Lending to construction firms makes banks twitchy, so giving them accurate and timely finance reports is a crucial management function.
The relationship between High Street banks and the construction sector has always been uneasy, largely down to the perennial 'boom and bust' nature of Britain's economy.
As this research from the NHBC Foundation makes clear, construction firms continue to see both the lack of available finance, and the conditions imposed by banks which are tied to potential finance, as major obstacles.
It's nothing new of course, during the good times, bank managers always dither between wanting to lend to management teams with an appetite for cash, and fretting that those same companies will over-extend themselves.
When times get tough and the fallout begins, banks decide they were right to be nervous, and swiftly pull the plug on lines of credit - even when firms are trading in the black.
However, many construction management teams don't help themselves, as they're often too busy on day-to-day tasks to fully explain how their finance is looking, before they run into difficulties, to bank managers who often know almost nothing of the sector.
Our infographic examines how construction companies can demonstrate sound financial governance to their banks.
The scale of the finance problems facing many management teams has intensified since the recession - new regulations require banks to hold far higher reserves of capital against their loans.
Inevitably, both front-line managers and their credit committees tend to withdraw further from volatile sectors, such as construction.
The result is summed up by Sue Hayes, Managing Director of Business Banking at Barclays, in this detailed look at the plight of the housebuilding sector: "We are not 'against' construction lending, but it is not our biggest sector, or a key sector for us."
So if the banks still don't see construction as a major lending target, what can management teams do to persuade them otherwise?
Providing bank managers with timely and comprehensive data about every aspect of their business is crucial, as this look at financial reporting for construction firms stresses: "Many times, construction companies are only producing these reports when requested by the bank, auditor or loan provider," says the author, Tim Ayler.
It's a message which SME management teams really must heed, if their companies are to survive in this challenging financial landscape, let alone prosper.
TAKEAWAYS:
- Check how often your management team meets your finance providers
- Make sure your reporting system can provide the real-time financial data you need
- Set up a meeting with your bank manager to explain how your business is doing
- Ensure your finance system can generate cash-flow data for every project you manage.
