The construction industry in Australia has faced significant challenges in recent times, including rising costs, increased competition, and a tightening credit market. The collapse of several prominent construction businesses in recent months has had a significant impact on the industry and the broader economy, emphasising the need for businesses to take a more proactive approach to risk management and financial planning.
It’s been revealed that company collapses in March soared more than 20% across Australia, as the construction sector bore the brunt of unprecedented tough conditions. According to ASIC data there were 549 administrations and liquidations in March, up almost 23% YOY.
While the Government has implemented grants and programs to support construction businesses and workers, such as HomeBuilder, we’re sharing some tips for businesses to take a proactive approach and overcome these challenges.
Prioritising Risk Management and Financial Planning
If there is one key learning from the flurry of collapses, it is the need for the industry to take a more proactive approach to risk management and financial planning. Construction businesses should ensure that they have adequate cash flow , manage their debts effectively, and maintain strong relationships with subcontractors and suppliers.
Businesses can also mitigate risk by diversifying their portfolio and investing in multiple projects rather than relying on one large project. This approach can help to protect against potential project delays or cancellations and maintain a steady cash flow.
Forecasting for a range of scenarios
It's crucial to forecast and manage a range of scenarios when commencing a project. Construction businesses should consider factors such as the availability of resources, potential project delays or cancellations, and market changes that may impact the project's cost or timeline. Forecasting and managing for a range of scenarios can help businesses to stay on track with the project and minimise the impact of unexpected events.
Managing Business Operations
Managing business operations, particularly back-end such as analysis, reporting, finance, and appropriate software solutions, is crucial to ensure effective management of a construction business, particularly in unprecedented times. By using appropriate software solutions , businesses can streamline their operations, manage their finances effectively, and make informed decisions based on real-time data.
Offer training and employment opportunities
Offering training and employment opportunities can help to stimulate local economies and provide valuable skills and experience to those impacted by disasters. This not only benefits the individuals but also the construction businesses that can hire skilled and experienced workers in the long term.
Construction businesses can also partner with local schools and training institutions to provide education and training opportunities for the community. This helps to build a skilled workforce in the local area, which can benefit the construction industry as a whole.
Bottom Line
The collapses of these construction businesses highlight the need for the industry to take a more proactive approach to risk management and financial planning. Construction businesses should ensure that they have adequate cash flow, manage their debts effectively, and maintain strong relationships with subcontractors and suppliers to ensure they can survive - and thrive - in times of economic uncertainty. Check out our article on Bookkeeping for Tradies to get top tips from our construction industry experts.
Ready To Future-Proof Your Construction Business?
By adopting these strategies, construction businesses can position themselves for success and resilience in the long term, and contribute to the broader economy and local communities. The construction industry will continue to be a vital contributor to the Australian economy, and it is critical that businesses take a strategic and forward-thinking approach to navigate the challenges of the current economic landscape. Our expert advisors are here to help you navigate the challenges and risks of the industry. Get in touch today to speak with one of our property and construction advisors and learn how we can help you achieve success in the construction industry.
