The Australian construction industry generates over $360 billion dollars in revenue, producing around 9% of our gross domestic product (GDP) and has a projected annual growth rate of 2.4% over the next five years. In New Zealand, the construction industry is valued at $55.1 billion dollars with similar expected growth at almost 3 per cent over the next three years.
These figures demonstrate the importance of the construction industry in the economic recovery of both markets after the disruption of COVID-19. Growth is supported by infrastructure spending, investment in housing, rail and road projects and renewable energy. Contracts to work on significant national, as well as smaller-scale civil and residential construction projects present SMEs with compelling opportunities for growth.
The rocky road to recovery
The COVID-19 pandemic created havoc in the construction industry with lockdowns, labour shortages, soaring raw material costs and supply chain issues (coupled with higher demand) impacting building projects nationwide. Construction businesses have been under immense pressure to continue to deliver, with their cash flow, operations and profitability significantly impacted.
While lockdowns have been consigned to the past, other challenges remain. Higher costs for essential building materials such as timber, concrete and brick are set to persist impacting timelines, deliverables, and profits. Construction businesses need to look for ways to optimise efficiencies and keep costs down. Additionally, for businesses actively pursuing growth or opportunities, planning for price and market volatility will form a key part of tenders and quotes for the foreseeable future.
Construction industry risks and how to mitigate them
Cost of materials
- Unfortunately, with rising inflation and ongoing supply issues, the high cost of building materials is likely to be around for some time. Businesses should attempt to lock in prices early, source and implement preferred supplier arrangements to deliver reduced costs and greater supply certainty.
- While the demand for construction services has increased, the number of workers has not. This poses risks to businesses taking on new projects. Businesses should look at their retention strategies, making their business a desirable place to work – as well as recruitment strategies, from attracting experience to employing new apprentices.
- Delays caused by supply chain problems or importing materials from offshore can be difficult to plan for. Construction businesses (and their clients) need to set realistic schedules upfront and anticipate complications where possible. Ordering materials early and having materials on site long before they are required can help.
Non digitised processes
- Despite each construction project being unique, there are always efficiencies to be made by investing in standardised processes. Embracing technologies to support real time collaboration, workflow automation, scheduling and budgeting tools can maximise productivity and save costs.
- One of the things we hear time and time again from our SME clients in the construction industry is what little time that have for tendering for new business (with most quotes and tenders tackled after hours). Investing in tools to maximise productivity workflow and project management can free up time to work on growth opportunities.
- A key obstacle faced by many businesses is having the cashflow in place to sustain existing activity and fund new growth opportunities. Businesses can be deterred as they are unwilling to risk their current operations or take on additional debt. Invoice finance is a great solution to smooth out cash flow and ensure operational costs are met.
A funding solution that helps construction business sustain and grow
Businesses in the construction industry face a unique set of challenges; the cost of materials impacting profit margins, a shortage of skilled labour, slow adoption of technologies and unstable cash flow.
Invoice finance is an ideal solution for construction business working with large clients. An invoice finance facility effectively closes the gap between when you invoice your customers and when you receive payment. Cash flow certainty delivered by the prompt payment of invoices means suppliers and staff are paid on time, operational costs are met, and businesses can focus on growth.
An invoice finance facility can deliver:
- Better cash flow – with funds available on approval, get your money back into the business faster.
- Less risk – invoice finance is not a loan; your invoices are our security (we won’t ask for personal assets as collateral).
- More flexibility – choose which invoices you would like funded, when and at what percentage (up to 95%).
- Supported business growth – enjoy the peace of mind when taking on a new contract, that existing and new obligations can be met.
- Better time/value of money – faster payments mean working capital is re-invested sooner, creating stability, less need for loans and larger returns.
Over the past two years, opportunities at a national and state level have opened up to smaller businesses. There are more contracts out to tender and several comprehensive policy measures such as fast-tracked approvals processing and stimulus packages aimed at delivering rapid economic recovery.
It is our firm belief that if the construction industry is indeed the engine that will power economic recovery, businesses should have the tools to succeed. Talk to us about how an invoice finance facility can help your business sustain and grow.