Saving for a rainy day

Richard advises businesses, particularly smaller contractors, to build up a ‘rainy day’ fund. If possible, he writes, create cash reserves while you have the chance, so that to some extent you can weather the inevitable downturn.

I’M writing this in July and only a few weeks ago we held our first online manufacturers’ committee meeting. And though I say so myself, it was hugely successful and underpins one of the positives we will take away from this period ie the benefits of virtual meetings.

More than 40 people attended including managing directors and some senior directors of members’ businesses. Many tuned in to hear a presentation from Rebecca Larkin (senior economist at the CPA) in relation to the economic outlook.

Such was its popularity that we’ve booked Professor Noble Francis, economics director of the CPA, for our online AGM in August so our wider membership can benefit from their reviews and forecasts.

CFA members can access all of the CPA economic information in the members’ area of the website, but to summarise some of the main points made by Rebecca: CPA is currently predicting a ‘V’ or tick-shaped recession, with (a slow) recovery from June.

Some have suggested a ‘W’ shape and this would almost certainly apply should we have a significant return of the pandemic. But the climb back is likely to take us well into 2021 and indeed before we see anything like previous levels, we’re talking 2022.

Construction jobs to the tune of 680,000 across 154,000 firms were furloughed and 801,000 construction claims were made to the Self-Employed Income Support Scheme.

Some of government’s responses, such as furlough, have been universally well received and job savers, although others such as the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loans haven’t been so popular.

They’ve been more applicable to larger companies than many CFA, SME contractor members. ONS figures suggest 74% of construction companies believe they have less than six months of cash reserves and the already steady trickle of redundancies from those companies is an indicator of that.

I don’t want to be a harbinger of doom, but the facts that in July government announced it was doubling the number of employees at job centres (surely some irony there) and that the chancellor, Rishi Sunak, announced investment from government in the Construction Talent Retention Scheme (CTRS), must have some relevance.

On the bright side for a moment (and again remembering I’m in July), I’m increasingly hearing of CFA members with healthy short-term order books. Plus, on 6 July the Purchasing Managers’ Index (PMI) declared for the first time in three months that they were measuring growth.

But it’s really varied, sector-related, and also geographical. Scotland is of course still a good step behind in its programme for returning to work. My concern though, is that there may be a flurry of activity based on previously halted projects.

At potentially the same time that this starts to die away, in October there’ll be a post-furlough impact on the wider economy, as businesses are no longer able to claim support from government.

Rishi Sunak seems to agree as he’s also announced furlough bonuses for those companies that keep previously furloughed workers employed from November through to January.

The long-term impacts and legacy of coronavirus in terms of productivity are yet to be fully understood. I guess to some extent that depends on whether, or how long, we’re still actually battling the virus or when we have a vaccine.

We’re unsure of the pipeline of work or of long-term spending patterns. We’re also yet to see the attitude to risk of small and large-scale investors, whether they’re investment banks or local businesses, such as pubs, restaurants, hotels, sport facilities and offices.

I do genuinely see opportunity and for those in commercial flooring. I think some public sector work such as schools and NHS, will be accessible for the foreseeable future. New businesses will evolve, including a flourishing distribution sector.

The domestic flooring market seems to be buoyant, based on private individuals spending on projects at home, and keeping themselves busy, instead of moving. However, given the level of uncertainty and the many unknowns, my suggestion would be for businesses to build up a ‘rainy day’ fund - particularly smaller contractors.

If at all possible, create some cash reserves while you have the chance, so to some extent you can weather the inevitable downturn.

‘Cash is king’ has never been more applicable than for the remainder of 2020. My advice is don’t over-trade, watch who you work for (use the free CFA credit checking facility) and keep a little cash in the bank.
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