Want to learn how to improve your construction business across key areas including growth, managing expenses, profitability and strategy? Keep reading for our top tips on how to future-proof your construction business!
Let’s get started…
#1: YOUR NUMBERS ARE THE KEY
Your financial information needs to be up to date, accurate and most of all, understandable!
Unless they are right and you understand them, how could you possibly be expected to make informed business decisions? If your financials aren’t available within 7 days of the end of each month, your process is broken.
If you need to access finance, your financial records need to be on point. You should have access to a live financial dashboard that tracks your:
- Debtors & Creditors
- Debtor days
- Any other critical KPI’s
#2: A FORECAST WILL IDENTIFY YOUR CASHFLOW HOLES BEFORE THEY OCCUR
Your financial information shows you what has already happened, a budget/forecast will help you anticipate the future, identify any upcoming issues and let you put in place the right process/strategies to overcome any downturn.
A budget can identify if and when you might need additional finance.
Cash is king, it’s the life blood of your business.
You can’t spend your profits before you collect them!
A positive cash flow is an absolute necessity if your business is to succeed and it just doesn’t happen, it needs to be planned. That’s why we strongly recommend the preparation of a 12 month cash flow budget.
Without realistic cash flow projections, you will be unable to identify any future cashflow holes.
Your budget/forecast will let you:
- forecast your likely cash position at the end of each month
- identify any fluctuations that may lead to potential cash shortages
- plan your various taxation payments
- schedule any major capital expenditure, and
- provide prospective lenders with key financial information including loan serviceability
#3: TURN IDLE ASSETS INTO CASH ASAP!
Cash can easily get tied up in your debtors, inventory or be lost quickly to suppliers!
Here are some key things to consider:
Debtors – unpaid invoices!
You’ve done the work, you deserve to be paid!
Overdue debts are cashflowing your customers, with your money. The days of waiting 45-90 days for payments are over.
Set up an automated follow up process through your accounting software, have your accounts people call your debtors. Get them to commit to a payment date. If they can’t pay in full, ask them to pay something, anything right now!
Allow multiple payment options, accept credit cards, it may help you get paid faster.
If all else fails, pick up the phone yourself.
Payables – supplier invoices!
Monitor your debtor days vs. your supplier days ie: how long it takes for you to get paid vs. how long it takes for you to pay.
An imbalance in these key metrics are the reason for major cash leakages.
Someone who is constantly calling for payments, gets paid first. Remember this will also apply to your debtors, so call, call, call.
During a downturn, your suppliers need you as much as you need them. Keep them focused on retaining your business. Source alternative prices and terms of trade, as for a better deal, ask for extended trading terms, as for a payment arrangement.
If you don’t ask, you don’t get!
Inventory – stock!
Out of sight is out of mind. Empty out those dark areas in your office. Sell the things you don’t use, can’t use or cant sell.
Sure it hurts to sell and at a loss, but if they are going to sit there, you may as well turn them into cash.
#4: REDUCE OVERHEADS
Overhead costs like rent, leases, administration staff, receptions, accounts etc should be examined thoroughly and cut to the bone.
Every type of accounting software is offering increasing levels of automation. If you are not staying on top of these offerings and updates, you are losing money.
Question anyone who tells you that your business, accounts or financial information is “difficult” and requires time to process. And never trust information that needs to be shown on a excel spreadsheet.
Overheads are a key determinant of your breakeven point. The more flexible your business can be and the pace in which it can scale up and down is crucial when things get tight.
#5: NARROW YOUR OFFERING AND ADD VALUE, NOT PRICE
Diversifying your offering can be costly. Even if its successful, it still costs money. Instead of veering away from your core business activities, steer into them!
Focus all your efforts on extracting the most margin and providing the best offering to your customers.
Look at ways to add additional value, rather than try to increase prices.
Continuously adding value to your business and service offering is the way to get repeat customers and get new referrals. Push the price too high and you’ll be asking your customers to shop around for a better deal.
#6: YOUR CURRENT CUSTOMERS FIRST, YOUR COMPETITORS CUSTOMERS SECOND
Press the flesh, have lunch, grab a beer with your best customers. Learn more about your competitors through your customers and look for opportunities to increase sales.
Existing customers work with you for a reason, they know what you do, trust your product and will be more open to opportunities to upsell.
Also, its much cheaper to market to people you already have a relationship with and who know your company and service offering. Offer these customers perks, special discounts etc, encourage them to spend more. If you show them that you add value, they’ll come back time and time again and tell others to do the same.
Once you’ve secured your current customers, you can take advantage of your competitors who haven’t planned for downturn.
Where you have been prepared for this fall in activity and taken positive steps to squeezed cash from your business and increased value and margins for your offering, your competitors will have started to feel the pinch.
Know your competitors, review their websites, ask your customers and understand what separates your business from theirs. Find a unique offering, think outside the box and take advantage of your strong financial position to increase market share.
#7: NEVER STOP MARKETING OR SELLING
Regardless of what happens, never stop marketing, promoting and selling your business and its products.
A contracted market gives you an opportunity to really set yourself apart from other businesses by emphasising your superior product, service, efficiencies and outstanding customer service.
Do not be tempted to cut or eliminate sales or marketing activities. Use your money wisely, you cant afford a full on marketing campaign, try alternative ways to promote your business. Blogs, articles, emails and newsletters are not only cost effective, but can really help you turn a downturn into an opportunity!
I’ll leave you with one of my favourite quotes that completely shifted my mindset regarding how to approach market contractions…