According to a report released on 3 March, 2023 by the Australian Bureau of Statistics, in January the value of:
- Residential new buildings dropped by 15.1%
- Residential alterations and additions fell by 4%
- Non-residential building fell by 25.6%
So no matter which area of construction you work in, you are probably noticing a slowdown in enquiries and a drop in the amount of confirmed future work you have in the pipeline.
It’s scary times ahead but it’s not all doom and gloom.
If you learn how to proactively manage your finances, you can adapt and flourish during challenging economic times. Here are 3 ways you can proactively manage your cash flow:
1. Learn about Cash Flow Projection
Cash Flow Projection provides the ability to flatten out the peaks and troughs of your cash flow.
For example, while you have regular expenses such as wages, petrol, rent etc. you also have irregular expenses such as annual insurance premiums and materials to purchase before you begin a new job. In terms of cash in, you will receive deposits, final payments and progress payments.
When you document these numbers in a Cash Flow Projection, you will know exactly what you have in the bank now and what you’ll need to have in the coming weeks and months. Then you can plan your work and your finances accordingly.
This is something we do to assist our clients to become robust construction businesses.
2. Renegotiate your payment terms
It can be tempting to accept long payment terms from bigger construction businesses in exchange for regular work. But if payments are so slow you are self-funding the materials and labour used in each job, your interest repayments will be eating into your profits.
There is no harm in asking for shorter payment terms, an upfront deposit to cover material costs or a progress payment. If your request is refused, then it might be time to examine the true profit you make on these jobs and if the strain on your cash flow is worth it. Again, this is something we can help you with.
3. Plan for contingencies
When there is less work available, there’s pressure to drop prices. But be careful. All construction projects are at risk of delays and cost overruns. Whatever you quote, ensure you include an amount for contingencies. In addition, always ensure you have cash set aside to cover your ongoing costs during delays.
A downturn in the building industry shouldn’t mean the end of your construction business.
CFO@Call understand the challenges of your industry and have the knowledge to help you navigate through them. To discover how we can help you, book your free, no-obligation 15 Minute Construction Growth Call here.
Disclaimer
Cfoatcall.com.au is intended as a service only to CFO@CALL clients and the community. Images, information and intellectual property from the websites may not be reproduced wholly or in part from the site without consent from CFO@CALL Pty Ltd.
To request such permission, please email our administrator at the following address [email protected]. Include your name, telephone number and a brief description regarding the purpose of the information’s use.
Some of the information may be about legal issues and legislation but does not constitute legal advice. CFO@CALL do not expect or invite any person to act or rely on any statement, view, or opinion expressed on this site and readers should make and rely on their own inquiries in making any decisions or giving any advice. It is not directed at people in any other country and should not be relied on by people in any country other than Australia. The Information in this site is current at the date of publication but may be subject to change.
CFO@CALL makes no warranties, representations or guarantee’s regarding the information displayed on these websites, and all information is subject to change without notice at any time. In no event shall CFO@CALL be liable for any loss or damage arising out of or in connection with the use of information contained in this site, including special, indirect or consequential loss or damage, and whether such loss or damage arises in contract, negligence, tort, under statute, or otherwise.
CFO@CALL Pty Ltd
ACN: 155 086 936
ABN: 15 155 086 936
The CFO@CALL site contains links to third-party websites. Those third party sites are not under the control of CFO@CALL and therefore CFO@CALL is not responsible for the content of the links or further links contained in those sites. CFO@CALL in no way endorses or recommends the content, products or services of any third party sites that may be linked to or from the CFO@CALL Site. By accessing third party sites from the CFO@CALL Site you acknowledge that you do so at your own risk.