The Construction Industry – planning for takeoff?
28th August 2014
As small businesses, many builders lack the security of future orders even when there is a supposed housing boom going on. Construction is a particularly volatile sector at the best of times.
Like all small firms, when banks are particularly wary of any lending risk, they are likely to be having difficulties securing finance. It has long been the case that many building firms have paid for the last job by borrowing income from the next one.
This juggling act can get very difficult to handle. There are just so many variables. Planning consent can take ages. Objections from residents, environmental issues and pollution add to the unknown unknowns. Not to mention the costs of “affordable” housing that must be built into the site somewhere. All of which makes builders vulnerable to the risk that the next job could delayed or cancelled.
But while lots of tenders may now be flying about as confidence returns, we are seeing smaller builders having problems getting credit for the supply of materials and a serious shortage of labour is pushing up wage costs.
The Economist recently reported that the US Department of Labor has stated that America will need 375,000 more skilled builders by 2022 – with little appetite at present for engaging young people to join the industry.
In the UK we are already seeing builders in the South East experiencing severe labour shortages and labour agencies confirm that as skilled labour is harder to find, the costs are naturally rising. Balancing the books has never been harder.
This is not a great situation for a small business that ideally needs to forecast and manage cash flow in order to plan for both stability and growth.
Ideally if a construction company is to minimise the risks of insolvency it needs a financial cushion to even out its cash flow and provide a buffer during those lengthy and uncertain waiting periods. The good news is that main contractors are realising that good contractors are hard to find and in some cases are agreeing reasonable payment terms.
Restructuring advisers may be able to help with alternative methods of funding to fill the void, and we are linking up with crowdfunding financiers and small equity funders willing to help out.
So maybe this upturn will be different from the others...?