581: The Importance Of Having A Contingency Plan For Construction Contractors

Contractor Success Map with Randal DeHart | Contractor Bookkeeping And Accounting Services

This Podcast Is Episode 581, And It's About The Importance Of Having A Contingency Plan For Construction Contractors In the construction industry, unexpected challenges can arise at any moment. Numerous factors, from material delays to unforeseen weather conditions, can disrupt project timelines and budgets. From terrorism to fire, from extreme weather or earthquakes to cyber-attacks – how would your business cope if it was affected? Would your staff know what to do? Would you be able to keep working? That's why a contingency plan is crucial for construction contractors. It is not just a precaution but a necessity. Small construction businesses need to be prepared for a range of scenarios. Your company could avoid significant setbacks or closure with a solid contingency plan.

Why contingency planning is crucial

Contingency planning involves foreseeing potential risks and developing a strategic approach to mitigate their impact. For small business owners, this means safeguarding their assets, ensuring business continuity, and protecting their staff and customers.

A well-thought-out plan can differentiate between a temporary disruption and a permanent shutdown. It helps contractors mitigate risks and minimize the impact of unexpected events on their projects.

Here are a few reasons why having a contingency plan is essential for construction contractors:

1. Risk Management: A contingency plan enables contractors to identify potential risks and develop strategies to address them. By proactively planning for various scenarios, contractors can better protect their projects from cost overruns and delays.

2. Budget Protection: Unforeseen events can quickly eat into a project's budget. A contingency plan allows contractors to set aside funds specifically for addressing unexpected expenses, ensuring that the project stays on track financially.

3. Schedule Flexibility: Delays are not uncommon in the construction industry. A contingency plan allows contractors to adapt to unexpected schedule changes without derailing the project timeline.

4. Client Confidence: Clients appreciate contractors prepared for the unexpected. Demonstrating that you have a contingency plan can instill confidence in your clients and reassure them that you can manage unforeseen challenges.

5. Competitive Advantage: Navigating unexpected obstacles efficiently sets contractors apart in a competitive industry. A well-executed contingency plan can demonstrate a contractor's professionalism and commitment to delivering results, giving them a competitive edge in the market.

Emerging issues and regulation changes

Ever-evolving regulations demand greater transparency and accountability from small businesses. This is particularly relevant in preventing and addressing financial fraud, which remains a substantial risk. The increased scrutiny from regulatory bodies means companies must have robust monitoring systems and response strategies. Failure to comply not only puts your financial standing in jeopardy but also your business's reputation.

Practical steps to develop your contingency plan

Risk assessment: Identify all potential risks that could impact your business. This includes everything from natural disasters and cyber-attacks to key personnel suddenly becoming unavailable. Rank these risks based on their likelihood and potential impact.

Document everything: Put together an operational guide for your business, outlining everything you would need to know to keep it running, such as who your suppliers are, how and when they are paid, and everything else that happens on a daily/weekly/monthly basis. As part of the same process, outline the roles and responsibilities of every senior staff member and scope out the daily and weekly tasks so a replacement could easily assume those responsibilities.

Communication plan: Develop a communication plan to keep employees informed during and after a crisis. Consider using multiple channels such as email, phone calls, and social media to reach out to employees and customers.

Develop response strategies: For each identified risk, develop a response strategy. This could involve establishing a crisis management team, setting up temporary operational sites, or creating data backup protocols. Ensure these strategies are detailed and cover all critical aspects of your business operations.

Regular review and testing: A contingency plan is only effective if it's current and functional. Review and update your plan regularly, especially after significant changes in your business environment. Conduct drills and simulations to test your team's readiness and the effectiveness of your response strategies. Your contingency plan should be a living document that evolves with your business.

Construction Client's Story (edited for brevity):

On Sunday, July 27, 2008, around 6:30 p.m., my girlfriend and I had just returned from an overnight hiking trip.

When we arrived home, we discovered that we had been robbed. We immediately called 911.

As we walked through the house, we discovered that our computer and many other valuables were gone. The computer had all the company business on it.

QuickBooks, invoices, all the subcontractors' info, and everything to keep the company books. We were at a loss for what to do. But as luck would have it, we had Randal DeHart as our accountant. He had all our info on a backup system somewhere on a huge server.

So we called Randal to let him know that we would get a new computer as soon as the insurance company paid us.

Randal called us the next day, July 28, 2008, and told us to come to his office. To our surprise, he had gone to Office Depot, purchased a new computer, loaded it with QuickBooks, and restored all our business information.

We are so appreciative that Randal had our backs. We had told him that we would pay him for the computer as soon as possible, but you know what he said,

No thanks are necessary; if we just pay forward, that's all he asked."

How's that for a Good Accountant?

Also, as a reminder that could be helpful in your planning:

QuickBooks plans to stop selling several versions to new U.S. subscribers. The deadline to purchase new subscriptions to the listed products has been extended from July 31, 2024, to Sept. 30, 2024.

• QuickBooks Desktop Pro Plus
• QuickBooks Desktop Premier Plus
• QuickBooks Desktop Mac Plus
• QuickBooks Desktop Enhanced Payroll

We do our best to inform you of your options based on your construction company's needs and ensure you are alerted to fundamental software changes that may affect your construction business now or in the future. Although extended, we recommend checking and upgrading immediately to avoid service disruptions and workflow interruptions. Please plan accordingly or reach out if you need help.

Final thoughts

As a business owner, a lot of critical information exists only in your head. As the founder, you always know what's happening and how to do things, but what would happen if you weren't there?

Developing a contingency plan is not just good practice; it's a critical component of your business strategy. By taking proactive steps today, you can secure the future of your small business.

Plus, having a plan gives you peace of mind that everything could continue in your absence or without crucial team members. It also makes for a better-run and more organized business. Forcing yourself to have everything documented centrally builds a greater awareness of roles and responsibilities across the organization while making holidays less challenging!

We could be a part of your contingency plan; let me know how I could help with yours.

PS

We offer free resources to help you save time and money that you can download and print now.

About The Author:

Sharie DeHart, QPA, co-founded Business Consulting And Accounting in Lynnwood, Washington. She is the leading expert in managing outsourced construction bookkeeping and accounting services companies and cash management accounting for small construction companies across the USA. She encourages Contractors and Construction Company Owners to stay current on their tax obligations. She offers insights on managing the remaining cash flow to operate and grow their construction company sales and profits so they can put more money in the bank. Call 1-800-361-1770 or [e-mail]