As the initial shock of the COVID-19 pandemic settles in, contractors must adapt in order to set themselves up for success. Social distancing, stay-at-home orders and the CARES Act are now common terms throughout the construction industry.
Here are four ways CRE companies can adjust to the “new normal.”
1. Track costs and other critical information
The need to accurately track costs has always been critical for contractors. However, the COVID-19 crisis is increasing this need tenfold. The CARES Act provides businesses tax deferral and tax credit opportunities that can only be taken advantage of if the small business accurately tracks the relevant information. During this time, tracking payroll costs, required sick leave pay and payroll taxes are all crucial to ensure you receive the tax benefits created by the CARES Act.
Additionally, contractors who have applied for and received an SBA Paycheck Protection Program (PPP) loan need to begin developing and implementing a system to accurately track costs that may be used in the loan forgiveness calculation. The ability to fully capture and accurately track all your costs now could save you time and money in the future. Contractors may want to consider setting up new general ledger accounts or cost codes for deferred payroll tax liabilities and costs that may be included in the PPP loan forgiveness calculation or other benefits provided by the CARES ACT.
2. Revise project budgets and schedules
Many times, a contractor’s success is based on their ability to prepare accurate contract budgets and projections and then execute on those plans. Operating in post COVID-19 world will only make this more important. Contractors should be working now on revising project budgets and schedules.
Budget formats can vary greatly between industries and companies, but a few examples of items to include in your budget are:
- Labor hours: This can be useful in determining potential overtime needs and help scheduling for future projects. Bottom line is new cleaning, safety protocols and/or social distancing is making labor less efficient.
- Labor dollars: Make sure to include potential overtime costs and variations in payroll costs.
- Payroll burden: Consider worker compensation, payroll taxes and employee benefits in this amount.
- Materials: Does your contract account for material price escalations? Are you anticipating increase in material costs or delays in receiving the materials as a result COVID-19?
- Subcontractor costs: Review your contracts with subcontractors and compare your incurred costs to your committed costs.
In addition to monitoring contract budgets and projections, contractors must remain aware of cash flow projections and prepare budgets on General & Administrative expenses. By implementing an accurate cash flow projection, a contractor can monitor receivables and payables and potentially take advantage of vendor discounts based on faster payment terms. Comparing budgets to actual expenses on a regular basis can allow contractors to remain proactive rather than reactive to the ever-changing contracting environment.
3. Build out additional work-from-home infrastructure
With the implementation of social distancing and stay at home orders, our work environments have changed drastically. Now is a great time to assess your current IT infrastructure. Many were forced to quickly adapt to a work-from-home environment. For some, this transition was cumbersome, and many hours were lost through a lack of efficiency.
Looking ahead, contractors should consider if additional infrastructure could make working from home more efficient and secure long term. Contractors should also consider other technology tools that could be used at the job site. Would new machinery or tools help your employees to abide by social distancing and help improve lost efficiency? Can job site inspections be performed using virtual tools?
Watch our free on-demand webcast: Remote workforce tech solutions for construction and real estate companies
4. Rely on trusted business advisors
At times like these, there is an overabundance of information circling, and making heads or tails of it can be a daunting task. Now more than ever is the time to rely on your trusted business advisors.
Contractors should consider talking to their bankers to help address potential upcoming borrowing needs and to ensure that management has a good understanding of the borrowing base and financial covenant calculations.
Contact your attorneys to make sure your contract terms are set to help mitigate risks. With the implementation of the CARES Act, contractors need to be sure they are abiding by the new requirements and are protecting their employees and themselves.
Talk to your accountants to ensure you are taking advantage of the new changes; they are also well situated to help you with budgets and cash flow projections.
For more resources on how your business can navigate the COVID-19 pandemic and its impact, visit our COVID-19 resource center.