Keep calm and carry on trading - survive and thrive in an economic downturn
Posted on September 02, 2012
The building industry continues to face a tight and difficult market with Australian Bureau of Statistics figures showing the levels of construction activity across the country are still in decline.
There have been a number of high profile insolvencies, including Reed Constructions, Hastie Group, St Hilliers and Kell & Rigby to name a few. More pain is likely in the short term.
In the challenging environment that now prevails, if small to medium sized builders are to survive, it is crucial that they re-evaluate their business priorities.
Trying to navigate your way through an economic downturn is tricky. Do you stay still in an attempt to ride out the storm? Do you make moves to try and stay ahead of your competitors? Can you survive, or even thrive, in a downturn?
Weathering the Storm
There are a number of things you can do to bolster your position in tough times.
Consider the following:
- Price: Know your market. Be cautious when discounting as you don’t know your competitors’ cash reserves or whether you can outlast them in the battle.
- Cash is king: Aggressively manage accounts receivable, inventory and payables, and seriously consider selling non-core assets/divisions or surplus assets.
- Security of Payment: Make sure you understand this new legislation and how it can benefit your organisation. Do you know what to do if you are served with a Claim under the Security of Payment Act?
- Personal Properties Security: If you haven’t already, then consider PPS registration of retentions in order to gain the most security you can if a debtor goes insolvent. Make sure your trade documents are PPSA compliant.
- Competition: Who are your competitors? Is it time to consider a merger? It may help you not only survive, but come through the next period in better shape than your competitors.
- Costs: Focus right now on stress testing your business. What can it survive, what would happen if credit was cut or a major client crashed? Review the costs in the business and make sure they are market competitive.
- Talent strategy: Consider creative alternatives to downsizing such as freezing salaries, enforcing mandatory leave or reduced working hours which could be a better short term strategy for long term health particularly in the building industry where the talent tap cannot be turned on and off at will, based on immediate demand.
Be aware, insolvency results in the automatic loss of a building licence. The prohibition remains in place for 5 to 10 years and holding a licence again is only at the discretion of the licensing body. If you have any concerns about the solvency of your business, seek advice early.
The Lynch Meyer credit recovery team can advise on all aspects of trading documentation and debt recovery strategies. Our team has extensive experience advising on all aspects of insolvency, in particular, dealing with Liquidators, Administrators, Receivers and Bankruptcy Trustees. We can offer you a way to improve your profitability through better control of your debtors.
Our construction and credit recovery teams can provide expert advice and training in all aspects of Security for Payment issues and Personal Properties Securities.