SANRAL has announced R40bil in road construction tenders will be issued over the next two to three years. This is great news for the construction industry that has seen a drastic decline and has been struggling lately.
It also means that the 30% set-aside for SMEs will generate R12bil in subcontracts for well positioned and structured small to medium sized construction businesses. This is great news for these businesses but will also see many of them hit some barriers.
A major hinderance for most of these SMEs is finance.
Many of them don’t have the necessary balance sheets to execute on large subcontracts which then applies pressure to the service delivery and so a negative cycle commences.
As an SME, here are 6 things you can do differently to ensure you don’t end up in this trap as a subcontractor:
- Price right – when submitting your tender or pricing to your main contractor, take the detailed approach to pricing, use real quotes and industry norms. Cost the number of people, shifts and site establishment you will need in detail and add financing costs to your price. Most SMEs underprice and then are simply “unbankable” and unable to secure finance at the appropriate time as their margins aren’t sufficient to cover overheads and loan repayments.
- Be funding ready – make sure your compliance is waxed, your management accounts should be generated monthly, your financial statements must be signed (and accurate!), ensure your tax is fully compliant, your B-BBEE certificate is valid and that your house is in order.
- Demonstrate the ability to control money and finances – most SMEs neglect the importance of this critical element. Financiers want to see that you have the necessary skills (internally or outsourced with credible service providers) that will help you control the millions of rand that will be flowing through your account, know how much is outstanding from customers and how much you owe to your suppliers and that you’re paying your taxes timeously. They also want to see that you are running your business and personal finances separately – so beware of using your bank account as your own personal money bag.
- Develop a detailed cashflow forecast – you need to know exactly how much you’re going to need in cashflow to [site] establish and execute your contract, what the specific line items are and the timing of cash inflows and outflows.
- Ensure your team is well positioned – do you have the right operational, financial and marketing team to ensure you see things through? Do they have the relevant skills, experience and network to make your business succeed? When capacitating your team, find people that will add value to your business.
- Be prepared – build trust with your advisors who can help you execute on raising finance when you’re finally awarded the work. These advisors should be able to communicate the 5 points above with confidence and have the relevant information ready, to give financiers comfort to work quickly when it’s needed. This means preparing well before the time to ensure the best results. Your advisors will need to pull their resources and relationships at the relevant financial institutions, and you are able to build rapport and trust with financiers through your advisors.
Building resilience into your business is important, not every business will be able to raise funding because the “ingredients” for bankability just aren’t there.