2A — December 11 - 23, 2015 — M id A tlantic
Real Estate Journal
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Mid Atlantic R eal E state J ournal Publisher ............................................................................ Linda Christman Publisher ............................................................................... Joe Christman Associate Publisher .............................................................Alissa Aronson Associate Publisher ..........................................................Barbara Holyoke Senior Editor/Graphic Artist .................................................Karen Vachon Production Assistant ....................................................................Julie King Office Manager .................................................................... Joanne Gavaza Guest Columnist ..................... ............................................Glenn Ebersole Mid Atlantic R eal E state J ournal — Published Semi-Monthly Periodicals postage paid at Rockland, Massachusetts and additional mailing offices Postmaster send address change to: Mid Atlantic Real Estate Journal, 312 Market St. Rockland, MA 02370 USPS #22-358 | Vol. 27 Issue 23 Subscription rates: $99 - one year, $148 - two years, $4 - single copy REPORT AN ERROR IMMEDIATELY MARE Journal will not be responsible for more than one incorrect insertion Toll-Free: (800) 584-1062 | MA: (781) 871-5298 | Fax: (781) 871-5299 www.marejournal.com
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Construction Industry Facing Financial Challenges Glenn Ebersole T he construction indus- try comprises many diverse groups and has undergone recovery from the economic downturn in an er- ratic manner. Some segments are doing better than others, and even among growth seg- ments, some are growing more quickly than others. The good news is that industry experts have an optimistic view of the financial picture for construc- tion in 2015. A review of construction industry employment, sta- tistics and trends show that annual construction spend- ing in the United States is approximately $943 billion. The construction industry has a significant impact on the general economy and is cur- rently showing strong signs of growth. It is important to point out that the construction industry is also vulnerable to broader economic disruptions. Three key findings of a review of the industry include: • The unemployment rate for the construction industry declined inMay 2015 to a nine- year low of 6.7 percent. • Private residential con- struction is growing, as de- mand picks up for homes and apartments. • Public construction shows more mixed results, since proj- ects like highway, street and school construction are subject to the ups and downs of fed- eral, state and local budgets. There is also optimism about the construction industry’s future growth. And that is one reason why it is important to have access to business capital as a prudent strategy, both to leverage growth opportunities now and to be well positioned for meeting challenges of the uncertainties that may appear in the future. Some of those construction industry financial challenges being faced right now include: Poor Cash Flow The challenge of getting paid on time and on getting paid within sixty (60) days remains and seems to get more difficult all the time. A very critical element to maintain a positive cash flow for the con- struction business is related to submitting applications for payment for draws and having
J.D. Parker Manhattan
Brian Hosey New Jersey (201) 582-1000 Bryn Merrey Washington, D.C. (202) 536-3700
(212) 430-5100 Brenton Baskin Philadelphia (215) 531-7000
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a clear understanding of how each particular client pays. A missed draw or poor paying clients has caused and contin- ues to cause many problems in the construction industry. It is important to be proactive and stay on top of your cash flow and draw dates. Poor Planning Planning of manpower is a real challenge. A strategic un- derstanding of manpower and cash issues will significantly increase the probability of success and diminish the prob- ability of failure of any project. Overestimating capabilities or underestimating cash flow can be disastrous. Always know and ensure that the company’s capabilities and capacity meet and exceed the overall needs of the company and each specific construction project. And also be sure to know and ensure that the company’s financial resources are in hand and/or available to match the capa- bilities and capacity of the firm and each individual construc- tion project. Little or No Flexibility Being flexible provides stra- tegic advantages and flex- ibility can be gained by con- tinually reviewing the plan versus reality. Success comes when there is a willingness to make changes when it is obvi- ous that the plan is failing. Engaging a mindset of “we’ve always done it this way” or “this is the plan and we must stick to it” has caused many companies to continue down a road to failure. Being flexible and having a willingness to change the plan and learn will lead to success. Wise people have proclaimed that if you haven’t failed, you have not done much. And those wise people also know that we can learn from failures and can incorporate that knowledge into the next plan for new successes. Poorly Planned or Mismanaged Growth
A lack of good strategic thinking and planning has and will cause failures. On the other hand, clearly under- standing the capabilities of the company and setting strategic objectives that are realistic will allow the company to advance and achieve sustain- able growth in the future. Developing a good strategic plan with a vision, mission, strategic objectives and an ac- tion plan to implement it will provide an important guide or map for growth and help avert mismanaged growth. Poor Capitalization Operating money is always a critical element to achieve success. Do not under estimate the capital needed to pursue the most profitable projects and have the cash neces- sary to fund those projects until draws can be obtained. Many bad decisions are made while companies are in panic mode due to their cash be- ing unavailable. A business financial services professional can be uniquely positioned to help construction companies gain that access to business capital. The funds secured can be used for virtually any construction business need, including: purchasing new or used construction equipment and materials; expanding or upgrading company facilities; hiring new employees and pro- viding training and education; overcoming unanticipated business expense and manag- ing cash flow A quote from Dr. Martin Luther King, Jr. provides an insightful message about facing challenges. “Our very survival depends on our abil- ity to stay awake, to adjust to new ideas, to remain vigilant and to face the challenge of change….” Glenn Ebersole is strate- gic vice president business development/marketing for Hollenbach Construction, Inc. in Boyertown, PA. n
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