New Year, New Year’s Resolutions. We usually throw in the towel on these. But here are THREE things that you can AVOID to stay in business.
Today’s video is 3 Critical Reasons Construction Companies Are Going Out of Business. You can click to watch it here or continue with this quick read.
It’s one thing to do a good job on site, but it’s another to be able to play the contracts game.
The construction industry is one of the riskiest in the world.
- Changes
- Weather
- Delays
- Worker Strikes
- Labour Shortages
- Supply Chain Issues
- Rising Material Costs
The list of risk factors is endless. 26% of insolvencies come from the construction industry. Across the globe construction has the highest insolvency rate.
What is Causing All of These Insolvencies?
- NO PEOPLE
Where have all the people gone? Across the globe, there are HUGE labour shortages. There are literally not enough people to do the projects. Because of labour shortages, salaries and wages are going through the roof. Without decent labour you can’t complete a job… and this often means getting hit with liquidated damages and so on.
- NO MATERIALS
The cost of materials has SKYROCKETED. Steel has gone up by more than 60%. If you’re locked into a contract with a fixed price for materials you are in MASSIVE trouble. Inflation in the construction industry is 13%.
Elsewhere it’s roughly 7%-8%. Not being able to afford materials affects cash flow. Material shortages also mean not being able to deliver.
- INTEREST RATES ARE GOING UP
This means that any debt or any loans are going to cause issues. Margins are also getting tighter which impacts cash flow. Things are already tight, and this adds to financial pressure. This leads to a project snowball effect.
MOST CONSTRUCTION BUSINESSES GO OUT OF BUSINESS
BECAUSE OF CASH FLOW.
So what can you do to protect yourself?
- ALWAYS think about your Cash Flow.
- OPTIMISE for Cash Flow.
- NEGOTIATE payment upfront.
- NEGOTIATE payment for Milestones.
- Build in a termination clause where you can terminate them if they don’t pay you.
- Build in escalation clauses– i.e., if material or labour costs go up, this is accounted for.
- Get changes or delays approved as quickly as possible.
You always want to be cash flow positive!
Question: Do you have decades or centuries of experience in the construction industry? Can your business survive without it? Download our Free report to learn more about Legacy Subcontractors. Click here.
