The rocky ride being experienced in the construction sector looks as though it may continue for the short and medium term.   Contractors are already well aware of the dangers and many are taking some positive steps to minimise their exposure.

The gloomy feeling that pervades the industry has not been helped by the findings of the latest surveys by PricewaterhouseCoopers. In February, their Turnaround Panel members ranked Construction as worst of all industry sectors in their expectations of performance for the next quarter.   Their latest update shows some improvement, but the industry still ranks second poorest, with just the struggling motor industry faring worse.

Similarly, Begbies Traynor’s Red Flag Alert system, which monitors early warning signs of corporate stress, indicates that Property Services, Construction and Financial Services have been the industry sectors hardest hit over the last twelve months.

None of us will be that shocked by these findings.   However, what has surprised those of us old enough to remember previous recessions in the industry has been the speed with which this downturn has occurred.   We seem to have moved from a period of relative buoyancy to crisis in a very short period of time.

How can we minimise exposure?

Perhaps the single most important step is to accept that there is a problem for all of us.   Healthy as well as distressed contractors are struggling.  

The market has tightened, work is harder to win at the right margins and attitudes have certainly hardened.  

There is nothing to be gained by adopting a “let’s wait and see” policy or by turning a blind eye to reality.   There is an absolute need for action.

It’s important to stay focused on the steps that need to be taken.   Many contractors suffer from a state of panic and inertia as they realise the seriousness of the situation they’re in.  

This is often a good time to seek external advice – be it from professional advisors or trusted personal contacts.   Their detachment can help provide clarity and focus.    

Important steps to take

• The first and most obvious is to exert tight control of the cash and to ensure that realistic and accurate cash forecasts are prepared.   These need to be regularly updated.   If it isn’t already, then cash needs to become a daily obsession.

• Forecasts in general need to become a crucial management tool rather than something that is reluctantly prepared in response to demands from the bank.

• Discussions with Company bankers or lenders need to be proactively managed.   They may not be as receptive as you might hope for, but that fact needs to be established now rather than at the time of some future crisis.

• Cost reduction is vital.   All areas must be considered.   It’s often in this area that an element of detachment can be important.   Owners frequently have emotional attachments to some elements of cost and find it difficult to apply the realistic and hard-headed approach that is required.

• In the same way, possible disposal of superfluous assets can be a difficult area to address.

• Suppliers should be approached to see whether improved credit terms can be negotiated.   Discussions with them might be easier now - rather than later, when struggling to honour payment terms or especially if suppliers start to have concerns.

• Invoice discounting or factoring should be considered.

• The collection of outstanding debts and retentions needs to be managed and closely monitored.  Persistence generally pays off.   Reluctant payers generally want an easy life and tend to pay those who chase them.

The moral

Be proactive and don’t “wait and see” what happens.   It’s hard out there and survival might depend on doing something sooner rather than later.