Tips for surviving tough times in the construction industry

The skills required to survive in business vary widely when there is noticeable change in the business cycle, up or down.

The Queensland construction industry has certainly had its up and down moments over the past decade.

After a number of years of positive growth in the leadup to the GFC, many business owners within the state’s construction industry felt they had cause to be optimistic, committing forward expenditure on equipment, assets or land stock and funding these commitments through various forms of debt.

However, the GFC negatively impacted on many businesses, who found themselves overcommitted with debt or cash outlays due to a sharp reduction in income.

The industry experienced considerable turmoil and restructuring post-GFC and further difficulties after the natural disasters of January 2011.

Many companies had to react with major debt reduction exercises, sale of assets or staff lay-offs to improve cash flow and survive.

The consequence for those who were unable to adjust is that the Queensland construction industry has seen many businesses collapse, some quickly and some many months later. Queensland Building Services Authority’s 2010/11 annual report indicates that individual licensees excluded from holding a license (voluntary or involuntary) due to financial failure has trebled since 2007/08, while permanent exclusions have doubled due to individuals being involved in a financial failure a second time.

There is a strong need for improved management skills and decisions, and financial monitoring.

Survival tips
No matter what the business cycle is, basic prudent business management principles still apply.

Given the lessons learnt from business collapses in the Queensland construction industry, it would pay for owners to consider these guidelines when they write that next quote or commit to the next project:

  • Stick to your core capability – but if you shift your focus or change strategy, consider setting up an advisory board to get objective advice on the wisdom and viability of your plans.
  • Ensure your financial management and job reporting capabilities are accurate and timely and take action when warnings appear. History indicates the longer it takes to react or seek assistance, the less likelihood of recovery.
  • Clearly understand the scope of work and define exclusions and limitations in quotes.
  • Be clear as to who is paying the account and what the payment terms are.
  • Calculate all your costs and ensure you know the overheads and margins you need to achieve. If the overhead structure is changing get professional advice so you know the correct numbers to apply in your pricing.
  • There is no need to discount prices to win all jobs; within reason, the community is expecting to pay a premium.
  • If you need extra equipment, can you get away with subcontracting or hiring? Will second hand equipment get the job done or can you set up an arrangement with an industry peer?
  • Monitor cashflow; an increase in work should increase cashflow in the short term, but don’t forget it is also there to pay wages, expenses, GST and taxes which follow.
  • Ensure you monitor compliance with the Queensland Building Services Authority (QBSA) Allowable Annual Turn Over (AATO) requirements, and work within your licence agreement. After the GFC, the QBSA significantly stepped up its surveillance activities.
  • If you are successful in seeking a loan for working capital or equipment, make sure the terms and repayments reflect your forecast revenue and repayment capability after the boom – if there is one.  In hindsight, this is where many people were caught in the GFC.

Forecasts indicate mixed messages about the future of the Queensland construction industry, including the expectation of interest rate cuts – clearly there are both opportunities and cautions ahead. Those who manage the business basics correctly will prosper and survive; those who ignore them will do so at their peril.

This blog is based on an article by Keith Bailey that first appeared in the Summer 2012 edition of Family Business Magazine.

Keith Bailey is a client director at national transformation and turnaround firm Vantage Performance. He specialises in assisting under-performing businesses and providing support and resources for recovery, rapid business growth or complex business challenges. He was named Queensland’s Turnaround Professional of the Year for 2010.

Categories :
Scroll to Top