Tradies – What’s Happening in Your Market?

October 02, 2018 at 1:25 PM

DaltonPlan® Business Information Newsletter
Setting the Benchmark for Business Performance ● Issue 131 - 2018

Deano’s Comment

Tradies – What’s Happening in Your Market?

I have just received BDO’s Construction Survey Report and thought that I would summarise it here for you. In April 2018, BDO surveyed NZ Construction Industry Businesses on an anonymous basis. This mainly covered construction companies and subcontractors, but also included material suppliers and consultants. The sectors covered housing (including apartments), commercial construction and civil/ infrastructure. The majority of participants were construction companies and sub-contractors in the housing and commercial sectors.

 

Simply in the Red

They found that fragile businesses that lack the necessary robustness, making them particularly susceptible to industry challenges and forces, without rapid improvements, face the risk of entering a downward spiral. In their words, “There are too many for comfort!”

41% of respondents have clients who pay late despite a contractual commitment to pay on time.

 

Money’s Too Tight to Mention

Cash Flow - This industry has a very effective grapevine as to who is and who is not paying on time. The industry also has an effective and industry-specific credit reporting agency: Creditworks. With most respondents having a good forward work situation, they should be focussing on those that can pay them and not performing additional work for those with a bad payment record. Otherwise the risks may be too high.

Margins are too low. BDO asked “When competing for new projects, at what margin are you missing out on winning contracts?” Whilst there are more factors to awarding a contract than purely price, there is still too much emphasis in NZ on price as compared to quality and whole-of-life costs. Poor margins are not just an Auckland issue; they are an issue across the country.

 

If You Don’t Know Me by Now

Market - It is a concern that several respondents noted that over 30% of their projects by value are making, or will make, losses. If these experienced companies don’t know the market by now, then it seems unlikely that there will be much improvement in performance for these companies.

 

Holding Back the Years

Retentions – The Construction Contracts Amendment Act 2015 introduced the requirement for those that deduct retentions to hold those retention monies in trust in relation to contracts entered into on or after 31 March 2017. The Act places the onus for enforcement on those that have retentions deducted from their progress claims by giving them the ability to inspect the trust records at any reasonable time.

OF THOSE WHO HAVE RETENTIONS DEDUCTED, 74% OF RESPONDENTS HAVE NOT ASKED TO INSPECT OR CONFIRM THAT THEIR RETENTIONS ARE HELD IN TRUST.

It is good basic risk management to ensure that those that you work for are able to pay you for the work that you are doing for them. This makes the inaction even more surprising.

 

Come to My Aid

Staff – They asked, “What were the 3 greatest challenges or concerns?” Staff-related matters absolutely dominated over all other issues. The most frequent challenges related to recruiting and retaining staff (almost 50% of responses). The next most frequent challenges related to the availability of skilled labour and training challenges.

THE SINGLE GREATEST ISSUE IS STAFF; BOTH AVAILABILITY AND QUALITY.

 

Move on Out

Succession and Exit Planning – Those that have not planned their succession or exit during the good times will find it challenging and may either have to close their business down or struggle on in it when they would rather be fishing, travelling or playing golf. 

50% OF THOSE SURVEYED WHO WERE OVER 50 STILL NEEDED TO CONSIDER SUCCESSION OR EXIT PLANNING OR HOPED TO SELL THEIR BUSINESS BUT HAD NOT STARTED ANY PLANNING OR PREPARATION FOR THIS.

Business sales do not occur overnight. It takes a number of years to groom the business to optimise the value received. Similarly, succession plans take a number of years to identify the appropriate people and to successfully implement.

 

Let Me Have It All

Good project management is fundamental to good business management and strong financial performance - For those that do need computer software for their project management, BDO asked them whether it met their needs. 25% of respondents need computer software for project management and their current system does not meet their needs. The survey found some correlation with those who don’t have a system that meets their needs and those that have longer delays on their projects.

Project delays impact directly on margins but BDO have noticed over the years that project delays are the dominant cause of a ‘bad year’. This is because the company must still pay all its staff, and overheads continue every month whether there is work to do or not.

Another theme being relayed to us are instances of a larger than expected team of subcontractors turning up on site as some are waiting for their scheduled work to be able to be commenced. Given the overall shortage of skilled resources in the industry, the inefficiency caused by the delays exacerbates the problem.

 

No Direction

Industry Optimism - There are mixed messages around optimism. The government has ambitious plans for housing, infrastructure as well as requirements in education and health. A number of the larger architecture firms have just laid off a record number of staff. There are simply not enough workers to get through the existing workload. Some of the positive expectations around growth are based on recently signed contracts, but what happens when these are finished?

 

Money in My Pocket

Business Planning - The over-used phrase is those that fail to plan, plan to fail. It seems that 20% of respondents fall in that category. Given the financial concerns identified in this survey, financial planning is critical and business planning goes hand in hand with this.

If you have any questions after reading this information, go to Contact Us on our website www.DaltonPlan.co.nz and type in your request.

By Dean Dalton DBA

Director, DaltonPlan® Business Action Planning Limited