What to Watch Out For
Quite a few high-profile builders have been going into insolvency recently. Large offices and years in business used to make people feel comfortable. Now, customers are more worried than ever and voicing concerns on social media.
This Blog is to help customers identify potential issues and make them feel more confident about choosing a builder.
Before we discuss the five ways to spot builders in potential trouble in Perth, it is essential to understand that the main issue is often too much business rather than insufficient. When a builder is paying out more money for materials and labour than they are collecting, this cashflow shortfall must be financed, or things will come to a grinding halt.
The following variables also impact the speed at which revenue can be collected.
· Increasing trade rates
· Time delays
· Increasing materials
Five ways to identify potential issues are as follows
1. Delays In Payments
Yes, This is not an indicator but more of a confirmation.
Unpaid Bills: Suppliers of large ticket items, such as window companies, will stop delivering if bills are unpaid. Recently, COVID-19 supply chain issues may have made this less noticeable.
Requesting Stage Payments when the stage has not been achieved: Builders asking for unusually large upfront payments or advancing payment schedules may indicate they struggle to manage their finances.
Unusual Payment Arrangements: Any deviation from standard payment practices, such as changing when commission payments or other payments are made to third parties, can be a red flag.
2. Project Delays and Poor Management
When a builder is in financial trouble, it is often due to mismanagement. Be aware of these signs:
Frequent Project Delays: Chronic delays in completing milestones or overall project timelines indicate that the builder cannot pay for necessary materials or labour. When labour rates increase, those who can't afford the new rates will find progress slower or non-existent.
Staff Turnover: High turnover rates among crucial staff or the sudden departure of experienced personnel can signal instability and financial issues. Often, supervisors who can't make progress on-site because they can't pay the labour rates get disheartened and leave.
Quality Compromises: Cutting corners, using substandard materials, or declining quality often result from financial constraints or a turnover in construction staff.
3. Communication Breakdowns
Effective communication is vital in any construction project. Communication breakdown is a sign of underlying problems. When key construction staff leave, it places additional strain on other team members. If resources are unavailable, it results in more departures. At worst, it can create a communication vacuum where no one knows what's happening.
Unresponsiveness: Builders who suddenly become hard to reach, fail to return calls or emails, or provide vague answers to questions may be avoiding difficult conversations.
Lack of Transparency: Hesitance or refusal to share project schedules or other vital information can be a warning sign.
Evading Questions: If a builder consistently avoids discussing progress, this is a cause for concern.
4. Delays and Price Rises.
Recent changes in indemnity insurance due to many builders going bankrupt mean it is more challenging and more expensive to get indemnity insurance.
Delays in starting projects indicate that the builder can't get indemnity insurance and must finish other projects before starting a new project.
Price increases at the end of the process- Price increases can usually be predicted. When they come at the end, it is for a reason. The builder could have too many homes to start and not enough insurance.
Long pre-construction times failing to achieve admin time frames and price-rising customers indicates poor management, which will likely mean a lack of control over costs.
5. Changes in Business Operations
Subtle changes in how a builder conducts business can hint at financial instability. Pay attention to:
Downsizing: Sudden downsizing of the workforce or operations may suggest an attempt to cut costs due to financial strain. This includes not replacing key people.
Frequent Changes in Suppliers: Continuously changing suppliers or subcontractors can indicate problems maintaining consistent business relationships, often due to unpaid bills.
Asset Liquidation: Selling off equipment, property, or other assets may be a desperate attempt to raise cash.
Lawsuits: Frequent lawsuits. Lawsuits are expensive and time-consuming and detract companies from what they are good at
Conclusion
When embarking on a construction project, one of the biggest fears is that your chosen builder might go insolvent, leaving you with unfinished work and financial headaches. Recognizing the early warning signs of insolvency can save you from significant stress and potential losses.
For the information on how to get your project on track, contact us at piran@piranpropertygroup.com
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