With cash flow putting industry growth in jeopardy, what can building companies do to address this critical problem?
In recent posts, we've discussed the step change needed across the construction industry in order to succeed in a climate where transformation is becoming the norm. Companies that set high standards for themselves will inevitably extend those expectations across their supply chain.
Over the next two months we'll be looking at how construction companies can improve cash flow by putting in place efficiencies and controls. Cash flow is an essential pre-requisite for growth, but as many people in the industry have noticed, it is once again a major problem. Coupled with difficulties in forecasting business beyond a 6-8 week window, construction companies need to look at their operating environment carefully and identify how to optimise for cash flow and ongoing growth.
LATE PAYMENTS AND CASH FLOW
The challenges of late payments inevitably rear their head whenever discussions about cash flow take place. Only 5% of small contractors say their work is paid for within 30 days at present, making cash flow impossible to predict and control in all types of business, large and small. In our forthcoming blogs will look at why the UK construction industry seems particularly vulnerable to this endemic problem.
As the Construction Supply Chain Payment Charter stalls, it is becoming painfully clear that no third party, whether government, regulatory body, or anyone else, is likely to intervene on the industry's behalf. We will be be taking at how the industry can take the initiative in this area.
DIFFICULTIES WITH PLANNING PERMISSION
Time is of the essence with cash flow, and that is why efficiencies are so important. Planning permission is another industry hot topic that we will be discussing. A recent report by the Cambridge Centre for Housing and Research points to the planning process itself as a growing cause of building delays.
Again, lack of predictability turns out to be a major issue, even within similar local authorities. This can be usefully addressed, though, with improved visibility. With building companies no longer able to rely on the local authority weekly list, they are increasingly thrown back on their own resources, and our article makes some good practice recommendations.
TAKING CONTROL OF FLUCTUATING CONSTRUCTION COSTS
To improve control of construction costs, we've put together some predictions for the next year. A further article looks in detail at material price risks and wage rises fuelled by skills shortages, and we've also included a piece on talent management in the building industry. We balance these rising material costs with a separate piece that looks at innovative materials that are now helping the building industry control cash flow with reduced energy requirements and more efficient use of expensive materials such as concrete.
Does modular house building present a genuine solution to rising costs? In a lively but balanced discussion piece, we examine claims that the modular approach offers significant reductions to project timescales, resulting in faster ROI, and therefore improved cash flow.
WHERE IS THE UK ECONOMY HEADING?
Where next for the UK construction industry? Industry forecasters seemed to begin 2016 in good spirits, before lapsing quickly into a more cautious position. We've got a great piece lined up that will help you cut through the uncertainties and get a clearer picture of trading conditions, as well as identify specific growth areas. Our eGuide will take you through the increasingly important area of reputation management. It will argue that by focusing on reputation, there is much that construction companies can do to both rebuild their image and improve their commercial performance, with measures that go well beyond cosmetic change.
Overall, it is clear that the construction sector must do more to protect their businesses and drive down construction costs in 2016 while fending off external threats that could create planning difficulties. It is a tough proposition but one that can be dealt with, and even surmounted, with the right mindset and, critically, with the right software solutions in place to ensure operations remain transparent, visible and manageable at all times.
GIVING YOU A SNEAK PREVIEW
So to recap, here are some of the exciting articles we'll be offering you over the next two months:
- Construction Costs of Building Projects: Top 8 Predictions
- Top 7 Building Materials Boosting UK Construction
- Modern house building: the skills needed for future growth
Is the reputation of your construction company in safe hands?
WHAT ARE YOUR OWN EXPERIENCES OF THESE CHALLENGES?
Do take part in our Constructive Transformation UK Survey. Wherever you work in the building industry, we'd love to hear about your viewpoint. It only takes a few minutes to complete, and we'll send all respondents a complimentary report of insights and detailed findings of The Constructive Transformation UK Survey Report.
TAKEAWAYS:
- Cash flow is once again a business-critical problem across the building industry.
- Cash flow is a pre-requisite for growth, so addressing the problem is crucial for all supply chains.
- As the Construction Supply Chain Payment Charter stalls, companies must take responsibility for addressing late payment, a major cause of cash flow difficulties.
- Current awareness of the factors that threaten cash flow is the first step to resolving the problem.
