It’s safe to say that the cost-of-living crisis has presented a number of challenges for a number of industries, and construction companies are no exception. In fact, the construction industry is one of the most deeply affected sectors, being impacted by labor shortages and the cost of materials skyrocketing.
Consequently, construction companies are falling victim to volatile pricing, meaning that work schedules and cash flow can be negatively impacted.
Despite this, the adaption of financial forecasting and business plans can mean that turbulent economic times are effectively navigated, allowing these companies to emerge from the other side stronger than they’ve ever been before.
While the cost-of-living crisis has affected households across the globe, building contractors are having to streamline the way in which they work to ensure that they traverse this challenging economic time as intact as possible.
Due to the cost of building materials and a shortage of skilled labor, the construction industry is often at the front line of volatile pricing, which can impact cash flow and work schedules, often to the point of no return.
To mitigate this impact, a company working in the construction sector needs to adapt its business plans and financial forecasting in response to the volatility.
Researching alternative materials, changing working practices to become more streamlined and efficient, and implementing different human resource initiatives for the training and retention of skilled workers – the focus needs always be the ability of the company to ride any waves safely and securely.
Overcoming the Skills Shortage
As a result of the cost-of-living crisis, the construction sector is more competitive than it has ever been previously. This is down to the fact that the most skilled workers are on the hunt for the roles that pay the most, as their paychecks simply aren’t stretching as far as they used to.
Despite this, not all companies are able to expand their offerings from a financial perspective, as they simply can’t afford to do so. The companies that are able to offer better wages are those large-scale corporations, which means that small and independent businesses are under fire.
As the cost-of-living increases, good workers will understandably turn to those who pay higher wages. And with a real shortage of skilled labor, those in demand could be subject to a bidding war, where the companies with the deepest pockets win out.
For this reason, it is important to not only pay your employees well but to make sure you look after them, either with an excellent package of employee perks (longer vacations, voucher schemes, bonus structures) but also through continual professional training and a defined career path.
These are innovative methods that can be employed by small businesses, and it’s sure to promote employee satisfaction and retention. Skilled workers aren’t solely after the advantages that benefit them in their downtime, but they’re also looking for those advantages from a professional perspective.
This means investing in the training and career paths of employees, which not only benefits the employee, but the business, too. These are just some of the ways to retain talent in a hugely competitive labor market.
Increasing the Cost of Building Materials
Price rises affect every aspect of life, and construction materials have certainly not escaped the impact of the overall economic crisis. For example, some reports estimate an increase of up to 45 percent over the last year to 18 months.
If these rises occur mid-project, it could seriously affect profit margins, placing additional pressure on a company’s cash flow. If a Leeds company quoting roofing services on a job that doesn’t start until six months later wins the contract, it needs to take into account the possibility that material costs may increase between winning the job and starting it.
If the quote is too high, it risks losing the tender. If not high enough, any profit margin may be erased.
This is another instance in which large-scale corporations come out on top, as they have the capacity to offer services for reduced prices. As a result, they’ll attract more customers and increase their profit margins.
What a small or independent company can do, though, is go the extra mile in terms of customer service. Many customers prefer working with independent companies, as they appreciate the personalized and transparent approach.
As an independent company, you can make it your mission to put your customers at ease by keeping them informed every step of the way.
Balancing Out the Increase in Overhead Costs
While the impact of the increase in energy prices has been somewhat softened (to a degree) by government subsidies and grants for households across the globe, the impact on businesses has been even worse.
With some increases estimated to be between 300 to 400 percent, a government cap barely touched the surface, which has resulted in many small businesses being forced to shut their doors.
Construction is a relatively high energy-consuming sector, which, like any other sector, has to absorb these increasing costs into its prices. And while it might feel like everyone’s in the same boat, in which if one company increases its prices, all others follow suit to maintain a level playing field, that is not something that happens in reality.
There will always be companies that have deeper pockets and better accessibility, who will be able to undercut certain jobs in order to maintain an (albeit reduced) cash flow.
Although wholesale energy costs are on the decrease, there is still a considerable lag between those prices coming down and the retail cost being passed onto businesses and consumers.
The key for many construction companies is to keep a firm eye on all overheads and make potential savings in those areas that they can without compromising the overall quality of their work.
A long-term approach, with planning and forecasting spanning years, not months, until the end of the cost-of-living crisis, will highlight the difference between those companies that will survive and hopefully go on to thrive into 2024 and beyond.