Happiness Is… Cash Flow


Stay in control to survive these difficult times

By Ron Coleman

“Experts attributed the statistics to a risky business with poor management and cash-flow monitoring.” — Journal of Commerce

The construction industry has one of the highest rates of bankruptcies and insolvencies of any industry in Canada.

Businesses go broke not because of lack of profits, but because of a lack of cash flow. Make sure you understand the difference and how it impacts you. There has been a drop in bankruptcies and bankruptcy proposals in recent months. Is there a wave coming? The total number of insolvencies in April 2020 was 43.5 per cent lower than in April 2019.

Because of COVID-19 many businesses and residences are having major cash flow problems.

Delinquency risks

Many commercial tenants are not paying full rent, paying no rent or going into debt to pay their rent. The landlords are going to attempt to make themselves whole in the coming years. They may evict tenants or put them on a payment plan for the back rent. Owners of commercial properties including shopping malls are hurting because of this. Many of their tenants are not going to survive and they are going to leave bad debts behind. The property owners have financial commitments and the incoming rents are how they meet them. As a contractor doing commercial work you are very exposed to the fact that cash is not flowing. The domino effect will flow right through to you. The industrial market is also subject to these issues, some to a lesser extent and institutional work is likely the least impacted. When you are working for owners of commercial properties visit the sites and see who the tenants are and see if the businesses are open. On a recent walk through of one of the major shopping centres here in Richmond B.C. I was shocked to see how many vacant stores there were. Look at how many of the major brands have either gone out of business or in major financial trouble. Many have restructured and are closing locations. Lowe’s/ Rona have closed 34 stores across Canada. All 67 Pier 1 stores in Canada are closing. These are just two examples of the major stores that are restructuring.

Don’t switch from commercial to residential because residential is also suffering. According to a recent CBC News report, more than 760,000 Canadian homeowners had either deferred or skipped a mortgage payment since March. That’s about $1 billion per month according to CMHC. CMHC also stated that 12.28 per cent of insured mortgages were deferred and that “there continues to be a risk that a significant increase in mortgage delinquency will be observed in the third or fourth quarter of this year as these deferral agreements come to an end.”

The financial institutions deferred (not forgave) the payments, and the interest continues to accrue. Add to this that many people are taking out new loans and you can see why, as a contractor, your residential customers may have difficulty in paying their bills. Recently the residential market in major cities such as Toronto and Vancouver has grown both in sales and in unit prices, adding more debt.

Multi-family properties also have exposure due to owners not paying their strata fees in a timely manner.

In addition, the federal government has extended deadlines for the payment of business and personal taxes and many businesses are not paying their suppliers. The debt piles up.

What to do

Determine know how much cash you need to run your business. Do a cash flow forecast  so that you know when you are likely to need additional financing. Become a “working capital” expert.

There are numerous government programs, both federal and provincial available to businesses and their employees. Also, your financial institution and the Business Development Bank of Canada (BDC) have options for you. Most recently, the EDC BCAP Guarantee is available to exporting and non-exporting business who need access to additional financing. It lets EDC share the risk with your financial institution.

  • Keep abreast of Canada Emergency Response Benefit (CERB), Canada Emergency Wage Subsidy (CEWS), income tax filing and payment deadlines and a variety of other federal initiatives.
  • Ensure that your employees are aware of the programs available to them.
  • Identify the different activities that you do and how they impact cash flow. Don’t\ spend money unless it generates immediate cash flow. Now is not the time for office renovations, new vehicles or other “luxuries.”
  • Get deposits as often as possible.
  • Take credit cards.
  • Can you increase billing frequency to your customers? Bill bi-monthly. Get deposits on change orders and bill the progress on them each month.
  • Ensure that you have a great system for monitoring your collections. Charge interest on overdue accounts. Nice guys finish last.
  • Where possible use menu pricing. It is faster and easier to do and avoids disputes that can slow down cash flow.
  • Put your prices up. You are taking greater risks and customers are less likely to switch contractors due to the risks of COVID.
  • Get better pricing from suppliers and longer credit terms. If you have surplus cash, go for early payments and bigger discounts.
  • Never give discounts to your customers. You likely haven’t built discounting into your pricing models.
  • Develop a checklist of the strategies for improving cash flow. Build this with your team as an exercise so that everyone understands the importance of cash flow.
  • When your sales slow that is a lead indicator of poor upcoming cashflow.
  • Monitor your overhead. If business slows, you must reduce overhead as soon as possible.

By staying in control and implementing sound processes you will improve your chances of surviving these difficult times. Things change on a day-by-day basis, so you really need to keep on top of your cash flow. By being proactive you will be one of the survivors.


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