Save your construction business during recessions

Having experienced more than one recession in the Construction industry, I thought it would be a good time to consolidate some basic thinking actions required to maintain your strength and position in the market. 

During times of recession or a drastic reduction in turnover (projects in hand) it is important to take stock, adjust business expenditure and use your cash smarter to ensure the survival of your business. 

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In construction the key elements that ensure the success of the business comprise of how well we maintain and protect our skilled people, assets and cashflow. Whilst market downturns are not wished upon it does provide an important opportunity to reduce duplicate resources, sell unused material and equipment, reduce operating costs, limit manual operations with automation and most importantly keep the flow of money inside the business.

Cashflow is the lifeblood of an organization, without money we cannot operate. In times of financial pressure, credit is limited, interest on credit is a killer and cashflow becomes an important asset. In order to increase our cashflow we need to be smarter with our money. Herewith a few actions that should be considered to improve your cashflow;

• Reducing outstanding debtor days.
• Ensure that monthly applications are submitted by the 30th of each month. (not the 6th or 7th or sometime two months later)
• Ensure a payment certificate is issued within 28 days or as stipulated per contract.
• Discount your Payment Certificates at the bank.
• No Capital expenditure on equipment or assets. 
• Rent instead of buying and use own machinery and equipment more efficiently.
• Renegotiate better payment terms with creditors (60 or even 90 days credit line).
• Reduce overdraft and interest payments
• Stop providing loans to staff

In addition we should also seriously look at reducing our operating costs. This includes the reduction of our expenditure, better economical practices and also the reduction in our resources without jeopardizing our key skills, performance and delivery of projects. Herewith the list of common solutions in no particular order or merit.

Common Operational cost cutting solutions
          

• Reduce fuel allowance of all staff by 10%
• Reduce phone usage limits by 10%
• Centralise site offices and yard facilities.
• Reduce labour
• Review and remove duplicate job descriptions
• Retrench under performing staff
• Remove luxuries like drivers and rather use a courier service
• Hire plant instead of purchase
• Sell unused stock and high maintenance plant
• Service lorries and vans in own workshop instead of using external suppliers.
• Better site planning - Reduce the use of site vehicles to collect material. Only use suppliers that can deliver material.
• Reduce waste on material by strict monitoring and ensure better stock control of site stores.
• Standardise equipment brands, in order to safe cost on spares and reduce total spares carried.
• Reduce the use of consumables, especially small tools on site.

Common Office cost cutting solutions

• Remove all inkjet printers (high running cost). 
• Standardize all printers to be laser and from one manufacturer. 
• Install network printers on site instead of individual printers.
• Install a heavy duty network copier than has scanning and printing function and reduce office printers. 
• Limit unnecessary business flights and install video conferencing equipment.
• Reduce the use of paper by purchasing a paperless, distribution and archiving software. 
• Switch of office lights and AC when leaving office.

Whilst the list is not exhaustive the points presented above is a good reference point should any action be considered. Take action today and ensure your business remains sustainable.