What are the vital signs you’re watching to monitor the health of your business? Sales leads and orders? Retail traffic and inventory turnover? Margins, overhead and cash flow…? In a tough economy, you have to watch the critical drivers in your business constantly to keep your business strong and healthy.
But 35 years in business management and banking have taught me that it’s just as important to focus on somebody else’s business occasionally – on the financial health of your partners.
How healthy are your construction partners?During an economic downturn, this question is absolutely vital for anyone who is considering the choice of a contractor. Once the work begins, you need to be sure that your contractor is making day-to-day decisions based completely on your interests and the needs of your project.
Companies in financial distress are often unable to operate as they normally do. Despite the best intentions of managers on the jobsite, intense financial pressure can cause real problems. Because of a cash flow squeeze, for example, payments to subcontractors may slow down – and nothing drains a subcontractor’s enthusiasm for a project faster than a slowdown in payments. Delays and quality problems inevitably come next.
Or worse, payments may stop completely. This can result in liens placed by suppliers, subcontractors or others. If the contractor shuts down, warranty coverage will almost certainly end as well.
Make sure you’re working with partners you can rely on.Step 1. Study the Financial Statements Under a Microscope – Before you select a contractor for your next project, ask for financial statements that are detailed and current. You’ve probably done this before, but in this economy you should look even more closely. Get expert help, if necessary, with a call to your banker or accountant.
Step 2. Search for More Indicators of Financial Strength – You’re looking for the kind of financial strength that has made Heath so successful and reliable – a strong cash position and a rock solid balance sheet without debt. That strength has earned Heath a multi-million dollar line of credit, which has enabled the company to respond quickly to market opportunities, support a staff of exceptionally talented construction professionals, and build strong loyalty among subcontractors and customers.
Be sure to look beyond the financial statements. Ask about the company’s relationship with its bank, for example, and its access to substantial credit to support cash flow.
Step 3. Consider the Management Behind the Financials – Once again, I’ll use Heath as a vivid example. Heath’s credit line is only part of the story – the top line. Look more closely, and you will find a management style that is exceptionally strong for any kind of company, not just a construction company.
Heath, like other financially strong companies, is ready for virtually anything. With far-sighted management, realistic market assessments, strong financial planning and robust financial health, Heath gives its customers plenty of assurance that every job will be managed and completed at their usual level of superb quality.
Questions?I’m glad to have had this opportunity to share my views with you on the importance of strong management in a construction company. Representing Home State Bank (Heath’s bank), I’m also glad to express our confidence in Heath’s leadership team and the future of the company. Please feel free to contact me with any questions you may have.
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Steve Fobes
Senior Vice President
Home State Bank
970-203-6100 |
