Construction businesses looking ahead in 2022

With the Scottish Government announcing relaxations to COVID regulations from the 21 March 2022, there is a lot of optimism surrounding a return to ‘normal’. Construction businesses have been facing a new normal for some months and we are currently seeing an extremely busy start to 2022 for a number of our clients due to a backlog of work. With construction businesses busy meeting the additional demand due to homeowners opting to invest surplus disposable income in their properties, does busy automatically result in additional profit and positive cashflow?

Costing

With materials prices fluctuating, and lead times changing weekly, it is important that businesses keep a close eye on their project costs and can pass on any unforeseen additional costs where appropriate. Inability to do this will ultimately reflect poorly on the profitability of the project and could lead to cashflow problems. Businesses should continually review the status of ongoing projects and the level of costs incurred along with expected costs to completion versus what has been budgeted for in their original quotes. This will enable any problems to be dealt with proactively and contingency plans to be put in place.

Cashflow management

Further to the above cost management, businesses need to take control and ensure suitable levels of working capital throughout these busy periods. Effective cost management will contribute significantly to this for construction businesses along with a clear view of overheads and their absorption into project quotes. Debtor control should also be a key focus – invoicing proactively, reviewing aged debtors or potentially considering invoice financing where cashflow needs a boost.

Asset control should be another key focus for construction businesses – ensuring correct stock levels are maintained so there isn’t unnecessary cash tied up or even alternative methods such as reviewing surplus assets which could be hired on an ad-hoc basis to generate additional cashflow.

Remuneration planning & investment

Effective cost and cashflow management should lead to additional profit during these busy times for construction businesses. Where a business has surplus cash, the fast-approaching tax year end presents an opportunity for business owners to have efficient remuneration plans in place. Whether this be utilising any unused dividend allowance, private pension contributions or additional salaries and bonuses – now is the time to be considering.

Another popular option for construction business owners would be to invest additional capital into new machinery or equipment required to aid the business through these busy periods. Some new plant and machinery, including commercial vehicles, will qualify for the super-deduction rate of 130% for capital allowances which is an added incentive to reinvest additional profits.

If your business is effected by any of the above, and you would like to talk to one of our construction experts, then please email our EQ Property & Construction team at property@eqaccountants.co.uk or contact one of our offices.