Bibby Financial Services research found that 44% of subcontractors were experiencing a shortage of skilled labour, and nearly half (46%) were paying more with existing suppliers to get services and materials they needed.
The good news is that the sector remains resilient. In fact, the latest construction PMI showed a rise in overall new order volumes, the strongest since August. This is an even more impressive achievement when December is typically one of the sector’s quieter months.
Despite this healthy pipeline, the cost of doing business is a big challenge. Higher fuel, energy and raw material prices are continuing to create cost burdens. If firms are to succeed and capitalise on the opportunities, they are going to have to learn to live with and adapt to the challenges the pandemic has created. Fortunately, there are several steps they can take to mitigate the risks and manage the disruption.
Here are several measures subcontractors can take in the months ahead:
Review your pipeline. Labour and material considerations are vital to success, so ensuring there enough of both will mean that work can be carried out efficiently and on time. Without acting firms risk losing the momentum to fulfil work or worse they might be left with unprofitable projects.
Map your supply chain. Determine if there are any potential risks in your supply chain that might cause disruption. It’s also a good idea to shop around to see if other suppliers might hold more stock at lower prices. For example, four in ten (40%) have looked for new suppliers, while a quarter have either secured new suppliers (25%) or renegotiated with existing partners (24%).
Make raw material prices a focus point in contracts. Negotiating contracts to account for fluctuations in the price of raw materials will prevent you being stung later should the cost of materials go up sharply. This is especially important for the nearly a quarter (24%) of firms in the sector who admitted to not always thoroughly checking the contracts they are signing.
Plan your funding. Ensure the right funding support is in place to allow yourself the flexibility to respond to sudden changes. Knowing you have financial flexibility can mitigate any unforeseen costs or challenges. Unfortunately, some are still relying on emergency forms of funding with a quarter (25%) using bank overdrafts and 22% dependent on loans from friends or family, as well as unsecured forms of funding like personal finance such as credit cards (13%). It’s far better to have a secure form of funding in place rather than need to rely on emergency measures.
Practice good billing habits. Cashflow is the lifeblood of any business and billing promptly will increase the probability that you are paid sooner and reduce the risk of late payments or even bad debt that could impact your cashflow. However, nearly one in five subcontractors (19%) are still waiting longer than 30 days to receive payment once the invoice has been billed. Billing on time will help your cashflow. Check out the reporting requirements for business payment practices by clicking here.
Finance or cash? Sometimes your business will need to invest in a specialist piece of machinery or equipment. When that happens, it can seem like a costly investment. Shop around for funding like asset finance or leasing first before you commit to spending your cash.
Seek outside help. Like any business there are steps that business owners can take to position themselves for growth, but businesses should remember they do not operate in isolation. Construction businesses face unique challenges that may impact cashflow and prevent growth. Our research found on average firms are negotiating up to 40 contracts a year and one in five (20%) have been negatively impacted by unfair penalty clauses. So, seeking out expert help can ensure your business gets the support it needs to grow. Whether that’s help with difficult contracts, funding, or training staff – your business will be stronger with the right partners by your side.
This article was written and paid for by Bibby Financial Services