Construction Industry: cash is king in time of crisis

These are tough times for the construction industry. 

At first, the lockdown instructions appeared to allow site work to continue but problems in distancing on site quickly changed this the view and after an outcry from various sources work is now largely limited to essential work only.

Furloughing staff is appearing to be virtually universal, but this only addresses staff costs – bills still need to be paid, both overhead costs and contractors and materials costs incurred before.

But where is the income coming from? Unless you are working on an essential project, the only income is likely to be in respect of completed projects or stages. 

This crisis will end but the absolute key issue is what condition will your business be in when it does – will your existing contracts re-start or will they be delayed or cancelled, and what about your pipeline of new work? 

Never has a business’ cash position and cashflow been as important as it is now, regardless of the issues it faces. 

So what can businesses do in the short term to preserve cash and maintain working capital balances:

• Speak with your debtors to find out how they’re getting on and to anticipate any potential problems - if a stage payment will be missed, the sooner you know the better. Most businesses in difficulty will pay the person who is shouting the loudest, so keep yourself in their mind.
• Review payment terms with suppliers and creditors. If you can delay payments that will free cash for more imminent costs, or avoids you having to borrow so soon.
• Delay PAYE & Corporation tax payments - HMRC is more sympathetic to time to pay arrangements and has a dedicated Coronavirus hotline to support businesses.
• Defer your next quarter's VAT payment - No business will pay VAT from now until after 30 June. This is automatic. You'll have until 31 March 2021 to repay those bills, but don’t forget you still need to file your VAT return and cancel any direct debits.
• Apply for any grants or government support where available, including Coronavirus Job retention Scheme (CJRS), supporting employers severely affected by COVID-19.
• If you have contracts with the public sector, make sure that you have discussed cashflow support on these contracts, as they are obliged to support suppliers put at risk by Coronavirus. Guidance has been issued to the public sector, specifically to support their suppliers in the construction sector. Care needs to be taken to avoid double funding through this route and furloughing.
• Speaking to your bank to agree more favourable terms for existing loans and repayments. Many businesses are concerned about their credit rating, but everyone is asking, so you will not stand out if you do too.
• Considering other forms of finance including the new Coronavirus Business Interruption Loan Scheme (CBILS).  This had initially come under some criticism for the level of security required from business owners, but the terms have being improved to remove personal guarantees.

Accurate cashflow forecasting is vital in these uncertain times to identify your key cash pinch points. Without it, any contingency plans put in place might not be as effective as they could be.

Reviewing your potential workflow over the next few weeks or months will identify where you might need to negotiate staff pay and/or hours to match your output.

There are also opportunities out there for additional revenue sources. Many businesses now have spare assets and resource that could be hired out to those businesses who need that helping hand to meet demand. Working together, acting quickly and being adaptable will help your cash position.

If you need any further help, please contact Nathan Coughlin.