From Lee Perkins, managing director – small business division, Sage UK
There’s no doubt that during the downturn, cash flow in many construction firms has been hit hard. People have still got less money to spend and are generally less confident about spending their cash compared with a few years ago, which has often meant a negative knock on effect for revenues, margins and new project leads.
At the same time, finance is also more difficult to get hold of. Rather than being able to borrow from the bank, small building firms keen to grow might have been forced to look at alternative ways of getting hold of money, like borrowing from friends and family or using an overdraft. Last year, a survey by MakeItCheaper.com found that almost half of micro business owners had had to use personal funds, including credit cards, to stay afloat during the recession.
But despite the tougher climate, it’s certainly not all doom and gloom out there. In fact, many small construction firms and start-ups are thriving. According to property guru and entrepreneur Sarah Beeny, business opportunities don’t disappear in a downturn. “Anything that saves people money or time, anything that makes people’s lives easier, simpler or cheaper will find a market,” she advises.
Living through lean times can be a good opportunity to streamline how your business works and to get on top of the finances. By getting in good shape now, you’re making sure that you’ll be in prime position to grow when things pick up.
So how should you tackle things? Keeping an iron grip on costs and making the most of any opportunity to increase sales is absolutely vital for any micro business. Sometimes reining in the overheads isn’t easy. But you need a thorough understanding of the figures, including cash flow peaks and troughs, in order to succeed. However busy you are, make cash flow check-ups a regular fixture.
Getting paid on time is also an essential part of keeping your cash flow statement looking healthy. That means efficient invoicing and promptly chasing late payment. When every business is feeling the pinch, you want to make sure your firm is first in the queue to get paid.
Of course, growing your business during a downturn — whether it’s chasing new markets, investing in technology or taking on new staff for instance — might take more planning (and nerves) than expanding in boom times, but again, it’s about thinking long term and forecasting cash flow. It’s worth spending the money if you can balance the books and it will genuinely add to your business down the line.
If funds are tight and you’re looking for a low-risk growth plan, you could adopt the mindset of many new start-ups, by teaming up with a likeminded venture. Working collaboratively to offer complementary building products or services can be a very effective way to expand your business without outlaying huge sums.
Whichever route you take, the same rules largely apply. The economy isn’t entirely out of the woods yet but keeping a tight rein on cash flow and making sure you’re making the most of every sales opportunity will help steer you however the recovery pans out — and make sure you’re in a healthy trading position once the boom times are back.
For more practical tips and advice, see Sage’s small business advice website