The construction industry has faced many different challenges over the past couple of years, including material shortages, new regulations, supply chain issues, and many more. No matter where your construction company is located or how big you are, the effects of the pandemic continue to drive how you are making decisions for the future.
TOP CONSTRUCTION INDUSTRY QUESTIONS
To assist construction industry companies, our experts have provided a list of the Top 8 Questions they are hearing in the industry and their insights.
- What are the top concerns your construction industry clients faced over the past year?
New requirements and regulations on job sites throughout the country have been challenging for our construction industry clients. In addition, these requirements and general supply chain issues have caused delays and stoppages, making hitting budgets and completion dates difficult.
- The pandemic forced many construction companies to change their business processes and implement new technology to manage work remotely. Do you see this as a fundamental shift in how construction firms will drive their business in the future?
Years from now, we may look back on 2020 and identify the pandemic as the push many companies needed to introduce and embrace technology. We have talked for years about how technology and remote environments can streamline and assist construction companies but being forced into action has allowed businesses to adjust and accept and benefit from this change.
Working remotely has not been great for all companies but adding technology that has assisted with connecting people throughout the state or country will fundamentally shift, hopefully positively, how companies communicate into the future.
- How has the elongated project timetable due to COVID affected construction firms’ cash flow?
The PPP loans and Employee Retention Credit have staved off some cash flow issues. However, supply chain challenges requiring deposits in advance of receiving goods drag an already long cash cycle even further and may significantly impact cash flow for the rest of 2021 and 2022.
- Have you seen an increase in liquidation, bankruptcies, mergers, or acquisitions of construction firms due to the pandemic?
The fear is that the extended cash flow cycle and delays in projects will create more issues for companies in late 2021 and 2022, resulting in bankruptcies, liquidation, and mergers and acquisitions. The best approach is to work on preparing the business for sale and adding value.
Take a look at how your company operates.
- Is the equipment in good repair, or has there been deferred maintenance?
- What about your office, books, and records? Do they need organization?
- Are your records up to date for last month-end closing?
If an owner is ready to sell, efforts in these areas bring significant dividends. Many times, discussing with your accountant or banker that you want to quietly put the word out that you are considering a change can get interested parties to the table without disrupting the employee group. This can be done privately.
Read our Quick Guide on Buying Another Construction Company
- How have supply chain issues and increasing costs impacted construction businesses? What advice can you offer contractors for addressing these concerns to avoid profit fade?
One positive thing about the continued increase in material cost is that it is well documented and known, which means material escalation clauses should be added into contracts to reduce the risk of large spikes in costs. However, companies may need to accept passing material cost savings on to customers as well.
- Do you have any other general advice for construction firms to mitigate the ongoing impact of the pandemic?
The recession caused by the pandemic is different, and the recovery will be different too. As work sites open more and projects go out to bid again, rushing in or underbidding work will lead companies down the wrong road. There is no ‘making up’ or ‘catching up’ for 2020 (or 2021).
- How can construction businesses best prepare for the impact of the new administration’s tax plan?
The best tax plans usually involve a crystal ball. Although tax law changes are inevitable, it is hard to prepare for a long process with many negotiations within and between both political parties.
Here are 9 Construction Tax Strategies you should be taking advantage of.
- Any additional advice for those in the construction industry?
Proactively invest in the right areas of your business. This will set you up for success down the road, no matter what challenges you come across. You can proactively manage your construction business through:
- Bidding on work you are uniquely qualified to do and being careful in the bidding process not to lower pricing.
- Revisit your contracts and ensure appropriate language is in place to cover unexpected delays or price increases.
- Conduct a cash flow analysis.
- Renegotiate the terms of your line of credit agreements or other long-term debt agreements.
- Expand relationships with different suppliers and vendors.
- Review your lease agreements with your CPA and bank to determine what effect the new lease standard will have on your financial statements and loan terms.
- Conduct advance tax planning to take advantage of new legislation and other year-end tax incentives.
QUESTIONS?
For more guidance on construction company management, growth, and tax strategies, reach out to a Smith Schafer industry expert. Our Construction Group, comprised of numerous professionals, is committed to serving over 800 Minnesota construction and real estate entities. Smith Schafer has the experience and understanding of the construction industry to make a lasting positive difference in your future success.
