Cash Flow Is King

Posted in The Industry on October 19, 2016

The current topsy turvy state of the economy makes forecasting our industry's future increasingly difficult.

Who would have believed that just 100 days after the vote to leave the EU, the FTSE 100 shares index would burst through the iconic 7,000 points barrier? That is a level you would associate with a booming economy not one struggling to get to grips with the implications of 'Brexit'.

The International Monetary Fund (IMF) has also gone back on the dire predictions it made about our finances and accepted that the UK will grow at around 1.8% this year putting it ahead of most other major countries.

However, this is a slightly false position as much of the growth in the value of shares can be attributed to the equally dramatic slump in the value of the pound, which has precipitated a major surge in exports of UK manufactured goods and services.

We will get a more accurate picture of where we are going over the next couple of years with the gradual unravelling of our relationship with the EU. The government is planning a Great Repeal Bill next year in order to scrap the legislation that was used to take us into the union back in 1972. Many political commentators believe this will initiate a process that could take up to eight years and involve the review of more than 40,000 separate pieces of legislation.

So, what do we do in the meantime?

Getting on with 'business as usual' is probably the best advice while also making sure the whole 'Brexit' issue does not become a huge distraction. It is tempting to delay investment decisions and recruitment plans against a backdrop of uncertainty, but that path leads to almost certain failure. Instead, we must focus on our day-to-day work and delivering the projects our clients demand.

A survey by the Building Engineering Services Association (BESA) and the Electrical Contractors' Association (ECA) showed that specialist building contractors are, in the main, confident of riding out the storm and moving on to more prosperous times. Almost half of the respondents to their poll of members said Brexit would actually have a positive impact on their company in just five years' time - just one in five (19%) said it would have a negative impact.

The very largest firms are slightly more pessimistic than small to medium sized contractors, but 42% of firms with turnovers above £20m still said Brexit would have a positive impact in five years' time.

The short-term is the period we must focus on now, though, as the rollercoaster economy could easily derail any business that takes its eye off the ball. And the key to making a success of this period of transition has to be good cash flow and sensible profit margins. These will be our 'key economic indicators'.

Security and speed of payment is the lifeblood of every SME and means companies can invest in the skills and processes they need to improve productivity and fund growth.

Demand is increasing for specialist ventilation hygiene services as part of the growing awareness of the need for more robust fire safety strategies in buildings. As a result, companies like ours must be able to fund training, recruitment and investment in specialist equipment to ensure growth does not falter and the quality of the service we provide does not fall.

That is why it is so important that we do not allow 'Brexit' to deflect us or allow it to be used as an excuse to cut prices or reduce the quality of ventilation hygiene services.

Ultimately, it will be our ability to keep up with demand and deliver quality work that will see us through the coming period of economic uncertainty.

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