Back office basics for construction – 10 Ways to Cut the Costs of your Construction Business Purchases

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How does your construction business purchasing measure up? Whether you’re buying tools, equipment, supplies, materials or even hiring subcontractors – are you planning those purchases as well as you could?  

When it comes to running a construction business efficiently, purchasing is often overlooked, particularly in businesses where purchasing tasks are handled by several employees. As a result, you may find that you are spending too much money on low-quality products or with suppliers who don’t exactly have the best customer service. Purchasing is a profession like any other – it is better handled by professionals. So if you’d never dreamed of letting someone unprofessional or inexperienced build a building or even weld, why should you treat purchasing differently?

So what measures can you take to reign in your spending and put some controls around the purchasing process? Here are 10 tips to consider.

1.     Separate your Personal and Business Banking

If you are purchasing anything for your business, first open a business bank account and apply for a business credit card. Here’s why:

1)     If you start intermingling personal and business credit, you negate any protection that being a Limited Liability Company (LLC) can afford. A business credit card, used solely for business purchases and expenses, can eliminate this risk as long as it isn’t backed by a personal guarantee.

2)     The IRS requires that income and tax deductions for business and personal transactions are kept separate. A business bank account can help with this, while a business credit card can make for easier record keeping because they break down expenses by category.

3)     Credit cards are also an effective tool for building business credit, which will help you to get better deals with banks and lenders.

2.     Establish a Formal Purchasing Policy

Now, you may not have a need or even the budget to staff up a purchasing team, but it’s a good idea to lay the foundations of a formal purchasing policy – one that defines your desired quality standards, delivery times, volumes, and price points.

Think about the following factors as you define your procurement policy:

  • Who has authority to purchase? What can they buy and are there any spending limitations?
  • How you select your suppliers? Do you factor quality, shipping times/costs, place of delivery, etc.?
  • How many quotes do you seek before selecting a supplier or subcontractor?
  • Do you enter into formal supplier contract arrangements? What are the acceptable terms?
  • Do you have a process for quality control? What happens when you get defective materials?
  • How often you evaluate supplier performance (if you don’t it’s a good idea to do so)?

3.     Appoint a Go-To Purchasing Function

As a business owner you can only wear so many hats, so consider passing the procurement reins to someone else on your team who can take on this function in addition to their other duties. In this role they will not only place orders, but ensure that your purchasing policies are adhered to, be responsible for supplier selection and management, inventory, quality control, and payment processing.

4.     Get a Grip on Inventory Management

Inventory tracking is a great tool to cut costs. It will help you avoiding buying materials you don’t need for your coming jobs, and ensuring you’re not losing time (and spending money) waiting for materials you forgot to order. There are many simple online ordering systems that can help you monitor and manage inventory, sales and shipping lines – automating as much as possible can give you visibility into your business, improve cash management, help with inventory control, and ultimately, enhance profitability.

5.     Keep Track of Orders

This is where the purchase order (PO) comes into play. Once you’ve agreed on a price with a supplier, filing up a PO (a formal request to a supplier to go ahead and deliver materials at an agreed price and terms) will help you stay on top of your purchases when they are delivered and invoiced. Cross check items that arrive with your PO, and again when the invoice arrives. This is the time to spot check quality and quantity.

6.     Negotiate Contracts for Quantity Discounts

If you are making repeat purchases from a supplier, use a contract instead of a PO. You may be able to negotiate quantity discounts or simply streamline the process of ordering recurring items. You’ll save time, money, and you’ll still be invoiced on a monthly basis.

7.     Keep an Eye on Market Fluctuations when Making Purchases

It’s likely that market prices for purchases are going to fluctuate. Take advantage of declining prices, liquidations and discounts on bulk purchases to lower your costs. If you don’t have the cash for this – try negotiating payment plans or even consider borrowing. Many times your borrowing costs will be much lower than the discounts you receive when buying in bulk.

8.     Going Beyond Price, Establish a Good Basis for Choosing a Supplier

Don’t just compare price among a short list of suppliers, be sure to dig deeper before you place an order. Look at their credit and payment terms. What about their reputation (do a little research or ask for customer references)? Likewise, don’t throw all your eggs in one basket, it’s very important to have at least one supplier “in reserve” who you can turn to if your preferred supplier lets you down. Having a few suppliers on your books will also put more pressure on your primary suppliers to add sweeteners such as discounts or better terms. Furthermore, working with several suppliers also gives you the opportunity to build good business credit. Finally, consider using marketplaces such as Specbid, Kinnek to get the best pricing you can get.

9.     How to Know When it’s Time to Hire Help

In the construction industry, purchases involve many time technical and industry-specific knowledge. Moreover, the quality of the goods you buy and sell determines the perceived quality of your company. So, if your company’s purchasing process has become too complex or it’s too much for you or team to handle, it may be time to hire a dedicated purchasing manager. Entrepreneur.com also recommends doing so if your business issues RFPs or RFQs (requests for proposals/quotations) when making purchases, negotiates contracts with each supplier, or needs a better grip of tracking supplier performance.

10.  Where to Find Specialist Help

If you can’t afford to hire a specialist, you can also call on the services of SCORE – a government-sponsored network of business mentors who specialize in helping businesses with business functions from sales and marketing to operations and finance. Alternatively, organizations such as the American Purchasing Society also offer consulting services to members in need of assistance with their purchasing processes.

What practices have you put in place to streamline your purchasing process? Share with the rest of us!

About Fundbox: Fundbox is a Technology company that is helps small businesses grow by managing their cash flow better and by overcoming short term cash flow gaps.

We’re Back!

As of today, the WorkHands Blue Collar Blog is online once again, after sitting in the garage under a drop cloth since December.  Over the past few weeks we’ve spent some time reworking things under the hood to get her running again, and are pretty excited about how it’s turned out. 

What’s different now?  Well, we switched over to a WordPress platform that gives us a lot more flexibility in how we are able to organize and display all of the posts we have for our readers.  If that’s too much nerd talk for you, the bottom line is that you can expect more frequent posts from the WorkHands team, our trade experts, and even a guest post or two from our friends in industry.

We’ve got plenty we want to share with you—stories from the job, tips and tricks from experts, video tutorials, product reviews and more. If you have any ideas for what you’d like to see, or even better, if you’d like to contribute to the blog as an industry expert, send us a note at blog@workhands.us.  We want to have input from all the trades in every part of the country, and we can’t do that alone.

So you might be wondering what exactly we’ve been doing over the past few months if we haven’t been blogging.  The short answer is a lot.  We’ve updated the infrastructure of our system to make sure we can support the thousands of workers who are signing up, creating profiles, connecting their network, and applying for jobs on WorkHands.  We have a new look and feel for user profiles (like Steve’s), organizations (like schools), and our general activity feed where you can share your work with other tradesmen and see what other folks from around the country are building.

We’ve also launched a tool for apprentices in different trades to track their time as they progress towards journeyman status.  We’re starting out with automotive apprentices Northern California, and are looking to support other programs across the state and country as the year goes on.  And that’s just the beginning.  Look for announcements soon on new tools to help search our network of users, a better system for employers looking to hire, and updates to our mobile apps.

In the meantime, we hope you stop by our blog regularly for some great reading on life in the skilled trades!

5 Ways To Jumpstart Your Construction Career

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If you’ve never worked construction before, then you need to understand that it isn’t for everyone. It is challenging and has its rewards, but it also requires hard work, often outside in the heat and the cold, and construction workers are professionals within their trade.

If you’re planning on making a career out of construction, then you need to treat it like any other career and establish goals for yourself. Remember that they need to be realistic goals however, as learning any trade in the industry requires years of dedication, training, and on-the-job experience. Some trades, in fact, may take you several years of preparation just to get into.

It begins with deciding what trade you want be in. Different trades have different skill-sets and requirements. Some will require you to take college level courses. Others will require special skills, like welding or a Commercial Drivers’ License (CDL). You need to figure out what trade interests you the most and work toward the goal of obtaining the skills required to work that trade.

Below are a few suggestions about how to learn more about the trade of your choice:

Talk to a worker in the industry - Workers are a great source of information about training requirements and what to expect. WorkHands provides you way to find trade workers and get a feel for what they had to do to get started. Just remember, that construction is a rapidly changing industry and what worked in the past might not work today.

Talk to contractors - The best way to talk to contractors is either on the job or at their office, in person, and face-to-face. Contractors are proud of what they do and will usually be happy to talk to anyone interested in their industry. Be neat, respectful, and prepared to ask a lot of questions. Letting a contractor know that you are interested in their field might go a long way toward your ultimate goal of being employed.

Community College/Trade Schools - Again, different trades have different requirements, so it may not be worth your money to take a course that isn’t going to ultimately help you achieve your goal. Find out first from the contractors. However, generic courses like construction management or construction safety may serve as great resume fillers in the future.

Labor Unions - All construction unions have apprenticeships that provide ongoing training to their members. Find the union that represents your respective trade in your phone book. Call them and ask to speak to the apprenticeship coordinator. This individual will be able to give you all of the information you need about the requirements of the trade.

Get a Job! - Depending upon the type of project, getting your first job might be as easy as walking up to the construction trailer and asking to go to work. No matter what trade you ultimately decide to pursue, any actual time in the field in construction is a valuable commodity. It will prove to future employers that you can hack it in the business and won’t mind getting your hands dirty on their project.

 

Photo courtesy of: zigazou76