February 20, 2020

Laying the foundations for a successful year ahead

While Brexit could potentially pose significant challenges for construction firms, including concerns surrounding lost contracts, winning new business and meeting deadlines, there are still plenty of opportunities for businesses operating in the construction industry to flourish during these times of uncertainty. To maximise the chances of success – regardless of the UK’s ‘deal’ with the EU – good financial planning is crucial to ensuring profit is maintained, says Rory Dunn, Managing Director at Portman Asset Finance.

As 2018 draws to a close, many in the industry will be planning ahead for the new year with a mixture of optimism and trepidation. Those looking to secure new contracts will certainly be reassured to see the latest Government figures, which revealed construction output grew by 2.1 per cent between July and September this year, up from a drop of 1.9 per cent in the first quarter of 2018.[1] There are also house build quotas set by the Government that need to be met, regardless of the outcome of Brexit, which is good news for the industry in the case of a bad deal.

Furthermore, with work carried out in September amounting to almost £14m – a record high – the sector is performing well, even against a backdrop of interest rate rises and ongoing political and financial uncertainty. Contributing to a year-on-year three per cent rise in September were new private housing projects and infrastructure, although there was a decline in public sector work.[2]

No matter how many contracts you have in the pipeline, the coming year could bring plenty of challenges and depending on the outcome of Brexit, firms may need to grapple with everything from import duties and labour shortages, to diminishing consumer demand for new homes and improvement projects. But, it is clear that no matter what the outcome is, preparing your business for both a good or bad construction market after March is crucial to maintaining contracts, gaining new ones and developing your business.

Nobody knows what lies ahead, and while many have every confidence that the sector will continue to thrive, it’s only beneficial to profit from this by making sure your business is prepared to ride any storm. In order to win new contracts, and deliver existing commitments, firms must ensure they have the right equipment, including PPE, and machinery for the job. As tempting as it may be to delay major purchases, you can see a better return-on-investment if you invest now when borrowing money is ‘cheaper’ than it may be in the coming months, and the new equipment will help you to grow the business.

Clearly, this can be a real issue in construction where firms may lack the available cash for an upfront purchase. Asset or lease finance has long been a staple in the industry – but it could prove all-the-more important as we move into a more uncertain landscape. While the Bank of England recently agreed to hold interest rates at 0.75 per cent, speculation is mounting that they will increase again next year. Just as homeowners might see it an opportunity to switch to a fixed-rate mortgage deal, so too can it be a good idea to secure a finance deal with regular fixed repayments now, whilst interest rates are stable.

The size and nature of the purchase will, of course, depend on the size of the business. One of the advantages of say, lease finance or hire purchase, is that you can make use of machinery or vehicles for the duration of the project and then either keep them, or trade them in at the end of the agreement, according to your current requirements. Lease finance also has the added benefit of being tax deductible. For those looking to drive efficiencies and ensure compliance, construction software, bought via a fixed rate business loan, can give smaller firms a competitive advantage. Taking the step of investing in your business now, when others might not be can provide you the opportunity to get a step up on the competition.

It goes without saying that any investment in new machinery requires careful consideration; there is, after all, no point buying something that doesn’t make site teams’ jobs easier and/or deliver value for money. It’s also worth conducting a review of what equipment is coming towards the end of its lifespan, and assessing how much you rely on it, before making an investment. Nobody wants to deal with a machinery breakdown in the middle of a job with a tight deadline. When you have the right tools for the job, chances are you’ll be able to complete work promptly and to a higher standard – which, in turn, helps to inspire confidence in your customers and hopefully lead to more recommendations and work. 

For further information on Portman Asset Finance, visit www.portmanassetfinance.co.uk.

[1] Source: www.ons.gov.uk/businessindustryandtrade/constructionindustry/bulletins/constructionoutputingreatbritain/september2018

[2] Source: Ibid