Financial Strategies for Construction Entrepreneurs

by Fransic verso
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Financial Strategies for Construction Entrepreneurs

Many contractors prioritize financial management over personal wealth management. Managing and growing a successful construction company involves high risk, increasing competition, and declining profit margins. Owners balance the stress and responsibility of supporting employees and their families.

Once you figure out that you have to work on your business instead of in your business, you have reached a major milestone on the way to financial independence.

Seeking talented professionals to advise you and give you the benefit of their experience is a strategy that is used by many high-net-worth individuals.

After all, you are a builder, that is your primary experience. Utilizing financial advisors and wealth management platform, attorneys accountants and other experienced business professionals can speed your journey to becoming a high-net-worth individual.

Pay Yourself

This is a critical step to building personal wealth. When they start out many small contractors choose to reinvest most or all of their profits in the business. That can make you more profitable during good times it can turn against you when things get rough.

Invest in yourself first. When almost all of your capital is tied up in your company the likelihood of a quick sale or profitable ownership transfer is reduced.

Diversify

The construction business can be unpredictable. Building wealth outside of the business is highly recommended. Diversification has been called the pillar of stability.

As construction businesses grow they learn not to rely on a single investment. Holding an individual stock or a single piece of real estate is good, but diversifying is better to reduce your investment risk.

As the saying goes – “don’t put all your eggs in one basket”. When excess cash is available move some of it into other investments with different and lower risk profiles.

Get professional advice on setting up different tax categories and determining which types of assets should go into each.

Liquidity

Cash remains an important immediate resource. Try to maintain enough liquid reserves to cover six to twelve months of expenses.

For personal assets add more conservative and liquid holdings before making riskier investments. That doesn’t mean keeping it all in the bank.

Many advisors recommend investing liquid reserves in a “ladder” of government bonds. This ensures you will always have an instrument coming due to provide emergency funds or used for personal cash flow.

Insurance

If you’re in the construction industry, you know that accidents happen. Make sure you have a full portfolio of insurance that covers your business and personal needs.

For business, you need to cover workers’ compensation and public liability insurance. Other types of insurance include insuring your assets, customers, employees, and earnings.

Personal insurance for you and your family should include life, health, accident, disability, and property insurance.

Estate Planning

If you plan to leave a financial legacy to your heirs, begin putting together an estate plan sooner rather than later.

Your construction business probably provides most if not all of your income, and that’s something to be proud of. Building a medium to large size construction business is hard work.

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