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Business Advice

Mitigating Construction Risk: Protecting Your Construction Business From Liquidation

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Construction businesses are collapsing before our eyes. The economic climate is nothing short of brutality between supply chain strains, labour shortages, and the steep rise in material costs. It’s leaving many tradies asking, “Will construction continue?” and prompts us to look at strategic ways to safeguard assets and profits and minimise any risk or possibilities of insolvency. Mitigating risk in a construction business is possible, and here’s what we recommend.

Say ‘no’ to save yourself

Most tradies find themselves struggling to turn down work. The tenacity and go-getter attitude likely got you working for yourself in the first place. But always saying ‘yes’ to projects with a razor-thin profit margin can cost you money in the current building climate.

Diversify your suppliers

Found yourself faithful to the same supplier for years? You may want to be prepared to source materials elsewhere. Timber and steel prices have skyrocketed to all-time highs in the last two years, and failing to consider alternative supply options may seriously cut your profit margins.

Are you funded by debt or equity?

If you’re waiting on payment from the last job to pay for the next, it may be time to look at debt finance. An overdraft is a temporary loan that allows you to continue withdrawing money even when your accounts are empty, and it can shorten your working capital cycle. That’s cash in your hands, quicker.

Ditch the spendthrift mindset

The RBA predicts inflation rates to peak at nearly 8% by December, so it’s time to think critically about asset purchases. Will that new ute, drill set or grinder make you money next year, or will it cost you? Ensure any significant investments are necessities and channel additional cash into working capital.

Audit your payment terms

Time is money, so a dollar today is worth more than tomorrow. Especially with build times blowing out to over 12 months, it pays to incentivise early settlement of your accounts. Consider shortening your credit terms and increasing job deposits.

Waste not, want not

If you (or your trade business coach) haven’t looked adequately at your expenses in the last six months, this is your red-hot reminder. Phones, auto-renew subscriptions, unused assets, and IT can hoard extra dollars that could be working harder for you elsewhere. If you’re not using the resource to its full potential, swap it for a cheaper alternative or ditch it altogether.

Cashflow projections

Cash is king, and investing in accurate forecasting means you can take complete control over your time, money and working capital. A huge part of mitigating construction risk is having financial insights to make decisions confidently and drive profit, even in uncertain times.

Pay on time and not a day sooner

Just as you should tighten up your payment terms, keeping cash in your pocket for as long as possible is essential. If your supplier requires payment in 30 days, don’t pay in 10 or even 20 days.

Mitigating construction risk and protecting your business from liquidation is our specialty. Our tradie business coaches and advisors specialise in navigating you through the common financial pitfalls of building a successful trade business. Secure your meeting today and grow confidently tomorrow.

Contact specialist advisors and business coaches for tradies today.

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