Finance

The financial structure of construction industry is also different from other industries. The capital requirement on a construction project can be classified into following sub-heads : 

1. Investments in permanent assets, e.g. tools, plant & equipment, form work, machinery, centering & shuttering etc. 
2. Short-term finances to meet the cash flow requirements at construction sites; earnest money and security deposits. 
3. Investment in future, i.e, education, training, research and development of human resource and technologies. 
4. Overheads in salaries and establishment expenditures, advertisement and public relation expenditures essentially required for procuring contracts, legal expenditures and similar such specified and unspecified fund requirements. 

More often than not, the construction is carried out on credit and mobilization advances, bank loans against securities. Some capital is always blocked in form of earnest money, security deposits, delayed payments of bills etc., putting financial strains on cash flow requirements. Recently, there is a growing trend in the country, of construction firms entering into capital market and raising capital in form of equity shares, and debentures, and venture capital. 

For comparison the financial structure of a construction form is exhibited in Figure along with normal structure of other industries. It can be observed from this comparison that cash and receivables form major portion of the assets of a construction firm. The fixed assets forming only a minor share. This is in contrast with other industries where cash and receivables are much less as compared to fixed assets. 

This low capital requirement is fixed assets~encourage  many non-serious and untrained persons to enter into construction market. These contractors work on shoe string budgets with briefcase offices with practically no spare capital for training, R&D and establishment. Their competitive advantage lies in lower overhead and operational costs. Quality, safety and productivity become the natural casualty under these circumstances. These firms have very less capability of absorbing fiscal shocks, and hence, they have a very high mortality rate and go out of business very quickly. The number of bankruptcies in construction is almost equal to new entrants to in its fold.