How investing in construction software can transform SMEs?

By Georgia Galloway | 1 Nov, 2023 | 4 minute read

The construction industry is undoubtedly facing several challenges. The high interest rates, escalating material costs and supply chain issues have meant that as of November 2023, 72,257 construction companies are categorised as being in ‘significant’ financial distress. 

And small- to medium-sized enterprises (SMEs) are arguably the most vulnerable right now.

At a time when so many construction companies are facing difficulties and financial strain, ensuring your contractor company is paid on time and in full and that wages are paid correctly is essential.

Investing in construction management software can be the proactive solution that can positively transform a construction SME.

New homes being built in a residential estate in England.

Challenges currently faced in the construction industry

The impact of high-interest rates

A series of 14 consecutive increases has brought the base interest rate to 5.25% (as of November 2023), a level last observed during the global financial crisis in 2008. But what are the implications of increasing interest rates on SMEs?

Increasing loan costs: Project funding can be a tough hurdle for construction SMEs, with many resorting to loans but are often stung by high interest rates. This makes repaying these debts more challenging, putting a strain on finances.

In some cases, the burden becomes too heavy, leading to company insolvency. Not only does it impact the company, but it also affects employees who lose their jobs, as well as clients left with unfinished projects.

Lack of growth: As interest rates rise, SMEs might be less willing to borrow for growth. SMEs may become more cautious about new projects, investing in new equipment, or expanding their operations. This can stifle their ability to seize growth opportunities.

Consumer spending: The upsurge in interest rates, coupled with growing financial pressure on households, has adversely affected consumer confidence. 

Consequently, consumers have become apprehensive, leading to substantial project launch delays throughout the UK - with the 2023 October Construction Index by Glenigan revealing that the value of onsite work dropped by 32% compared to the same period last year. 

The cost-of-living crisis: Due to increases in food prices or rent hikes, there's less disposable income, which can impact savings or investment potential into things like training or new equipment.

Reduced consumer spending, higher operational costs, and rising staff costs - are ongoing issues construction SMEs typically face. A 2023 report by Rated People found that 86% of UK tradespeople will need to increase their prices to stay in business. This report reveals the impact of the cost of living on construction SMEs. 

Grappling with insolvencies

Due to project delays, cost overruns, and contractual disagreements, insolvencies in the construction sector are more prevalent than any other - with insolvencies in construction representing 16% of UK companies that became insolvent in September. 

Project Delays: Construction projects are often subject to delays, such as adverse weather conditions, permitting issues, or unforeseen technical challenges. These delays can lead to increased costs, contract disputes, and financial strain on construction companies. 

Cost Overruns: Construction projects are notorious for exceeding their budgets. Unexpected expenses can arise from design changes, material price fluctuations, or unforeseen site conditions. When cost overruns are not correctly managed, they can impact profitability.

Mounting Material and Labour Costs

The construction industry is experiencing a notable impact from the escalating cost of living crisis, particularly with the substantial increase in the prices of building materials. Material costs have increased by 43% in the last two years, while labour costs are up 10%, according to BCIS. 

The residential sector experienced a 10% decline in project starts in the three months leading up to September, a 26% decrease from 2022. Social and private housing decreased 13% and 10% compared to the previous quarter, with significant year-over-year drops.

How construction management software can transform SMEs

Streamlining the process

As businesses expand, tasks and procedures often evolve organically; as employees exchange information, they may create processes without a clear purpose. Although these methods may facilitate the completion of tasks, they may not be the most efficient approach. 

Construction software can introduce the necessary framework to streamline processes that may impact the company's growth. Roles and responsibilities should be outlined to align with the most efficient execution methods. Additionally, construction management software simplifies the management of records and the

Boost efficiency and productivity

In an industry where project delays can cause significant financial setbacks, a well-organised approach to managing tasks can save time and costs. Advanced features like real-time planning and monitoring help keep you in control of every element of your jobs.

The implementation of software enhances efficiency by removing redundant data entries and the need for redoing tasks. Furthermore, consolidating all project information into a system ensures employees have a single source for accessing information. 

This results in significant savings of both time and money that would otherwise be expended on searching through emails and files.

Scale faster with confidence

Enhanced efficiencies allow project teams to dedicate less time to existing projects, freeing up additional time for pursuing new opportunities. 

This results in companies finding themselves capable of handling increased workloads without expanding their staffing levels due to the overall improved productivity and streamlined processes. 

Moreover, the costs of rectifying errors, duplicate entries, and rework are significantly lowered.

The future of construction software for SMEs

For construction SMEs, new trends are reshaping how projects are managed, making them more efficient and cost-effective.

Contractor Management Software

Using a contractor management system in your construction business offers several advantages: 

Enhanced communication and collaboration: This system significantly improves communication among the various stakeholders involved in a construction project. 

Streamlined operations: Contractor management software streamlines your business operations by automating repetitive tasks and providing quick access to essential information. 

Paperwork reduction: It reduces the cumbersome paperwork associated with construction projects by digitally storing all necessary data, eliminating the need for physical document management. 

Increased accountability: The software enhances accountability among contractors and subcontractors by centralising all relevant information, making it easy to monitor progress and identify potential issues. 

Informed decision-making: With all pertinent information readily accessible, you can make well-informed decisions about your construction projects, including tracking completed tasks, pending work, and potential risks.

In these challenging times, embracing digital solutions is not just an option but a necessity for construction SMEs. 

Site Manager Pro is software built specifically for trade contractors who work for the UK's house builders.

If you need smarter management of subcontractors on site or if you're looking to prioritise workplace health and safety for your contractors; we're on hand to answer any questions about our contractor management software.

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