Table of Contents
- Key Strategies for Weathering a Business Crisis
- 1. Assess your current financial standing
- 2. Conduct a comprehensive scenario planning
- 3. Take advantage of available COVID-19 relief options
- 4. Find other opportunities to increase construction revenue
- 5. Adjust your variable costs accordingly
- 6. Explore alternative financing options
- 7. Remain informed about current events
- 8. Understand your contractual obligations
- 9. Know your payment rights
Key Strategies for Weathering a Business Crisis
The ongoing COVID-19 pandemic has had a massive impact on the construction industry. Some lucky construction businesses have dealt with only minor supply chain hiccups, while others have suffered from bigger issues such as project shutdowns and complete overhauls of their work processes.
1. Assess your current financial standing
If you haven’t done so yet, thoroughly study and assess where your finances currently stand. This is a very important step in dealing with a crisis. Knowing where you stand and having a clear understanding of your finances can help you make more informed decisions in managing your money and approaching potential clients.
A thorough assessment involves calculating how much cash you have on hand, checking your project timelines, and tracking all the important deadlines. You should also assess how your supply chain is affected: Which suppliers are based in heavily hit areas? Which deliveries will most likely be delayed? Which materials are getting more expensive?
Understanding how your finances will adjust through these various factors is key to helping you move forward through this pandemic.
2. Conduct a comprehensive scenario planning
One of the most daunting aspects of this pandemic is the uncertainty that it brings. In the last six months, businesses have had to deal with major economic disruptions and global technological shifts, and there is no telling what else this coronavirus crisis will bring.
One of the best ways to grapple with the uncertainty problem is to plan ahead and plan well. Study the different scenarios that can happen and come up with a plan in case the worst-case scenario strikes. Having skilled estimators on your team will be a great help, especially if they have strong and reliable expertise in management and planning.
Even though many US states have declared construction “essential”, do not take for granted the fact that project closures may still happen. Consider the steps that you can take in case your project temporarily shuts down or you lose a bid. Construction revenue protection during a crisis requires diligence and strong attention to detail. If you carefully prepare for what may happen, you are less likely to be caught off-guard.
3. Take advantage of available COVID-19 relief options
Protecting your revenue also requires taking advantage of funding programs that are made specifically to help you keep your construction business afloat. The Coronavirus Aid, Relief, and Economic Security Act (CARES) Act extends a $2 trillion stimulus aid, a large chunk of which is targeted to benefit the construction industry.
If you run a small construction business, you should look into the funding programs offered by the US Small Business Administration. They have financial programs specifically implemented to address financial difficulties brought about by the pandemic. Some of these programs are the SBA Express Bridge Loans and the Economic Injury Disaster Loan.
The SBA also has a debt relief program to help small businesses pay off parts of their loans. Taking advantage of these programs can help a great deal in retaining your employees, paying your bills, and shouldering other important expenses.
4. Find other opportunities to increase construction revenue
When you’re tight on money, keeping your construction revenue protected should involve looking for ways to get higher cash inflow. Finding opportunities for extra revenue should start right when you do your financial assessment. When you study your financial status, you should also determine which aspects of your business can be utilized for extra profit.
For instance, examine the status of your assets and equipment inventory. Determine if you can afford to rent out some or all your equipment to augment your cash flow. Ask yourself if selling some of your assets and leasing them back may be beneficial, especially if you need immediate cash.
Other opportunities for extra income include third-party warehousing and contract manufacturing. Options like these must be kept in mind, but you should also study them carefully based on your needs and capacities.
5. Adjust your variable costs accordingly
When assessing your finances, look into which of your variable costs may be adjusted to help protect and increase your revenue. For instance, some construction firms have funds for discretionary expenses, such as entertainment and social events–consider re-allocating the money while your budget is tight.
Working from home may also be a wise set-up. Not only is working remotely a good way to protect the health and safety of your employees, but it can also potentially help you save on electricity and other utility costs.
Instead of laying off employees, consider redistributing their tasks and maximizing their skills instead. Skilled labor is hard to come by these days, and you do not want to let go of your best employees. Adjusting their tasks and managing your finances better is one way to retain your skilled workers.
6. Explore alternative financing options
On top of government loan programs funded through the CARES Act, there are other financing options that may suit your cash flow needs while the pandemic is ongoing. For example, invoice factoring is a relatively pricey but otherwise effective way to get you the immediate cash that you need.
Aside from invoice factoring, there is also asset-based lending, in which you make use of your existing assets. Both invoice factoring and asset-based lending are typically accessed through private lenders.
However, you can also go to traditional banking institutions for loan options if you prefer. Some of the financing options offered by traditional banks are traditional loans and lines of credit. As long as you manage your money properly, taking advantage of these financing options is one of the best ways to keep your construction revenue protected during tough financial times.
7. Remain informed about current events
Maintaining your construction revenue isn’t just about handling your money and finding ways to get them. During an unprecedented pandemic, it will greatly benefit your construction business if you remain updated about the goings-on in your state, the country, and throughout the world.
Things that you should look out for in the news include changes in state and federal policies as well as updates on new tariffs. Moreover, focus not only on the industry and location that concern you, but also other industries and locations that are relevant to your business. For instance, learning about how your suppliers are doing can be very helpful in helping you plan ahead and look for alternative supply options in advance.
Being updated on the economy and relevant policies should be part of your routine whether a pandemic is ongoing or not.
8. Understand your contractual obligations
Protecting your revenue during a pandemic also implies continuing the best practices that were in place before the crisis happened. Studying your contracts accordingly should still be a priority, although there are new aspects that might be helpful to consider before taking on a new project.
One of these aspects concerns dealing with potential delays. When signing a new contract, be mindful of your deliverables and how your business will be affected if delays occur. It should be made clear from the get-go what the responsibilities and risks are if unexpected shutdowns and supply chain disruptions happen again.
During a crisis, it becomes more crucial to hire talented construction estimators who will effectively set your project scopes and properly calculate your project costs. Experienced estimators will come in handy especially when you’re dealing with complex contracts as they can make sure that you are able to deter further economic downturns.
9. Know your payment rights
Payment disputes and delays are very common in the construction industry, and this was the case even before the Coronavirus pandemic hit. Now that the world is dealing with a health and economic crisis, knowing your payment rights and being able to exercise them if necessary becomes all the more imperative.
Knowing your payment rights means understanding that you, as a construction participant, have the legal right to get paid for your hard work. If this right is infringed upon, you can file a mechanics lien, a legal claim that attaches a record of payment debt to a property’s public documents. Exercising your lien rights is one of the most powerful weapons that you can use to ensure that you receive your payment and that your construction revenue is accordingly protected.
However, exercising your mechanics lien rights is not as simple as filing a document in a clerk’s office. Some states like Washington require potential lien claimants to serve a preliminary notice to preserve their lien rights. Other states like Nebraska, meanwhile, do not have such a requirement.
Familiarize yourself with the lien requirements specific to your state. The last thing you want to happen during difficult financial times is to let a delinquent client off the hook.