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Construction is a risky business; failure rates are high and profit margins are slim. Following are five things a construction company must constantly monitor to avoid the pitfalls that lead to failure.

1. Management

• Hire the best estimators who can bid jobs at the best price possible. Don’t bid a loss, intending to make the profit on change orders.

• Know when to “fire” a client. It may be time if the client does not pay on time, makes unreasonable demands, or insists on onerous contract terms.

• Hire and retain project and field managers who can keep the job on schedule, solve problems, implement documentation practices in the event of a claim and settle disputes before they have to be escalated.

• Have a short-term and long-term business plan.

• Maintain a healthy backlog of work, but not more then the company can handle without harming the schedule of other projects.

2. Financial Health

• Have a solid cash flow and the ability to forecast ebbs and tides.

• Collect receivables quickly.

• Have adequate surety credit and lines of credit with the bank.

• Use a CPA familiar with construction accounting practices.

3. Character

• Maintain good relationships with vendors, sureties, banks, and project owners and their employees.

• Have a clear transition plan in place should a key member of the management team die or leave the company.

4. Performance

• Resist the temptation to move into new geographic regions or take on work outside of the firm's area of expertise unless it has the suppliers and trained personnel needed.

• Develop short- and long-term plans to become the best contractor in the company's niche market.

5. Growth

• Maintain cash flow and manage growth without overextending the bank line of credit or other resources.

• Have a solid business and growth plan in place with a clearly defined market.

• Cultivate a culture that results in loyal, well-trained employees who are knowledgeable in sales and customer service.

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