3 Moves Every SME Construction Business Should Make If They’re Struggling With Increased Materials Prices
Nearly every conversation we have recently had with our construction clients seems to start with one of 2 topics: i) rising material prices or ii) labour shortages.
In this article we’re going to provide a summary of key materials which have been affected by the shortages, a summary of significant price increases, and our thoughts on sensible steps SME business owners can take to help survive and thrive in the current environment.
Materials affected by the shortage
Electrical Components
Electrical components remain a hot topic and the impacts of rising prices in this area are being felt across a variety of sectors. Most reports suggest shortages are expected to remain for the duration of 2021.
Timber
Shortages started at the beginning of the pandemic and with supply constraints globally – imports will be restricted compared to “normal” levels for the foreseeable future. Forward purchases are at a high so any new supplies coming into the UK have limited availability for additional purchasers.
MDF, veneers and solid wood have been reported as particularly affected.
Cement
Bagged cement supplies have been constrained for some time although a number of reports seem to suggest that there will be more availability in a “few months”.
Steel
Reduced steel production going back to the start of 2020 is still creating shortages. It’s been reported that British Steel has even stopped taking orders on some of their structural products due to “extreme demand”.
Concrete
Lead times for concrete are around 3 months currently as opposed to one.
Paint
Imports of paint supplies are restricted largely due to shortages and the associated cost of shipping containers.
Insulation Materials
In particular, PIR insulation and wool fibre insulation are facing shortages.
Plaster & Plasterboard
Supplies are however improving compared to earlier in the year.
Other areas where scarcity has been reported (and therefore there are prices rises):
- Screws
- PE and PP plastics
- Plumbing supplies
Significant price increases of note
Paint – According to the Construction Products Association – prices are up nearly a third.
Steel – according to the BEIS, fabricated steel prices were 17.6% higher year on year (based on March 2021 vs March 2020).
Timber – According to the Construction Products Association, costs have gone up 80% over the last six months.
Cement – 30% higher according to reports by the Telegraph.
Sensible steps & tips for SME construction business owners
i) Be careful when providing quotes
It’s more important than ever to fully consider costs when providing quotes for new work. Consider line by line the resources required and what future price/shortage impacts there might be.
This will ensure you have a clearer view of potential risks moving ahead and assist you with discussions/negotiations with customers moving forward.
Xero projects can be a useful tool to help you manage this process.
ii) Forecast
Producing a forecast for the next 12 months profit and loss and cash position can help you get a view around how continued price changes might impact your bottom line. Running different scenarios across potential price rise changes will make you better prepared when and if it actually happens.
iii) Consider cash when forward buying supplies
Cash flow considerations are especially important when considering forward purchasing/bulk buying supplies. That is, to ensure that this can be done in a way such that future commitments can also be met.
For all your construction accounting and finance needs please contact North Hill Chartered Accountants and Business Advisors at help@northhillfinance.com or call 033 3303 0988.