CONSTRUCTION Accounting ARTICLE -
No Shortcuts: Quick Fixes Won’t Solve Money Problems
Target Audience: Construction Industry Professionals, Business Owners, Project Managers, Contractors, Construction Accountants
When the economy gets tough, executives in some industries may be tempted to lay low and wait for the storm to pass. But the project-oriented construction business affords no such luxury, as few contractors have stable long-term customers they can depend on.
In response to dire times, many construction company owners may look for quick fixes to tide them over until the economy recovers or at least until the next big project comes along. Yet this thought process can be extremely dangerous — particularly when full economic recovery remains nowhere in sight.
A vicious cycle
At first glance, quick financial fixes in the form of loan renegotiations or extensions may seem like viable and even advisable options for a struggling construction company — and they can be, if used in moderation and in combination with other restructuring strategies.
The problem is that too many contractors often become complacent after new loan terms give them breathing room and extra cash flow. What’s more, amending and extending loan terms can become a vicious cycle in which interest rates increase and debts become insurmountable.
Plus, when the economy recovers and project prospects increase, contractors who relied solely on quick financial fixes and random downsizing will likely straggle behind stronger competitors — and may never catch up.
Strategies that save
When faced with less-than-desirable financial circumstances, you must think long-term. While knee-jerk downsizing and cost-cutting may be your first instinct, they often aren’t the best options. Specifically, you must identify the driving forces of your construction business by asking questions such as:
- What are your strengths and weaknesses?
- What is the economic state and forecast for your market area?
- What variables affect your business?
- Where do you want to be in 10 years?
Through strategic analyses such as these, you may find, for example, that talented employees and technological innovations are invaluable to your company and are areas in which you must invest — even when money is tight. These analyses may also identify areas that are less of a priority where you can make effective cuts.
In addition to reassessing your overall business strategy, you can turn to system fixes, such as optimizing your accounts payable and receivable and improving vendor relationships. Specifically, look into whether you can speed up time-to-invoice, maintain more accurate customer billing information and consider accepting credit card payments to improve cash flow in the short term.
Detrimental temptations
Ultimately, you need to give serious thought to your business strategy when facing tough financial decisions. Although quick fixes may be tempting, they’re detrimental without a well-thought-out plan to back them up.
Find out how our expertise in construction accounting can add value to your business. Email us or call us at 1 (888) 875-9770.
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