Challenges of running a construction business

Running a construction business involves numerous financial challenges, many of which are unique to the industry due to the complexity and variability of projects. Below are the key financial challenges Secure Business Finance see with our customers;

1. Cash Flow Management

• Delayed Payments: Clients (especially government or commercial) often pay late, impacting liquidity.
  
  

• Upfront Costs: Materials, labour, and equipment often need to be paid for before receiving client payments.
  
  

• Retainage: A portion of the payment is withheld until project completion, tying up revenue.
  
  

2. Cost Overruns & Budgeting

• Unpredictable Expenses: Weather, material shortages, or site issues can drive up costs.
  
  

• Poor Estimation: Inaccurate bids can result in projects losing money.
  
  

• Change Orders: Last-minute changes by clients can increase costs without guaranteed compensation.
  
  

3. Profit Margin Pressures

• Highly Competitive Bidding: To win contracts, firms may underbid, reducing margins.
  
  

• Rising Material & Labor Costs: Inflation and supply chain issues directly impact profit.
  
  

• Subcontractor Issues: Mismanagement or delays by subs can cost time and money.
  
  

4. Project-Based Accounting Complexity

• Job Costing: Tracking labour, materials, and overhead per project is complex but essential.
  
  

• Revenue Recognition: Long-term contracts complicate when and how revenue is recognized.
  
  

• WIP (Work-in-Progress) Accounting: Accurate tracking of project progress vs. billing is tricky but vital for financial visibility.
  
  

5. Capital Investment Needs

• Heavy Equipment: Purchasing and maintaining machinery is expensive and often financed.
  
  

• Insurance & Bonding: High premiums for liability, workers’ comp, and surety bonds are required for most projects.
  
  

6. Financial Compliance & Reporting

• Tax Complexity: Handling sales tax, contractor tax laws, and multi-state operations can be burdensome.
  
  

• Regulatory Compliance: Failing to meet financial documentation requirements can halt projects or bar bids.
  
  

7. Access to Financing

• Risky Industry: Banks may see construction as high-risk, leading to stricter loan terms.
  
  

• Line of Credit Limitations: Not having sufficient credit access can stall projects.
  
  

8. Economic Cycles & Seasonality

• Boom-Bust Cycles: Economic downturns drastically reduce new construction projects.
  
  

• Seasonal Fluctuations: Bad weather can halt work, delaying income without reducing expenses.

Whilst these are all challenges, the positive news is there is support available for UK construction businesses, particularly when it comes to funding lines to assist with cashflow. 

Secure Business Finance works with a number of construction specialist lenders who have the expertise and appetite to meet funding needs and support businesses in need.