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How to Not Only Survive but Thrive in a Construction Industry Downturn

In an economic climate where suppliers are going belly up, cash flow can be diabolical for businesses in the construction industry. Debtors blowing out from 35 to 60 days and some accounts not getting paid at all.

Yet at the same time, those businesses still need to pay their own suppliers and their staff.

I find that the critical first step that makes a massive difference especially when the economy is tight, is daily cash flow forecasting 90 days out so you can see what’s going to be coming in and going out at any given time.

Martin Deckert of Tri-Star Power is a great example of a business that not only survived but thrived in a construction industry downturn.

Working closely with Martin enabled us to predict his cash flow six months out. Through that process both Martin and I started to see that big problems were about to happen in the industry.

Projects were being delayed or cancelled. As a result Cash flow was suffering.

A predicted $800,000 turnover went to $200,000 in one month alone

Martin already had a strong balance sheet however by knowing right now what was happening in the market, we could employ counter measures.

A staggering $300,000 negative cash flow hole ended up only being $17,000 as a result of the counter measures taken.

We also worked closely with the Banks because we knew exactly what our problem was and could explain it to them and they were happy to support it.

The downturn affected Martin’s business however due to the defensive action we took he still managed to stay afloat and run the business at a profit while many of his competitors folded. These measures subsequently enabled him to increase profits by 10% with plans to expand further.

Here’s how we did it …

Take a razor to your expenses

Lean times mean creating a lean ship. With Tri-Star Power, we:

  • Analysed the way they ordered materials
  • Changed the timing of purchase of materials
  • Sourced new, more cost effective materials
  • Sourced alternative, more cost effective suppliers including stationery, small expenses, and even cleaning.
  • Changed the timing of equipment maintenance slightly while still maintaining a safe workplace.
  • Renegotiated payment terms

Scale Down and Make the Hard Choices

During tough times, tough decisions need to be around staff. Do we need that person on board really? Could the money we save on wages make a difference?

Quite often small business owners are reluctant to make those tough decisions.

In many situations, their team members are like family so even though times are tough; many small business owners put their business at risk, simply because they don’t want to let go staff.

The reluctance to do this activity is often the thing that sinks many businesses that are struggling during a downturn.

Again, make the hard choices. As painful as it may appear, what’s worse – letting go a team member or sacrificing your family home and your family’s financial security?

Nobody likes letting anyone go but it needs to be done.

Look after yourself mentally and emotionally

Depression, stress, burnout and emotional upheaval go hand in hand with a struggling business.

Often when business is super tight, stress takes over and often depression can set in for many business owners. They dig themselves into a hole and they can’t seem to see a way out.

Getting outside help at this time is critically important because that outsider has a fresh view and perspective on life. They can see things that the business owner isn’t able to.

It’s so easy to become so totally overwhelmed by the financial turmoil that we don’t think clearly to make rational business choices. Nor do we see the light that is often at the end of that tunnel.

One of the things that my client’s value is the moral support we provide showing them that there is a way out of that tunnel and that they’re more than capable of negotiating their way out of it.

Here’s what Martin Deckert said …

Evan enabled us to identify early where the market was heading, what cash flow issues that could bring up, and what we needed to change. We are able to implement strategies to ride out the downturn and stay ahead of the curve.

Evan also helped to motivate and keep me focused on where we needed to go.

As a result, we’re still here when many others have folded. We are still a profitable business despite the market downturn and in a position to be able to expand once the market improves again.”

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