2022 is looking to be a year of careful balance for construction companies. On the one hand, demand for projects is up, increasing job opportunities across the industry. On the other, ongoing supply chain issues, among other causes, are seeing the cost of doing business steadily increasing.
In this article, we’ll examine the current climate for the construction industry, and share some advice on how contractors can keep certain expenses low to protect their bottom line and make the most of growing demand.
Industry demand is on the rise in Q1 of 2022.
A recent survey conducted by Associated General Contractors (AGC) and Sage found an overall optimism looking ahead into 2022 across construction contractors.
Specifically, the survey found that contractors expect to see a high demand for the following kinds of projects:
- Highway and bridge
- Transit and rail
- Water and sewage
- Power infrastructure
- Private sector
- Healthcare facilities
- Educational facilities
- Manufacturing facilities
According to AGC and Sage, the only areas in which construction companies are unlikely to see an increase in business are in retail and private office projects.
Many companies are looking to expand.
These positive projections are leading many businesses to expand. In fact, 74% of the firms AGC and Sage surveyed responded they looked to increase their headcount in 2022, compared to only 9% looking to downsize.
However, with continentwide labor shortages impacting all industries, many construction companies looking to expand are having trouble doing so. Not only does this prevent the companies’ desired growth, but also limits the projects they can take and turnaround time of completing said projects.
The supply chain is also an issue.
Labor shortages have only been made harder by supply chain delays inflating the price and availability of materials. The majority of contractors have found that projects are taking longer and costing more.
According to international property and construction consultancy firm Rider Levett Bucknall (RLB) construction costs in Canada and the United States are up an average of 7.42% from pre-pandemic rates.
So what do construction companies do to stay profitable?
Even in difficult economic situations, there are strategies businesses can take to remain profitable.
With the supply chain crisis, certain expenses are inevitably going to increase. Materials, for example, are an area where it is difficult to make concessions based on price, considering their necessity in finishing any job. So while the prices of materials and their delivery may be on the rise, cost management in other areas can go a long way in helping your bottom line.
One such expense is fuel.
Fuel is a big spend for many contractors.
Every contractor goes through some degree of motor fuel, and that spend will vary from project to project. It is difficult to dedicate the time to sourcing the most cost-effective and dependable fuel supplier. However, optimizing fuel costs can hugely benefit your business’ bottom line.
According to industry publication Construction Business Owner, some areas where contractors struggle with their fuel spends include:
- Knowing how and when to purchase fuel at optimal levels.
- Ensuring accurate fuel inventories.
- Implementing tank monitoring and fuel-control systems, which “can drive greater business value through access to real-time fuel usage and cost data”.
- Auditing transportation and fuel related expenses to implement savings strategies and keener financial management.
“No matter the size of the company, there can be a lack of coordination and communication between its various expenses,” Construction Business Owner warns. “This can result in additional, often unnecessary fuel-inventory reporting processes that can lead to disruptive runouts or inefficient refueling needs, with any mistakes potentially leading to higher fuel costs or prohibitive equipment downtime.”
Depending on your location, some of your fuel expenses might be tax deductible.
One solution to saving on fuel expenses is by understanding which of them are tax deductible. Quickbooks advises that construction businesses, you can’t deduct the commute between your home and the jobsite, but you can deduct trips between multiple job sites, as well as those made for business-related trips throughout the day.
On top of the price of gasoline, various other transportation related expenses can generally be deducted on your yearly taxes. These include:
- Lease payments
- Maintenance and repairs
- Vehicle registration
- Parking and tolls
Come tax season, make sure to work with your bookkeeper to be thorough and use deductibles to your business’ advantage.
Work with professionals.
There are software and technology that assist in monitoring and alerting managers to best fuel practices. Likewise, working with cost reduction professionals can save the time and hassle in auditing fuel spend, researching market insights, and finding and implementing solutions.
With the construction industry looking forward to a prosperous year of growth and new projects, economic issues such as labor and supply shortages. 2022 will be a year of balancing opportunity with expense, and as such, there is no better time than the present to optimize fuel expenses.