The building industry will be feeling the consequences of the recent liquidation of large construction companies, Probuild and Condev. Given the potential for other builders to experience financial distress/liquidation, trades and small business operators may well be exposed financially.
Regretfully, building companies that fail will impact numerous suppliers, with trades and small building companies likely the hardest hit.
Why are trades and small building companies hardest hit?
Trades and small business operators generally have fewer capital reserves in place to carry them through a difficult financial period. They often have equipment/car loans, mortgages, young families that can also reduce overall family income, supplier accounts, outstanding accounts receivable, and running costs. When you layer ATO/BAS commitments over that, It’s little surprise that trades and small business operators will struggle when large building companies fail.
How to protect yourself:
1. Cash reserves. When consulting with clients wanting to either transition from a wage earner to a sub-contractor or wanting to start a new business, my number one recommendation is to hold cash reserves. I understand that can be difficult given many challenges. However, there needs to be a mindset of allocating surplus income to reserves before applying it to family spending. If the plan comes together there will be opportunities for spending on discretionary items.
Further, when cash does get tight, stress levels will creep in very quickly. Stress will impact your immediate needs. It will also put pressure on relationships. Having a reserve can mitigate this to some degree.
2. Cash Flow. Timing will directly impact cash flow. If a business is paying for materials and/or labour, that is often paid upfront. The longer the delay on a payment for your services, the harder it is to manage your cash flow. So, try to make that time as short as possible.
For example, if you are fitting house frames you will be paying labour costs upfront. If you issue invoices weekly which is then paid in 7 days, you are in a strong position to manage that cash flow. If you are waiting 30 days or more for payment of invoices, you are exposing yourself to a much higher level of risk if that invoice is not paid.
Current Market Trends:
Some positives. Given the conditions of the current marketplace in 2022 (eg high consumer demand for products/services, high demand for labour etc), small business operators and trades are in a strong position to negotiate the terms of engagement. Accordingly, ask for a 7-day turnaround on invoices and any other terms that will favour you.
Maynard Accounting looks after many trades and small business operators to maintain bookkeeping and help keep ATO commitments up-to-date. Call today to inquire about our Business Service Package – we look after:
- Bookkeeping – all receipts recorded and stored electronically
- ATO BAS lodgements are done on time – no penalties
- All tax returns prepared and lodged.
- Free tax advice
- and more…..
ALL for one monthly subscription.