The Australian building industry is in crisis. It has been reported that 6,895 jobs will be cut by June in Victoria as construction companies try to reduce their costs.
The crisis is also prevalent in Queensland. If your building and construction business is feeling the effects of the building industry trouble, it is vital to take immediate action and seek professional help from a building industry turnaround expert who can work with you to turnaround your business.
You can save your business, and the jobs of your employees, by focusing on the areas of sales, operations and cash flow management. In this article, we share some tips from turnaround specialists on how you can drive profitability, cash flow and operations to achieve a successful recovery for your business.
Review your current cost structure and level of profitability
To drive profitability, the initial step is to review your current cost structure and level of profitability. Set a target level of net profit which will never be less than 10% of sales after Directors’ benefits, but can be 15% of sales in some sections of the building industry. Having done this, determine how to restructure your business to achieve your target profit and immediately set about driving implementation. Monitor your progress and make sure that end of month accounting is accurate and completed by the 7th of the following month.
Set weekly invoicing targets
Focus on driving weekly invoicing by setting weekly invoicing targets from progress claims and driving the achievement of these targets. These should always be higher than what the business is currently achieving and may result in increased weekly sales with no increase in overheads. Combine this with managing costs and gross profit margins.
Set up detailed weekly cash flow
A well organised and managed cash flow is a powerful tool to drive operations and sales performance. However, cash flow management often becomes more difficult when the business is in financial distress. To start organising and managing your cash flow, set up a detailed weekly cash flow forecast for the next 8 weeks. Include all payments you expect for each job and all payments you have to make for the next 8 weeks. Prioritise payment for payroll followed by suppliers, and subcontractors essential to keeping your jobs going and then followed by ATO payment plan and other creditors’ payment plans.
Schedule weekly progress claims in dollar figures
To ramp up operations, schedule a dollar figure in progress claims each week e.g. $100,000 per week. This may reflect 4 claims on average per week, split between 2 supervisors so that each supervisor is scheduled to complete $50,000 of claims each week on average. This can quickly expose which supervisor is performing and which supervisor is not delivering on target. Keep in mind that you should have the best staff on board so do not hesitate to replace a non-performer with a top supervisor.
Schedule a job in advance
Disciplined job scheduling several weeks in advance with continuous review and updates will ensure materials and subcontractors are on site and on time. This can also facilitate having more than one trade working on site at one time whenever practical, which is essential to bringing forward cash flow and increasing profitability.
Manage repair on defects
Managing defects effectively also brings forward cash flow, especially where there is strong site supervision. Defects should be identified and rectified immediately, rather than leaving them all to be dealt with prior to the final claim which delays invoicing therefore delaying cash flow.
Some final words
If your business has a solid pipeline of work, then quickly ramping up the operations to complete a much higher value of work each week is very effective in increasing cash flow, profitability, and rapidly reducing your overdue creditors. If you need help in managing your operations or in implementing measures to turnaround your business, consider employing a building industry turnaround specialist as they provide business recovery solutions that can bring profitability back to your business. A turnaround specialist can also help you manage your cash flow to ensure that your jobs continue, outstanding payments are made and credit terms are re-established with your suppliers.