Q&A: How we help construction business owners with specific needs

Recognising this, we’ve developed a sector-focused approach to supporting construction businesses and meeting your unique industry needs through the development of tailored financing mechanisms.

Financial considerations when scaling

What mistakes should business owners avoid when delivering on construction projects?

The key to a successful business is its ability to scale. You can only scale if you have a solid foundation in place for every aspect of the business, from delivering the best product to having the correct systems in place to help you to receive income from customers and pay suppliers.

Without the appropriate systems in place, you could run out of cash during a project and have to halt progress.

It’s important that both back- and-front office grow together, because to be sustainable you need to ensure that the entire company is scaled to deliver on your new order book.

When working across multiple projects, ensure that each is ring-fenced and self-sustaining, and that there is no cross-funding as this can have a negative impact on your business.

Cross-funding creates challenges because you may not be able to account for where your funding is going; it can also impact on cash flow and result in further challenges leading to project delays. 

Buying versus leasing construction assets

What should business owners consider when purchasing or leasing construction assets?

Before purchasing or leasing an asset, first understand the requirements of your specific project contract and know what the vehicle or equipment will be needed for.

Think about the hours you’ll be working and the types of units that are required. Also consider the warranty, service intervals and whether the asset is fit for purpose.

If you prefer to lease, it’s important to understand the terms of the lease. Evaluate the clauses within the lease, whether there are hour restrictions, and what excess hours you may be billed for.

When purchasing a piece of equipment outright, understand the terms of the financing, as well as the interest rate.

Consider your current cash flow, and whether the instalment is affordable, or will it place undue pressure on the business.

Gearing for growth

How can we help you to scale your construction business?

As your business grows, you will probably need to replace assets that are either no longer fit for purpose or require ongoing maintenance.

Consider what the cost of maintaining your current asset is and whether it’s exceeding your instalments.  

The point at which a piece of equipment costs more to maintain and service, than the cost of your instalment is likely to be the critical point at which you should consider replacing it.

The best approach when gearing up for asset replacement is to:

• Take stock of your current assets
• Understand how many hours they are operational per day
• Look at the servicing and maintenance costs
• Make a shortlist of assets that need replacement
• Ensure to get quotes and to shop around

We can assist with an analysis of your assets, cash flow and financial position. We can also assist with the restructure of your finances to ensure you can afford your new assets.

Insurance cover

What risks are unique to the construction sector?

Every construction project comes with its own unique challenges and risks, and cover may be required for contractual, financial, employee or asset risks.

Without the right planning in place, these risks could have a serious impact on costs, schedules, and your ability to deliver on a specific project.

Some of the risks you may face could include:

• Contractor or developer negligence
• Damage to plant or installations
• Injury or death of workers.

The most common insurance on construction sites remains the ‘contractors all risk insurance’, which provides cover for materials and equipment on site.

Extensions to this policy may be added to cover hired plant, as well as material supplied by the principal or owner of the site, and can also cover sub-contractors.

It's important to note that an all risk policy does not cover losses arising from professional negligence or defective workmanship.

Policies covering these specific risks would have to be obtained separately and supplied to the developer.

You should cover this by ensuring that a professional/defective workmanship policy is in place to protect against losses, negligence or shoddy workmanship.

If you are responsible, the ‘contract works insurer’ will take recourse against the professional indemnity/defective workmanship insurer for reimbursement of costs. 

When it comes to the possibility of contractor or developer’s negligence resulting in damage to plant, installations and possible injury or death of workers, you need contractor’s liability, plant all risks, tool of trade, general liability and personal accident insurances to address the different types of losses.