Construction workers coming up with a plan

Construction Industry Q&A

If there is one thing about 2020 that we can be certain about, it is that every day has brought new challenges. We started the year off concerned about tariffs and labor shortages, and now we have moved on to the biggest challenge most of us have faced in our lifetime, COVID-19. The fallout from this pandemic is widespread. No matter where your company is located or how big you are, the effects of this crisis has and will continue to drive how you are making decisions for the future.

Our Construction Solutions Group at HBK understands that during these times of uncertainty, you have many questions. Below is a list of common questions and answers that our clients have asked us over the last few days.

When will the construction industry feel pressure from a potential downturn?
The construction industry can feel this pressure right away or it can lag up to 18 months from the onset of any economic downturn. The timing will depend on your specific customers and the makeup of your backlog.

Do I need to talk to my customers now? What should I be talking with them about?
It is critical to work together with your customers, when possible, to ensure success in the future. Talking with your customers to ensure they have the funds to support the projects is key to forecasting your upcoming workload. For jobs that will be moving forward you should consider discussing timelines and completion date forecasts. Will these be changing? What if your workforce is hit hard by the virus or there is a mandatory national quarantine? You need to ensure how you will handle things like liquidated damages on contracts if these issues affect your company. Getting an understanding of that issue can single-handedly help your company to avoid a potential financial disaster.

What do I do with my employees?
Companies in many industries will be faced with this same question. However, in construction it may be more critical than in any other industry. Your most important asset is your workforce. The talent pool to find suitable replacements is very, very shallow and the market to attract and retain key talent is very cut-throat right now. While the specific details of how you will choose to handle this may be a case by case basis, I can tell you for sure that every contractor should focus a lot of their attention to ensuring they will retain their top talent through this downturn.

Do I talk to my bank and surety now? I am afraid I will make them nervous if I tell them we might have some trouble going forward Absolutely the time to talk with your creditors is now. You will need their support through this downturn even more than ever. Being upfront and showing your creditors that you recognize the issues you will face and, more importantly, you have a plan to ensure that you can weather the storm is absolutely critical to your success. No one likes to give the bank or your surety bad news, but I can guarantee that surprising them with bad news is a recipe for losing the lifeline of support that they provide your company.

Ok, I will talk to the bank and the surety. What do I need to be able to tell them?
You need to work with financial professionals who can help you prepare cash flow forecasts and projected financial statements that will help you show your creditors that you have the situation under control. This will show them that you understand your business and are prepared to get through a difficult time with their support. Providing forecasts and projections that the creditors can rely on is imperative when meeting with them to request their continued support of your company. They are the absolute lifeblood of your business and without them, many times, it is impossible to perform work due to the cash flow constraints you face in your industry. The more prepared you are to show them what your credit needs will be, the more likely they are to support them.

We understand that you may have additional questions, and we want to talk to you about them. Please give us call at 330-758-8613 or shoot us an email at construction@HBKCPA.com to schedule a time to discuss.

About the Author(s)
Mike is a Certified Construction Industry Financial Professional (CCIFP) and member of the The Builders Association and the Ohio Contractor’s Association. He serves as Treasurer of the Construction Accounting Network and is active in national construction trade conferences. He has been published in the national construction magazine “Breaking Ground” and is widely regarded as a subject matter expert in construction finance, regulatory matters and industry trends.
Hill, Barth & King LLC has prepared this material for informational purposes only. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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