News & Views

Cashflow – Essential for the ‘New Normal’

As the whole of UK plc comes to terms with the so called ‘new normal’, by and large the Federation of Piling Specialists (FPS) welcomes the government’s initiatives that are designed to help the construction sector through these difficult times.

Specifically, this assistance includes a Coronavirus Job Retention Scheme, the ability to defer VAT and Income Tax payments, a Coronavirus Business Interruption Loan Scheme, which offers loans of up to £5 million for SMEs through the British Business Bank and a new lending facility from the Bank of England to help support liquidity among larger firms – to help them bridge coronavirus disruption to their cash flows through loans.

Of course, as welcome as these schemes are, helping to take pressure off the supply chain, there has always been a cash-flow issue within the construction sector necessitating their existence. Pete only pays Sarah when Pete gets paid, and therefore Sarah only pays John when Sarah gets paid, and so on down the supply chain. With the root cause obviously starting at the top it is hoped these schemes will not only help during these difficult times, but also start the wider debate about the need to get cash flowing throughout the entire sector. Each link in the chain is vital to the sector’s success overall, and a break at any point will put a tremendous strain on continuation and growth when we do emerge from the present Coronavirus crisis, potentially delaying cancelling many projects, small and large.

As is always the case, the SME part of the construction sector is what suffers most from any delay in cashflow, yet it is often the smaller specialist contractor elements of the industry, such as piling and ground improvement, which are essential to facilitate the biggest of projects. One would argue that the further from the source a sector is on the supply chain the greater the need for cash to flow. Obviously, no single part of the construction sector is any more important than another, but conversely that also means every sector holds equal importance and has an entitlement to get paid in a reasonable timescale for the work it has completed. Everyone expects our salaries to be paid regularly and on time, so why should that be any different for a business, which after all has to pay salaries regularly and on time? The consequences of poor cashflow in a business are no different from those in your personal life they just result in many more people suffering the effects.

It should also be remembered that good cashflow allows many benefits to flow back in the opposite direction. Safety improvements, training, innovation, apprenticeships and improving standards to name but a few are all made possible through good cashflow where monies are not diverted to service a debt and ultimate make for a better project. Projects such as the FPS’s current initiatives in Harm Reduction (Exclusion Zones, Minimising Manual Handling & Reinforcement), Occupational Health (Research into Fatigue), Learning & Development, Commercial Good Practice and Technical Standards are enabled by members being able to resource the work on them, if the cashflow situation improves then outcomes are reached sooner and new initiatives started. In fact, many other sectors have benefited from disruption, Apple with music, Amazon with retail, Airbnb with accommodation; maybe the current situation presents a great opportunity for us all in the longer term?

When we do emerge from this present challenge, much time will be devoted to introspection of our industry and how we can build in the resilience to ride storms such as Coronavirus in the future. Much was learnt from the financial crisis of 2008, and I know many businesses are now in better shape for it, but now perhaps it is time we consider how we can make the entire construction sector more resilient, and restructuring cashflow has to top that list.

The FPS is not seeking to blame anyone for looking to their own bank balance before considering that of their supply chain – survival is often instinctive – but there must be moves to get cash flowing from the top or there is a risk of killing off the supply chain and that will ultimately become a self-fulfilling prophecy for the entire sector. The construction sector is currently being presented with the opportunity to be better prepared for any future challenges as one thing is certain – these challenges will continue.