What can senior finance leaders do to manage these headwinds?  The construction industry is still considered an essential business in most states and construction companies need A|E firms to continue with their services to stay on schedule many times, so there shouldn’t be any problems, right?  Probably not, especially here in the Hampton Roads, Virginia area.  The A|E|C community depends on the government — federal, state, and local — as a client.  While construction companies can still work, the City of Virginia Beach is examining what construction projects it can delay, so at some point, the delays are going to filter down to the A|E community.  This is similar to what occurred in the 2008 recession.  It really did not hit the A|E community hard until 2010.  The government’s response to the crisis with an economic stimulus package has been much quicker this time, however.

Three suggestions that may help your company:

1.      Conduct scenario planning and stress tests.  If you’re going to have to close down for 3 months, what is that going to look like cash-wise?  If 40% of your work is municipal, and the municipalities cut 40% of their next fiscal year’s projects, how are you going to replace that revenue?  Start conducting what-ifs and solutions to replace the revenue.  Maybe looking at more commercial projects may be a short-term solution.  Not hiring and trying to ride it out with the present staff in order to NOT have to let people go might be another.  In the 2008 recession, firms suddenly wanted to get on the government bandwagon because the commercial market had dried up, but most decided too late. It takes time to establish a new client, project type, or change your business model.  Diversity is good in any economy.

2.     Focus on key customers.  Understand your contracts and the commitments you have made.  If you are in the design|build arena, you know construction is driven by schedules.  Understand how having a quarter of your staff out for COVID-19 related absences — sick, childcare — may affect your ability to meet milestones, and work to minimize those delays.  Contact your clients, officially in some instances, that you may have a delay that will affect schedules. 

3.     Get a jump on cash flow.  Recalculate 1. how much cash you need to keep your business afloat. Here are a few ideas to consider:

·        Line of Credit. Lots of firms are going to be looking to max-out their lines of credit.  Contact your banker and discuss this to ensure lines of credit remain available.  Be prepared to handle the fact that if your line of credit is not now personally guaranteed and if you ask for a larger amount, the bank may look for a personal guarantee from the owners, at least temporarily.

·        Factoring Companies. Look for alternative sources of cash.  There are factoring companies for your accounts receivable, but you need to get in touch with them now.  Your bank loan officer is a good source for a lead on a company.

·        Owners personal cash reserves. Owners need to reexamine their own personal cash reserves, too, and assess the liquidity of any assets they may need to count on for cash.

·        Stay on top of Accounts Receivable.  Do not let this slide.

Read the entire article by downloading the attached file.  Share your comments below on what your firm is doing to manage the financial risks during the COVID19 pandemic.

Special thanks to Deborah Gill, CPA, FSDA from SDA Hampton Roads Chapter for sharing this article.