. The estimate for the door and its installation came to $1,193, a pretty penny. Once the door was installed, in the spring, we would have the door painted. On March 15, I called to order the door. The supplier gave me a new estimate of $845, $901 with tax, a 30% increase. I wondered if the new quote was for the same in-stock door from December, and it had sat in the warehouse for two-plus months garnering an annualized return of more than 120% for the seller. I wondered if the distributor increased the price $195, or if the lumberyard tagged on some for themselves. My client expressed concern but gave the go ahead.

Raising prices excessively to combat inflation eventually reduces demand and exacerbates recessions.

We had the door inside of a week, confirming my belief that the door had been in the warehouse for the winter. I checked the weather and coordinated the installation date with the painter, a gentleman we had worked with for years. We wanted the door painted immediately after installation and before the next rain. Because the door had no overhang, I requested the painter use an oil primer and two coats of oil paint. All went well until I received the painter’s invoice of $850. That was unexpected! My fault for not getting an estimate.

So, the distributor got 30% on a door that didn’t cost him 30% more, and the painter got more than twice as much as I expected. (He was one block away, so commuting to the site wasn’t a factor.) They entered the vicious spiral, a short-sighted approach to dealing with inflation. A wood screen/glass storm door cost a client $2,251. How many people are going to spend that to have a storm door installed? Economics 101 states that for each dollar increase in the price of a good or service, a group of people will postpone. A number of postponed storm doors is one less employee needed by the storm-door manufacturer, one less carpenter needed to install, one less painter to paint, one less lumberyard attendant, one less distributor employee, one less grocery store cashier, and so on. I am not suggesting that you eat the price increase, just control the greed. If a product price increases 10%, charge 10% more for it, but not more.

It appears some economic pain lies ahead. But if you can handle the pain in a rational and transparent way, your clients will remember. It’s hard, of course, when your suppliers and subs are like the door supplier and the painter who put me in an unfavorable position with my client—and I sure will remember.

Here are some strategies that may ease the pain:

Postpone large purchases. I hate to discuss postponing a purchase, because it reduces economic activity, thereby contributing to a recession. But if you think a business slowdown is on the horizon, it may be best to postpone buying the pickup truck, excavator, or roll-off truck. (Though, if the vehicle is leased and the buyout price was negotiated two or three years ago, it might be worth considering the purchase, depending on your cash on hand, work backlog, and loan rates. You might even be able to flip the vehicle and make a few bucks if the chip shortage remains an issue and vehicle prices remain high.) Even if you have the cash for a capital purchase, it might pay to wait. A slowdown may result in a better price, or supply disruptions may clear, increasing inventories and reducing prices.

Rethink energy. Energy prices also complicate decisions. Diesel prices are through the roof. Can we expect energy prices to drop again, or are those days gone forever? The writing on the wall says that EV will take more market share, fossil fuel’s days are numbered, oil and gas exploration will receive less public and private funding, and alternative energy sources will receive more. It’s going to take a decade or two to transition energy sources significantly. For now, maybe gas is a better option than diesel. An electric pickup—or even an electric concrete mixer—might be in your future.

Avoid debt. The economy and business cycle are outside our control, but the amount of debt our business carries is not. Debt is risk. Postponing a large purchase helps to limit risk if the economy slows. Reducing balances on lines of credit and credit cards is another way to reduce risk and be prepared.

Inflationary price increases. Price increases aren’t usually a problem during a recession; in fact, they should come down. But, during an inflationary period like the one we’re in, prices are difficult to predict. The construction trades are particularly vulnerable because we provide estimates to clients for projects that often start weeks or months after agreements are made.

One way to protect your company from having to absorb unexpected price increases is to insert a “material price increase clause” in your contracts and estimates to pass material price increases to your customers. Without one, you may get stuck during fast-moving inflationary periods, and what should have been a profitable job might become a disaster. Keep the clause simple: If prices increase more than a certain percentage from when the estimate was presented or the contract signed, the customer is responsible for the increase. Apply this to a list of materials “including but not limited to” lumber, plywood, siding, steel, flooring, appliances, and so on. Be prepared to show price increases through quotes and material lists accumulated during estimate and contract preparation. Allowances in an estimate or contract may also provide protection. An allowance for doors, windows, hardware, and appliances, priced months before project startup, provides a benchmark for future price increases. A little price protection may help your business survive during a difficult time. Just be sure you openly discuss the clause with clients so there are no surprises.

Flexible employee inflation assistance. As David Gerstel has stated in a number of his books, you take care of your employees. If you do, you will enter any period of inflation with your employees fairly compensated by a combination of wages and benefits. However, even with fair compensation, employees may need, and you as an employer may want to offer, additional assistance during this period of high inflation.

Our present economic situation is multilayered and makes knowing exactly how to provide assistance difficult. Not knowing if 8% inflation is headed to 12% or 4%, or not knowing if credit tightening will curb inflation or create a recession, I suggest you provide flexible or temporary assistance that can be easily changed as conditions change. It would be untimely to raise wages as inflation peaks in the third quarter of 2022 or a recession begins and construction projects disappear. An increase in payroll while there is a decrease in revenues helps no one. Permanent increases in company overhead during times of uncertainty only make it harder to weather the storm. A changeable or temporary benefit, on the other hand, will help employees through an inflationary period and help the company weather a recessionary time. While inflation persists, an employee gets assistance. If a recession occurs, assistance is stopped and hopefully jobs are preserved.

Consider offering a weekly or monthly stipend for gas. While prices have come down, gasoline prices saw an increase of 55% over the last 12 months, and we may similar increases later this year. A gas stipend may ease the pain of an employee’s commuting expense. Their monthly savings can then be applied to other household basics, like food and shelter. The stipend can stay in effect as long as high inflation persists and company revenues continue unabated. Note that I’m suggesting an equal stipend for each employee’s commute and not a gas card. A gas card for commuting might be abused or benefit the owner of an inefficient guzzler over more conscientious employees, and might be harder to take away. A gas stipend is only one way of providing assistance; you may decide to use other methods that are more appropriate for your employees or business.

Don’t ignore retirement accounts. If demand destruction ends up reducing asset values, it might be a good time to start a retirement account or increase contributions to an existing retirement account. It’s only a good idea if your job is secure, your business is healthy, you have the money, and a recession isn’t on the horizon. Buying lower is always a good long-term strategy.

Profit is Critical

The economy is likely to get worse before it gets better. If your business has built a war chest from a portion of its profit over several years, you stand a good chance of having your own soft landing. If you haven’t created a war chest, now’s the time to start, but it may be difficult to do so quickly.

Dealing with increased costs and reduced margins, and resisting the urge to raise prices to cover it all, will be difficult if not fatal to a company that hasn’t earned a good profit over the years and stashed some away. Having a general idea of what direction the economy is headed will aid your decision making. Gather information from more than one source, and stay away from talking heads that are preoccupied with stirring up emotions. Above all else, remember that it’s in your family’s best interest if you don’t overextend yourself at the wrong time.

3 Web Sites to Find Laborers For Your Construction Business

Thu, 03 Mar 2022 19:22:04 GMT

Finding candidates to fill your open skilled labor positions

You’re not the only construction business that is hard pressed for workers these days. Many companies begin their labor hunt on the internet to leverage technology, which isn’t a bad strategy. Online job sites can be a great resource for companies looking to hire ASAP, but many provide an overwhelming array of listings. Zip recruiter and Indeed are brimming with open positions but they may not be the best option for most construction companies looking for labor positions. To help with your labor search, we have identified 3 construction specific job boards for you to consider.

1. ConstructionJobs.com

This website allows construction companies to post jobs in specific industry categories like:

Commercial
Engineering
Heavy Civil
Power/Energy
Residential
Specialty

This site also makes it easy to review the resumes and qualifications of potential hires. You can even search for skilled workers based on your own criteria.

2. iHireConstruction.com

iHireConstruction advertises 2,850 new construction jobs added on a daily basis. It is also noteworthy to mention that among 500,000 workers registered with iHireConstruction.com, 88% of them have more than 1 year experience in their given field according to their web site.

3. ConstructionJobForce.com

Finally, ConstructionJobForce is a job board focused on bringing quality candidates to businesses in need of construction workers, operators, technicians, and supervisors. This site also boasts a blog that has loads of information on the best ways to write a job description, how to find the best candidates and how to sift through the resumes once a position has been posted (similar to Indeed.com’s resources).

There’s no denying the current shortage of skilled and unskilled construction workers our industries are missing but the labor pool is far from dry. Employers just need to look a little deeper—and try a little harder—to find the workers they want. At Virtus Support Services, we work alongside you and your team to help streamline your business. Whether it is finding candidates for an open position or by developing operations that lead to profitable and sustainable growth or helping with your back-office operations, we will work together to scale your business.

Technology and Mobile Application in the Construction Industry

Fri, 02 Jul 2021 17:58:47 GMT

Lets Talk Tech

Mobile applications in the construction industry have been on a steady rise in the last few years. You’d be hard pressed to go to a job site and not see everyone using a smart phone and more than likely a guy or two with an I-Pad or tablet of some type. The use of new technologies has made managing construction projects easier than before. There are three key ways that I feel technology has helped the construction industry and they are material ordering, communication and scheduling/ organization.

Material ordering is on the cutting edge right now it seems. There are numerous material companies out there ranging from small mom and pop places to large scale national companies and the ordering process can vary from place to place. The majority of these companies have sales people who handle certain clients. I have close friends who do sales for larger construction material companies and they receive phone calls, texts, and emails constantly from clients doing ordering. The multiple methods of ordering cater to the different customers’ needs. Some customers want to have a personal conversation and talk everything out, while others don’t have time to sit and talk on the phone so a quick text or email can suffice. Also a tip when ordering; always make sure you have everything in writing, that way if there is ever any issue with the order you can refer to your email or text to make sure the issue is resolved based on what was agreed upon. So back to the topic of technology, just simply having a smart phone can give you different ways to cater to your needs when it comes to ordering because it opens up multiple avenues of communication.

Speaking of communication the ‘reach’ that construction leadership has available to them now is almost endless. Apps like Facetime, Facebook, Zoom, Slack, and other similar applications has given construction professionals the means to communicate and connect like never before. When starting a construction business one of the biggest and best ways right now to reach new clients is through Facebook. Whether you’re going through Facebook Marketplace, or just posting content on your business’s page, Facebook opens up a whole new world of people and potential business we didn’t have just a few short years ago. It might go overlooked sometimes because we are so accustomed to it now but just simply the ability to text and have group text messages has been an incredibly useful tool that we now have access to. The fact that we can have questions answered, meetings scheduled, crews lined up, schedules communicated etc. in just a quick send of a text has really been able to stream line the construction industry. One of the biggest things, especially in the Covid era, has been the use of Facetime, Zoom, and other video call apps like those have been able to have client and worker relationships personal with a face to face feel while still keeping the distance that some feel necessary for their health. Other practical applications of these video call services can connect out of town clients with you making the world seem a little smaller and help you be able to possibly land some out of state jobs that you might not have had access to before.

One of the biggest and most important ways that technology has helped the construction industry is through access to programs that help you schedule everything out and keep you organized. One of the biggest killers to a construction business or a construction professional is the inability to be organized. When it comes to material if you don’t know how to schedule out you might not have material lined up when you need it and that can cause you to lose time on a project. With labor, you might have material delivered, and on site but no crews lined up to work, therefore opening yourself up to theft of material, or damage to material, and again loss of time. But being organized, especially in a management roll in a company goes beyond just scheduling materials and labor. You have to make sure you know when to send invoices, pay subs/ employees, meet deadlines for bids, make sure you are free to attend meetings when they are scheduled, ect. If you don’t keep yourself organized you can complete throw yourself through a loop causing you to play catch up which can become difficult to dig yourself out of once you end up in that cycle. Luckily though with the use of tablets and new construction applications it has gotten considerably easier to manage your time, materials, labor and business without relying on just your memory and a sheet of paper. Technology has made it to where you can change appointments, set reminders, schedule meetings, ect. with just a swipe of the finger instantly. With these new advances in the construction industry it has definitely been able to cut down on time and mistakes caused by human error.

If any of the information above seems useful but lacking in your business give us a call! We have a very tech savvy team who have used these technologies in the field and have also developed systems for construction companies in the past. If you are needing help with getting organized we can create an app custom tailored to your wants and needs that could help take your business to the next level!

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Building a Great Mission Statement

gmsieber@virtusss.com (Gregory Sieber) — Thu, 17 Jun 2021 18:42:58 GMT

A proven way to focus your business

Are you starting a new business or re-focusing the one you have? Here is a strategic planning tool for revising or building a new a mission statement for any size or scope of organization. The approach is simple and effective. It originates from the management discipline known as Hoshin Kanri. I have used it very successfully for many years in numerous environments including telecommunications, construction, product development, defense, and information technology.

The method is very simple. It begins with a mad libs (remember those?) style fill in the blanks. The template is shown below.

Mission Statement Template:

Our mission is to __(purpose)____________________ that _________(goal & measure)_________ by/through ______(core competencies)________.

The mission statement building process will take from one to four hours depending on size and complexity of your organization. Bring your team together, include a representational cross section from leadership, management, and staff and make sure you have a good facilitator. Building the mission statement if fun and easy from this point. Using a large white board, the facilitator should solicit answers to each blank line, beginning with purpose. Get everyone to participate and throw out some stimulating ideas. For example, you can propose to the team that the purpose of the organization is “to put all competitors out of business” or “to dominate the world.” These are not likely realistic or productive as a true purpose, but they stimulate discussion and get people to loosen up and participate.

I like to begin the process with an example mission statement built using the process. I often use a mission statement leveraging my past as a landscaping business owner, back when I was in college.

Lawn Mission Statement:

Our mission is to be the region's largest lawn and landscape maintenance business that achieves 100% contract renewals year after year through use of highly capable crew chiefs and state of the art equipment .

In this simple and effective mission statement that achieves many things.

It clearly defines we are in the lawn and landscape maintenance business, not hardscape design, not landscape design, not earthwork, but we are focused on landscape maintenance. This is critically important --- Focus and Achieve!
We identify that our ultimate goal is to be the regional leader that protects its customer base and that our primary measure of success is contract renewals.
Lastly, we recognize our most important capabilities are our crew chiefs and our equipment.

This mission statement creates both operational and strategic focus for the organization.

I regularly see mission statements from multi-billion dollar corporations that are less concise and less meaningful. Yet, those mission statements typically take months to develop. This approach can develop a great mission statement in hours. Even if your mission statement is not open for revision, going through this exercise is a great early phase tactic for your strategic planning team. It helps to get everyone focused and often exposes strategic gaps or lack of alignment. If you choose to give this method a try, please send a comment to let us know how it worked out.

3 Tips on how to Manage Your Construction Company

Thu, 17 Jun 2021 15:20:32 GMT

Successfully managing a construction company is a multifaceted job that requires knowledge of common business practices, accounting principles, regional economic conditions and expertise in the building process. As long as people continue to open businesses, update their existing structures, or make repairs to their homes and business construction companies will have clients. In small construction companies, the manager might also be the owner. Larger companies, however, are more likely to hire one or more managers who answer to the owner or to a board of directors.

Managing the Business End of Your Construction Business:

A successful construction company must create proper pricing and manage its financial assets to ensure that the owners and workers are paid and that the Internal Revenue Service gets its share of the earnings. Managing even the smallest construction company usually requires hiring someone to oversee the back office tasks like complete bookkeeping tasks, handle communication throughout the business, invoice jobs, ect. By delegating business tasks, the construction manager is free to devote more time to bidding, client and worker interaction and job site duties.

Company Structure:

A successful owner or manager fully comprehends the construction process and provides leadership and supervision for his team in the field. Generally, this involves hiring or promoting a supervisor or foreman who reports to the manager. Bigger construction companies might implement more levels of management like hiring multiple crew supervisors who communicate with a project manager, who in turn answers to a general manager. No matter how large or small the company is, it will run more efficiently if it has a workable structure that provides a set chain of command.

Managing Clients:

Satisfied clients are a construction company’s bread and butter. An efficient manager knows how to effectively communicate to overcome tough spots and keep their clients happy. Good communication skills are essential to effective management. A successful manager will make themselves available to their customers to listen to their options; answer questions; serve as a liaison between clients, distributors, retailers and subcontractors; and handle day-to-day issues as they arise. Problem-solving and decision-making skills are essential for construction company managers, who must be able to minimize conflicts and keep projects running smoothly.