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Tips for surviving tough times in the construction industry

The skills required to survive in business vary widely when there is a noticeable change in the business cycle, up or down.
The construction industry has certainly had its up and down moments over the past decade.
Many companies had to react with major debt reduction exercises, a sale of assets or staff layoffs to improve cash flow and survive.
The consequence for those who were unable to adjust is that the construction industry has seen many businesses collapse, some quickly and some many months later.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 learned from business collapses in the  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 cash flow; an increase in work should increase cash flow in the short-term, but don’t forget it is also there to pay wages, expenses, GST and taxes which follow.
• 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 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.

Dennis Ayemba
Country/ Features Editor, Kenya

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