Materials remain the second biggest expense behind labor for most contractors, making it crucial to not only source all needed materials but stay within budget to be successful. Although today’s market has expanded rapidly, keeping up with changes and best practices for your material sourcing and buying is challenging to say the least. Expansive resources don’t necessarily make navigation easier and can further complicate things by leaving contractors with too many options to choose from. Understanding your priorities and following industry trends will ensure you’re on the right track with material sourcing and can move forward with project bids. With the right planning and financial resources, you can avoid the five most common material sourcing mistakes contractors make.
1. Expand your Finance Options
Lending often holds a stigma within the contracting community, but, despite what most people think, financing can accelerate your business growth. Financing one job leaves plenty of wiggle room in your budget to take on additional projects, buy materials, pay wages on time, etc. Proper budgeting can expand your business and help better manage cash flow. In a recent Contractors Payment Report survey conducted by Rabbet focusing on the speed of payments in the construction industry and its impact on costs, 67% of subcontractors report choosing not to bid on a project due to a general contractor or owner’s reputation for slow payments. Slow payments, in turn, significantly impact a general contractor or subcontractor’s ability to manage their cash flow by making payments on materials, wages, etc. Additionally, in 2021, the survey indicated a 76% increase in general contractors using both lines of credit and credit cards to float payments when payments are delayed. Instead of relying on credit cards or pulling from retirement funds, lending also offers a reasonable mean for contractors to take on multiple projects simultaneously without delayed payment concerns and repercussions.
2. Stock Up on Materials
Stockpiling materials can eliminate sourcing challenges for future jobs if your budgeting permits. Since the start of the pandemic, material costs, in general, have increased, like the skyrocketed price of aluminum. According to the London Metal Exchange, aluminum prices reached a record high at the end of February 2022. Although the metal market is seeing aluminum costs somewhat declining, they’re not anticipated to return to pre-pandemic prices, leaving a lot of uncertainty for future supply and demand. Not only is pricing an issue, but subtractors are often asked to buy in bulk to offset the unpredictability of materials.Stockpiling is only beneficial if you actually have spare cash to invest back into your company, which is why it’s crucial to effectively manage your cash flow. Thoroughly understanding your cash flow will help you build a solid financial foundation for your company. By implementing additional financial sources, such as loans, material financing, and/or invoice factoring, you can use your cash in hand to enhance your inventory and take on new jobs with the materials you already have. Additionally, price locking material costs helps to prevent unpredictability in market trends, creating an added layer of security for your business.
3. Proactive Materials Sourcing
Supply chain issues are still on the rise, and sourcing materials for contracting jobs is becoming increasingly difficult. Creating a running list of commonly needed supplies for your business and general price ranges is crucial to getting the ball moving on most projects. Every contractor knows what materials they need like the back of their hand, so there’s really no guessing when it comes to the exact materials and amount you’ll need for a bid. With this knowledge on hand ahead of time, you’ll be able to place bids quicker while also maintaining your inventory management. Not only will this help you compare prices, but you can source materials in seconds, place an order, and prevent dreaded shipping delays from disrupting your next project.
4. Utilize Online Price Comparisons
There are thousands of suppliers to choose from, with thousands of different pricing structures. Price comparison platforms eliminate the hassle of researching those prices on your own, featuring advanced technology and tools. By utilizing an online materials buying platform, you’re not only reducing the administrative burdens of material sourcing and management, but you’ll get the best price upfront without spending countless hours on the phone negotiating and valuable time away from work. Negotiation is key to maintaining your budget while expanding your overall business growth.
5. Buy from Multiple Suppliers
Although building relationships and loyalty with others in the industry is a common practice, it could be losing you thousands of dollars. Sticking to the same supplier across all your material needs just because they’re a good friend isn’t the most efficient business model. Browsing suppliers and comparing prices allows you to mix and match the perfect bundle that meets your budget. By sourcing materials from different suppliers, you’re also preventing shipment delays as certain vendors could ship products quicker than others. On the other hand, utilizing those relationships you’ve built over time to negotiate could also work in your favor. This doesn’t mean you have to completely cut ties with your suppliers, but rather pick and choose which materials they offer better pricing on compared to others.