Vital Tips For Construction Contractors Amid COVID-19 Economic Downturn
March 27, 2020
Despite the paralyzing levels of uncertainty brought on by the coronavirus pandemic, construction contractors need to take proactive steps to safeguard their businesses from the future effects of the crisis. Assuming construction company owners have taken the best possible immediate action to protect field and office workers, attention must now be placed on the following essential business matters:
- Managing company cash flow is critical to survival. The focus should be at the company level and on each individual project. If you have not yet drawn on your line of credit, now may be the time to execute the request. Your cash flow projections should assume a reduction of the normal collection cycle, at various levels, while maintaining your normal monthly cash disbursements. Given the possible protracted quarantine periods, plan for the worst case scenario, and rather than hope for the best, quickly act on the tough decisions that provide a chance for the best case scenario.
- Internal processes should be in place to conduct timely project update meetings or conference calls by the owner, CFO, and operations lead. This allows project teams to report delays, change orders, work stoppages, or other issues that could have a financial impact on the business.
- Ensure real-time job cost reports are updated and maintained. The only way construction contractors can react and make any necessary adjustments to their operations is by using information from accurate job cost reports.
- Review your contracts and know your rights. Look for force majeure or excusable delay clauses. Excusable delay clauses provide “no harm/no foul” relief to companies as a result of unforeseen events, such as a health pandemic, beyond a contractor’s control.
- Track and document your COVID-19 impacts. Construction companies must be able to show when the impact occurred, how long it lasted, and the effect or causal connection it had on their ability to perform work.
- Keep close contact with your banks. Apprise banks/creditors of your updated work-in-progress (WIP) schedule, bids pending award, and backlog. Demonstrate that you have a plan of action in place during tough economic times. Re-evaluate loans and potentially term out to prolong working capital.
- Seasoned full-time and/or outsourced construction CFO/controllers who can not only analyze financial information, but can help develop company-wide best practices are crucial in helping business owners make real-time business decisions.
- Construction contractors should have a construction accounting professional to whom they can turn for timely, up-to-date information about the financial state of their businesses.
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