What’s in this edition:
- News/Publications to follow
- Financial considerations for your Electrical Contractor business plan
- Industry metrics for guidelines
Public Information to Follow
- Associated Builders and Contractors
- National Electrical Contractors Association
- Independent Electrical Contractors
Financial Considerations for your Business Plan
Profit Drivers
Strong Project Backlog: Electrical contractors need a backlog of projects to stay busy and keep their staff working. They get this by developing relationships with general contractors and submitting competitive bids. But small business owners who wear multiple hats may not have time to develop a backlog if they’re too busy with existing projects. And backlogs can also decline during the winter months when construction activity slows down.
Accurate Cost Estimation: Electrical contractors need to figure out how much work and materials they need to finish a project so they can price their bids right. They can use cost estimation tools to help them do this. But they also need to make sure they leave room for unexpected costs, and that their bids are competitive.
Efficient Project Management: Electrical contractors need to make sure their projects are completed on time and on budget. This ensures that they are profitable and that they can get repeat business from general contractors.
Cash Management Challenges
Cash Shortfalls. Electrical contractors rely on new construction to stay busy. But construction activity can go up and down depending on the economy. So, when construction slows down, electrical contractors may not have enough work to keep their businesses afloat.
Delays in Collecting from General Contractors. Electrical contractors may not get paid right away for their work because of delays in inspections and project completion. They may have to wait until the general contractor gets paid, which can take time. And weather or other issues can also delay project completion, which means electrical contractors may have to wait even longer to get paid.
Poor Estimation of Project Costs. Here’s how inaccurate project cost estimation can lead to cash flow problems for electrical contractors:
- Underbidding to win a job can mean little to no profit, which can make it tough to cover the costs of materials and labor for the next job.
- Even if a contractor wins a job with a fair bid, unexpected costs can arise, like labor shortages or material price hikes. If the contractor can’t control these costs, they could still end up with a cash flow problem.
Potential equipment purchases could include:
- Van/Truck: $25k – $100k Some need to be outfitted with custom setups to fit all gear and tools safely.
- Maintenance Lift: $2,500 – $20k Hydraulic pump raises platform so workers can reach electrical work in otherwise inaccessible locations.
- Heavy Scaffolding: $1,000 each Allows workers to reach areas out of ladder range. Lower cost alternative to maintenance lifts and easier to transport.
Recent Industry Metrics (Companies <$5M revenue)
Highlights from this vertical analysis and financial ratios:
- Maintaining cash on hand is key. Number of firms declined post pandemic and cash as a percentage of assets increased.
- Rising wages were able to be transferred to customer payments so far since Salary-Wages percentage did not increase.
- Contractors are holding more inventory post pandemic.
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