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Beyond COVID-19: Tactical tips for commercial construction firms
December 14, 2020
Authored by RSM Canada LLP
Joel A. Humphrey, CPA, CA, shared this article
Originally published in the 2020 issue of Central Alberta Builder magazine, the official publication of the Red Deer Construction Association (RDCA).
As the COVID-19 crisis continues to exert its influence on the global economy, several key changes have already manifested in Alberta’s commercial construction space. The days of white-hot development have cooled drastically thanks to continuing vacancy rates, an abundance of excess properties and the ongoing sluggish growth in oil. How can companies stay in business long enough to make it through the economic recovery phase? This article offers a few tips to help companies effectively preserve liquidity and manage cash flow as the pandemic continues.
Subvert traditional thinking
Alberta has enjoyed optimal conditions for growth and prosperity in previous years, more so than many other Canadian provinces, and this has likely led to a “boom mentality” amongst commercial construction businesses. Diversification and setting the business up for steady growth are the way forward.
Traditionally, many in the commercial construction industry believe that unconventional thinking may fail and therefore put competitors ahead. Right now, however, innovation is not only necessary but also less likely to hurt, since everyone in the industry is in the same boat. Those who are innovative thinkers are more likely to navigate headwinds.
A time for refreshment
Preserving opportunity requires time for reflection and refreshment. New opportunities for entrepreneurs exist, provided that they understand the need for reciprocity. The nature of Alberta’s commercial construction community means that many firms are customers or suppliers of each other. Companies that communicate openly with suppliers and customers about delivery timelines and payment terms will protect their relationships for the future.
Preserving liquidity and managing cash flow
An ideal starting point is to develop a financial plan as soon as possible. Plan for the impact of COVID-19 on your business and your employees for at least two years under several scenarios. Understand your numbers: income statement, balance sheet, and cash flow. Stress flexibility and adaptability. With the uncertainty of COVID-19, any financial plan must be modified quickly. Creating a plan with several scenarios identifies weaknesses and focuses agile decision-making.
Start with low-hanging fruit. Government programs such as the Canadian Emergency Wage Subsidy (CEWS) provides funding for up to 75 per cent of employee wages, which has been extended to June 30, 2021 (at the time of publishing). Review potential cash sources like previous GST filings to ensure you haven't overpaid; work with an advisor like RSM to conduct the enquiry on a contingency basis so you only pay professional fees if money is recovered.
Don’t lean too heavily on debt. Additional debt does not help if you can’t generate revenue. Negotiate with lenders for optimal terms, revisit terms quarterly and communicate.
Upon reflection, commercial construction companies may find many expense items can be trimmed. Examples include labour costs by reducing amount of labour or rate of pay. Remember all expenses are made up of a quantity and a price. Either or both can be adjusted to reduce cost. Find the number it takes to sustain the business, not what it takes to get rich.
Lowering the overall cost may be much easier than you think. For example, taking one to two per cent off of key expenses may not have a significant impact on your stakeholders – but it may provide your business with the liquidity needed to manage through the recovery phase.
The path to recovery
In times like this, people need to think differently. Many companies will benefit from a hard look at income, line by line, to fine tune expenses. When performing this task, focus on what is needed right now as opposed to what is wanted. To build a story of hope for your business, focus on informed, innovative decision-making and planning.
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This article was written by Greg Hemstad and originally appeared on 2020-12-14 RSM Canada, and is available online at https://rsmcanada.com/what-we-do/industries/real-estate-construction/beyond-covid19-tactical-tips-for-commercial-construction-firms.html.
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