Are you a construction business, hoping that after the initial 3-week restriction period the government has imposed, it will be lifted, and we can go back to work as normal during this COVID-19 pandemic?
Although we all wish for that, unfortunately it is not going to be that simple. Even once the virus is under control, the restrictions have been lifted and we can get back to work, the reality is … it will NOT be business as usual.
In this article, we will look at
- Profit and Loss reports
- Suggestions of what you can cut back on
The construction industry is a vital one, however as all industries have been affected by this pandemic, there will be mass job losses, future redundancies and businesses going bust.
It is inevitable and for the construction industry that means customers will make do without their loft conversion, the kids can sleep in the same room for another year or so until mum and dad get some financial responsibility. The government will need to try and recoup their money, therefore grants and funds will certainly be limited for new construction projects. There is going to be a long, tough road ahead.
‘Why are you being so negative?’ You might say ‘how will that help the situation if we are all doomed anyway?’
The reason for my stark honesty is because I cannot stress enough that if you want to survive through this you MUST take immediate action, and there are some things you can do that will at least give you a fighting chance against your competitors.
Even if you have a full schedule of work lined up, do not be surprised if you start seeing cancellations, postponements and defaults on payments.
We cannot control the coronavirus or the country’s economy. However, we must take charge of what we can control.
Profit and Loss Reports
One of the first things you should do, is look at your overheads and see how you can reduce your spend. Over the coming months it is likely you will see a decrease in sales and productivity (getting building supplies causing delays etc.) so it’s important to try and reduce our outgoings so the losses aren’t as great. Where do you start?
Firstly, you need to get your profit and loss report, evaluate your overheads and understand your numbers. What has been coming in and going out? What has been profitable and what has not? If you want much more detail on P & L reports, you can find it in my book ‘Building Your Future: A Step by Step Guide to Building a £1million+ Construction Business’
If you do not have P &L reports already then this is something you need to create and keep updating throughout this crisis and throughout your working life as this is vital for any business to be successful long term.
When you understand your P&L you can sense when danger is on its way.
- You’ll see if sales are starting to slow, when the cost of products is increasing, and your margins that are being squeezed.
You’ll fully understand what your overheads are and how much you need to make each month before you make a penny in profit.
You’ll know how much tax to set aside and what you can draw on in dividends/salary.
Business owners trying to survive without fully understanding their P&L are like blindfolded captains of a ship that is heading for the rocks. If you don’t understand your P&L, you are blind to whether your business is navigating well or about to be sunk by a rock. When you hit that rock, it will be sudden and unexpected; not being prepared, you will not survive.
It’s not a coincidence that some of the world’s richest people love their numbers. Warren Buffett, who was worth $87bn in 2018 is numbers obsessed. As an investor, he spends all day reading financial reports and pouring over the numbers. His understanding of these reports has helped him invest in the right companies over the last fifty years and propelled the growth of his fortune. He loved numbers. He kept a strict accounting of his finances in ledgers. Even when he was ridiculously wealthy, he still poured over the ledgers himself, correcting the smallest errors that would save cents or dollars.
Suggestions of what you can cut back on
Now that you have a clear understanding of your spend, how much money you need to stay afloat and make a profit, you can work out what you can cut back on and how much you will need in sales to survive.
What are some of the things you could possibly cut back on? Here are just a few suggestions to get you going and now that you have all your costs in front of you, you can look at your business and see what is non-essential;
1. Paid Online Advertising – If you are paying weekly or monthly for online advertising then you might want to consider pausing this over the next couple of months as its unlikely it will be fruitful in the short term.
2. Bills, bills, bills – A thing I see time and time again with the business owners I deal with is they never seem to check if they are paying the best rate for their bills. This includes things like:
Mobile Phone contracts
Whilst their own personal contracts they shop around for, when it comes to the business contracts people often feel they do not have time and without realising are paying well over the odds. Now is the time to look at each of these bills and see if you can get a cheaper rate. You will be surprised how much these will save over a year!
3.Subscriptions –Do you really need everything you have signed up for and the number of users you are paying for
‘Yes, but we do use it sometimes’ I hear you say.
Ask yourself ‘Is it essential? Could I do without this system/package?’
When times are good we often sign up to too many systems/packages which certainly make things a bit easier, but when it comes to the crunch time, if it is not essential then it is best to cancel the subscription for now until things pick up or reduce the number of users you are paying for. Can you work from one or two logins?
If you have done your P&I report properly you will know the reoccurring charges each month that are not essential. I often find with my clients that when we get to this stage, they are paying for programmes they have forgotten about.
4. Negotiate with suppliers – Are you getting the best prices you can for your building materials? Is there a lot of waste?
If you have a consistent flow of business and you have never tried to negotiate a price with your buildings merchant, then you can be sure that savings can be made.
There is often room for negotiations when purchasing building supplies. For example, if you purchase the same thing on a regular basis with one merchant, then really haggle and you could agree an ongoing price that will save you lots of money over a year.
Perhaps you already have negotiated rates with your suppliers ages ago. Have you checked that you have been getting this rate? One huge mistake that is so common among construction firms is they negotiate great rates and the agreement is they will be charged x amount. When the bills come in, they just PRESUME they are billed at the new rates agreed and haven’t spot checked which means often, they are overcharged and over a year it’s a very large sum of money they have overpaid.
If that sounds like you, check right now. Tally up and make sure you have been receiving the goods at the agreed rate. If you haven’t, then it’s time to pull out your agreement with the supplier and calculate the amount they have overcharged you and then request a credit.
5. Sell what you do not need
Do you have unused computers laying around? Building materials that were over ordered and never used? Don’t leave them laying there until they are unusable …. sell sell sell! You won’t get the money that you paid for them, but you will be able to make something out of them so it’s not a complete waste.
There are many more things that you can cut back on but only by doing a detailed P & L report will you be able to see where your money is going.
I will be posting a lot over the upcoming months with helpful advice on how to improve and survive through these difficult times.
Remember this though, WE WILL come out of this eventually and if you sharpen upon your skills and really implement these strategies during the tough times and then continue to use them when things pick up, you will be far ahead of the competitions and you will know how to create a successful £1million+ construction business at the other side of this epidemic.
Read more about how you can do this in my book, you can purchase it here