Maintain control of your future; don’t just roll with the market. September 2018
Over the last few years, many companies have enjoyed strong growth simply due to market demand. However there is a danger in merely riding this wave because it always comes in cycles. The industry in Christchurch is a very good example of this. Some businesses that did well during “the rebuild years” did not survive as demand reduced. Indeed, in some parts of the building industry, there is now an oversupply of capacity, competition is heating up, and prices are under pressure.
There’s no need to panic. This is cyclical, and we know that successful companies continue to prosper, regardless of the ups and downs. I strongly urge you to be one of them! Take this opportunity to consider what you’ll do when this wave diminishes. What will be your next move? What’s your passion? Your competitive advantage? Your key points of difference? Start to chose and create your business’ tomorrow from your mindset today.
Here are just four key factors of risk awareness and management to consider:
Consent headlines and building market
Don’t let high building consent stats fool you. Our industry is well down the chain before we get to build and invoice our products. Some companies are talking about delays due to land titles, construction start date postponements, and timeline extensions apparently caused by a lack of labour or sub-trade availability.
I’m aware of some businesses that have committed to fixed price contracts, but there is no fixed building timeline, and therefore their ability to recover additional costs incurred by delays may be limited. Just because you’ve been given a contract by a construction firm – and even if they’re bigger than you – does not mean you’re obliged to sign it. I’d recommend you seek independent legal advice from a commercially savvy lawyer to ensure you recognise what you might be getting into, the risks, and items for negotiation. Remember the commercial contracts act. Tools such as variation management /scope change and “off site claims” can help safeguard your payments for the extra value you add and ensure that you can invoice jobs that cannot be delivered if dates change due to circumstances beyond your control.
Price & margin maximisation
Before accepting orders for them, make sure you review jobs that were priced a long time ago at lower margins and before potential materials or labour cost increases. If the margin no longer looks acceptable, ask yourself if you really want to do the job now. Are there other ways you could recover some of these costs or increase the price? Or, could you (should you) graciously decline the project?
Do you have a policy for revising quotes that have “expired”? Are you accounting for the extra time it takes to re-design or re-consult with your client, and including this in any price adjustments? When was the last time you reviewed your pricing and hourly rate calculations?
Choose your customers, design your future
Look back over the last couple of years and identify the jobs that you loved doing, the ones which had the best margins and the lowest risk. Think about how you could win more of these, and then make a list of people to talk to and meet with.