Navigating Rising Inflation in the Construction Industry
The UK’s economic landscape is a difficult one to navigate for consumer and businesses alike. Inflation has risen to an unprecedented high of 8%, and is expected by the Bank of England to rise even higher in the coming months. The inflation rise is explained by the skyrocketing costs of consumer goods, fuel and energy respectively – costs that are having knock-on effects on industries in a number of ways.
The construction industryin particular is anticipating a difficult year as a result. The continued rise in fuel costs continues to put pressure on project budgets, as the overheads attributed to powering construction sites rise higher and higher. Meanwhile, employee pressure to raise wages in line with the inflation rate threatens profit margins, especially for SMEs with less capital.
Still, there are ways in which construction businesses small and large can weather the storm; what follow are three simple suggestions for ensuring the longevity of your construction outfit.
Balance Your Books
Firstly, oncoming economic crisis is a good sign to get your business’ finances in order – to the letter, and to the minute. Cashflow should take precedence over anything else, to ensure you have an accurate picture of the money you have coming in, and the money immediately available to you. You may have generous credit agreements with regular clients and customers; it may be a wise move to request a moratorium on those agreements, and to institute immediate payment conditions where possible.
Invest in Expansion
While it may seem counterintuitive to make further capital investments in the face of economic uncertainty, planning for expansion can brace your business for resulting consumer uncertainty. This is achieved by enabling your business to pivot to other income streams, through diversification of your offering and reach.
Investment in tools and equipment can enable your team to take on jobs in different environments, or to achieve quicker results. Upgrading from a corded chainsaw to a battery-powered chainsaw, for example, gives employees more freedom to work without generators or complicated arrangements of power outlets – thus allowing your team to work in a wider range of environments.
Investing in your team and fleet can also enable you to serve a wider geographical range, giving you a larger pool of potential clients from which to generate income. Even in the event that there is a downturn in contracts received, your floor is raised, enabling you to keep a steady flow of custom.
Draw Up Contingency Plans
Lastly, you should devote some time to drawing up back-up plans in case of the worst. Even with the above suggestions, you may suffer greater-than-expected losses – or a larger financial crash may render the possibility of new large contracts low for the coming months. Understanding your options for short and long term financing, in the form of secured and unsecured business loans, investor pools and equity finance, can help you act quickly should you need to.