Builders with multi-million-dollar projects in the pipeline are struggling with less than $100 in the bank, as supply shortages continue to stifle cash flow, industry leaders have warned.
Association of Professional Builders’ analysis
“It’s a perilous situation. More businesses fail through lack of cash flow than lack of profitability. Some builders have huge seven-figure projects lined up but less than $100 in their accounts because suppliers are insisting on payment for materials weeks in advance.”
“Jobs scheduled can’t be started due to delays in finance approval. Whereas projects already underway are experiencing delays due to material shortages,” Mr Stephens said.
“It’s tough news to break to homeowners who are desperate to move in and may wind up stuck in their rented property far longer than expected.”
It’s taking some companies to breaking point after a year of supply shortages. There is light at the end of the tunnel, but it will take time for supply chains to recover.
“The current situation isn’t sustainable. It’s double and triple work for builders having to constantly reschedule and chase up suppliers, then having to repeat the process when materials are still not available,” Mr Stephens said.
“Some supplies are starting to improve however timber shortages are getting worse due to high demand from the USA where prices skyrocketed by over 300% in a six-month period.”
Association of Professional Builders’ way forward
To help builders who are struggling with up-front costs, APB is hosting webinars on good cash flow management throughout July and August.
Mr Stephens said his top advice was to avoid business growth under current circumstances.
“Builders are under enormous mental pressure now and profit erosion is creating more stress. Don’t be afraid to cancel a building contract that you have not started. If you’re going to lose money there’s no point in executing those contracts,” Mr Stephens said.
“When interest rates do eventually rise there will be further problems, with homeowners unable to afford their mortgages, and fewer new projects to stimulate the industry. That’s when builders can take back a bit of control and ensure the contracts they sign are profitable.”