Real Business Rescue, part of Begbies Traynor Group, discusses how you can prepare your construction business for post-Covid-19 growth
The unpredictability around the economy as a result of the coronavirus pandemic is clouding the future for businesses in the construction sector. As supply chains grind to a halt and the housing sector, which currently accounts for 40% of overall construction work, enters a slowdown, construction companies are juggling revised deadlines and ongoing disruption. Although construction workers are classed as essential, non-essential businesses along the same supply chain are subject to trading restrictions, resulting in an adverse domino impact rebounding the construction sector.
As the housing sector was subject to a seven-week shut down in March 2020 due to the first lockdown, the industry is undergoing recovery at a slow pace. Demand for new housing currently under construction is staggered as the surge in pent up demand clashes with the two-month backlog.
As the construction sector waits for the effects of Covid-19 to wear off, businesses should look forward to preparing for post-Covid-19 growth in the following ways:
Conduct a Covid-19 business health check
The construction and housing industry are subject to unprecedented challenges in the face of the coronavirus pandemic, resulting in stagnant cash flow and unpredictable workflow. As the first lockdown resulted in the closure of marketing suites and show homes, prospective home buyers were shut off from considering buying a new home until the reopening of sites. If your construction business is struggling to recover from the income gap due to the likes of staffing issues, material supply shortages and employee absences, you may need to assess your financial position.
If you suspect that your construction business is due to run out of cash or is likely to struggle to fulfil liabilities, conduct the cash flow and balance sheet test for insolvency. The cash flow test will assess if your business has enough funds to maintain outgoings, such as staff wages, supplies and bills. If you are likely to struggle to meet payments, your construction business may be contingently insolvent or require emergency funds to cope with potential future growth.
A balance sheet test for insolvency will consider the assets and liabilities of your construction business, including your debtor book and excluding any bad debts. If your liabilities outweigh your assets, this is an indication of a failing business which requires urgent recovery support to stay afloat. By acting early, you can financially prepare your business for an upturn in activity and enable growth.
Reconnect with your supply chain
When the construction and housing sector resumes operations at pre-Covid-19 levels, your business will be put to the test after months of working at reduced capacity. This will likely be experienced gradually as material suppliers slowly resume production lines and developers reopen sites. The industry is yet to return to normality as mortgage lenders continue to lend cautiously, removing high loan-to-value mortgage products from their offering, cutting off prospective buyers interested in purchasing plots.
As the financial health of businesses associated in your supply chain may be threatened, reconnecting with key suppliers is a vital step to ensure that business operations are not disrupted. Drop a courtesy call to your suppliers to check if Covid-19 has impacted order fulfilment, stock availability and the expected delivery time frame due to production delays and increased demand.
Balance short-term and long-term workforce requirements
Understand your short-term and long-term staffing requirements to ensure that you can fulfil expectations and meet post-Covid-19 targets. The rising cost of materials and limited availability of labour has raised overheads for construction firms, leading to outgoings to be revised. If you are expecting to step up your output targets to beat the Covid-19 backlog, resulting in the recruitment of more workers or contract extensions, the implications of furlough should be taken into consideration as the scheme is due to come to an end in April 2021. If the current economic climate worsens, will your business be able to balance income generation against outgoings based on your current or future workforce structure?
Assess company finances and forecast trends
As a result of the coronavirus pandemic, the long-term loan affordability of your construction business may be limited. When extending your loan or overdraft facility, seek the services of your accountant to ensure that your company can keep up with repayments in the event of trading conditions worsening due to the coronavirus pandemic. If your business is experiencing early signs of distress, seek advice from a company restructuring specialist to explore how to prevent the financial health of your business from deteriorating.
Most government support offered to businesses, such as through the Bounce Back Loan scheme and Coronavirus Business Interruption Loan scheme begin repayments after 12 months of taking out the loan. This gives you a starting point when forecasting loan repayments and your long-term financial position.
Explore restructuring and recovery options
As the pandemic leaves a long-lasting footprint on the British economy, viable businesses have shown resilience and adaptability, however, if your business is clutching to financial support and relief measures to stay afloat, it may be time to consider a long-term solution.
There are prescribed company restructuring routes which you can take to lighten the financial burden on your construction business and reduce the likelihood of becoming insolvent. If your business is unable to keep up with tax payments to HMRC, a Time to Pay arrangement can help restructure liabilities into affordable instalments.
If your business requires further support with managing payments, a Company Voluntary Arrangement (CVA) is a formal insolvency procedure intended to help your business juggle multiple liabilities, enabling you to enter a payment plan. In response to the coronavirus pandemic, a Fast Track CVA can be used to rapidly rescue your business which is essentially a traditional CVA compressed in a shorter time frame.
As the construction sector continues in operation with strict social distancing measures in place, devising a recovery plan to protect jobs and the financial position of your business is paramount. Preparing for growth is just as instrumental as securing a lifeline, as over 3 million workers depend on the construction industry for employment which is also responsible for billions of pounds worth of exports every year.
Real Business Rescue
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