The world is currently experiencing an economic downturn as a result of coronavirus lock-downs. Most countries have halted their economies, and this has left almost every sector struggling. Some sectors are worse hit than others. A good example of one that is suffering badly is the construction industry.
Most building companies are struggling to survive due to the current economic slowdown, especially in Asia. No one is investing into new construction projects, and many of the ongoing projects have paused. But what are these companies doing to survive the current economic upheavals?
What most building companies are doing is saving money by minimising expenses. In this post, we are looking at some of the cost-cutting strategies many companies are adopting. Here are some of the most effective strategies for cutting cost during this difficult period:
Get Rid of Unnecessary Cost
Building companies are trying to shed unnecessary costs and expenses. A good example of this is minimising the number of employees on the payroll, especially those who are not able to work. For this reason, many companies have sent employees on compulsory, often unpaid, leave.
Other expenses that companies are trying to get rid of include: rented storage spaces, excess stock or inventory, and reducing working hours for indispensable employees. With such cost cuts, then the company can utilise their lesser resources to remain afloat for longer. Relocation to a cheaper country’s industrial and commercial area can also be considered.
Many services can be done cheaper if outsourced. A good example of such services is accountancy. For companies that just want the books checked and balanced, hiring an accountancy firm (often offshore) is cheaper than keeping a fully-fledged in-house accounting department.
Many firms, such as Infinit Accounting offer such services. Accounting companies such as this have been touted as some of the best outsourced accounting professionals for minimising unnecessary expenses. Outsourcing accounting work can reduce expenses for a company at a fraction of the cost of running an in-house department. Less staff in the office also means less distractions, less drama, and less space is required – which can also end up saving them through associated costs as well.
Protecting Cash Flow
Cash flow is the bloodline of any business. However, the amount of cash flow is a crucial factor in keeping businesses afloat. Enough cash flow to pay for everyday business expenses are always necessary. With the stalling of most building projects however, most companies are experiencing dwindling revenues. This means their amount of cash flow has also reduced.
Cash flow enables management to pay for small but essential services such as garbage collection, purchasing office goods, fuelling vehicles, refilling office water, paying out contracts on time to maintain workplace relationships, among other things. However, both cash inflow and outflows need to be scrutinized and managed properly to ensure no problems arise which could end up costing the company more in the medium to long run.
With a depressed economy, construction companies must reduce unnecessary costs to survive. In the inventory of most businesses, there will usually be massive wastage. Perhaps the company has been importing things that are available locally at a cheaper price, or overpaying due to a long running relationship with a particular supplier. During an economic downturn is the best time to manage and “tidy-up” a company’s inventory.
Many companies are using this time to look for cheaper suppliers of some of their purchased goods. Even a small saving on an ongoing and regular purchase can add up to a large saving over the longer term.
Another important thing that a building company are doing during this recession is altering their business models. Some that have been working on a specific class of building projects, are switching to less affected jobs to improve their incomes at these times. During the latest economic downturn, large projects such as commercial malls and real-estate where foreigners make up most of the end purchasers have been the most affected.
Some companies have switched to focus more on home constructions and even repair/renovation services. Such small projects will help protect their much-needed cash flow and will ensure that their staff are working and the business is making some money, despite the situation.
When a recession hits, the construction industry is always one of the worst affected sectors. The collapse and bankruptcy of many due to the current economic climate is likely, however those that are clever with their cashflow and business decisions will make it through. Above are just some of the strategies building companies are initiating to save money and keep business afloat since the pandemic struck.