The Most Prevalent Issues Construction Companies Face Today

Situation in the market, Improving Cashflow,
Zaid Rahman
June 20, 2022
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Construction companies big and small are facing similar industry issues.

Knowing how to weather the storm, or if others in the industry are dealing with similar issues has you frustrated and in search of answers.

Whether you’re a small business that is just getting started or a large construction business with over 20 years in the industry — the following issues are likely plaguing your business — or have at some time in the past.

We’ve asked and found the answers you’re looking for. Keep reading to find out more about the top three challenges construction companies are facing today.

Top 3 Challenges Construction Companies Face Today

#1: Cash Flow: From Payment Management to Cash Flow Shortages, Construction Companies are Suffering

A staggering 84% of construction companies have problems with their cash flow, according to a recent study.

Many small construction companies are risking their businesses because they are trying to grow quicker than their bank balances allow — they are dealing with cash flow shortages due to not having access to enough cash that lasts.

Daniel Comparetto, of Hamilton & Carter states:

Many companies will bid on a project that promises a huge payday but requires them to spend more cash than they currently have. The average time it takes to get paid in construction is close to 83 days. As a result, construction companies of all sizes can struggle to weather payment delays if they are not careful.“

He continued, “It takes a significant amount of cash upfront to start a new job and support your company’s growth. Most construction companies are not big enough to have access to a lot of cash quickly. And to make it even more of a challenging environment to operate in, retainage of 5-10% of the contract total is regularly withheld on projects.

As one of the top concerns, especially for those just starting their construction companies, is there a way to avoid these issues? Comparetto may be on to something, suggesting the following solution:

Aside from ensuring that you have a steady cash flow and a significant cash balance on hand is to make sure that you have a business line of credit for “worst-case scenarios” to get you through that challenging period between your bills being due and when your project is completed and paid for.

You can utilize leading cost and estimating construction software to accurately estimate your construction project costs and save countless hours of time dedicated to data entry.

You can reuse completed bid items from past jobs that have been saved to your library and you can create reusable crews and assemblies with all of their labor, equipment, materials, and other items that have been saved previously. If you need to maximize the accuracy of your cost detail, you can further break down your bid items into unlimited levels and sub-item levels, so that every cost for a work item is accounted for.”

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#2: Not Enough Skilled Workers: Aging and Lack of Workers to Meet Growing Demands Being the Two Biggest Factors

Post-COVID-19 pandemic, industries all across the nation are struggling to find skilled workers — and the construction industry isn’t any different, even pre-COVID era.

For decades, the industry has struggled to find workers, but now, more than ever, they are struggling to not only find skilled workers but keep talented contractors and complete projects on time as the demand in the industry continues to grow.

For Geoff Sharp, of Sharper Impressions Painting, retaining good help has been an issue for their 28 years in business. Reloading workers each season is a specific struggle for those in the construction industry, largely due to it being a “seasonal” business.

To help maintain quality customer service, Geoff states his company has a unique advantage:  

“We customize each employment package to make it a good fit for the employee and the company. So a lot of great painters and Managers are referred to us for work by others that are also in the industry.”

But the employment issues don’t stop there. Many companies are struggling with the aging workforce. According to the National Association of Home Builders’ analysis, the median age for construction workers is 41 years old, while the average retirement age is 61, with productivity levels declining 10 years prior to retirement age.

And while productivity is declining in the average construction worker, younger employees are indulging in more risks, increasing the chances of injuring themselves on already hazardous job sites.

Mr. Sharp believes in several initiatives to help combat the challenge associated with the lack of skilled workers. He mentions:

“Successful construction firms have done a great job of creating in-house training and apprenticeship programs as well as collaborating with state and local governments to create programs designed to attract and train new talent for careers in construction. For example,  developing a mentorship program for high-schoolers or university-level students from your local area that introduces them to the construction industry and provides a look behind the curtain on your specific organization has proven to be worth its weight in gold for construction companies across the U.S.”

Sharp continues on to mention a unique perspective on gaining skilled, long term employees:

Further, to build on this effort, finding programs such as the DoD Skillbridge program that provides transitioning military veterans an opportunity to learn about a new role outside of the military work very well. Not only are you gaining access to a proven and highly skilled talent pool, but you are also able to leverage a variety of experiences that you otherwise would not have been able to tap into.”

#3: Poor Communication Leading to Delays and Budget Issues

Lack of communication from construction teams oftentimes leads to tasks slipping through the cracks, poor productivity, and ultimately project delays.

Poor communication, mistakes, and delays can be costly for construction companies — in fact, more than half of all project budget risks occur due to ineffective communication.  

Comparetto’s best advice:

“I have found that by purposefully utilizing email, text messages, and construction technology software and applications on a project can get information instantaneously to all people on the project in real-time and reduce the slowdowns and speed bumps of a communication breakdown.

There should be clear communication up the chain of command that informs the team of any progress or obstacles at the end of each day. This way, problems can be solved proactively. If in-person meetings are not an option, using different types of technology options could be an excellent solution.”

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