Introduction:
Recent construction sector insolvencies, like Privium and BA Murphy, raise a crucial question: how can you avoid the same fate for your trade business? We offer five key issues contributing to insolvency and practical steps to address them.
The 5 Red Flags:
Blind Profit Margin: Not accurately tracking materials, labor, and overhead allocations for individual jobs leaves you in the dark about profitability. Implement job costing systems to monitor margins and take corrective action when they dip.
Invisible Performance: Without clear reporting on margins for supervisors, they lack the visibility to improve job profitability. Ensure supervisors have access to both estimated and current margins to actively manage performance.
Debt Spiral: Uncontrolled debt, especially in an inflationary environment with rising interest rates, can quickly become a burden. Manage debt strategically and consider alternative funding options to avoid suffocating cash flow.
Lost in the System: Inefficient job management systems lead to inaccurate cost tracking of inventory, invoices, labor, and time. Utilize job management software like BuildXact to gain insights and streamline project handling.
Costly Contract Conundrums: Trade shortages and material price surges are squeezing builders. Proactively address these challenges by understanding contract clauses and seeking legal advice.
Conclusion:
By recognizing these red flags and taking proactive measures, you can steer your trade business towards financial stability and avoid the pitfalls that have ensnared others. Stay vigilant, adapt to changing market forces, and invest in proper financial management – your business success depends on it.
I hope this is helpful! Let me know if you have any other questions.