Best way to protect your business using insurance with revenue protection
Periods of financial, operational, and natural crises are often characterized by high unemployment rates, reduced consumer spending, slow industrial production rates, and a noticeable slope in real income. Different kinds of crises are not mutually exclusive as one sets off a chain of reactions that inevitably lead to another.
Since the beginning of the pandemic crisis, the construction industry has faced many operational and financial challenges, from the challenge of staying protected as an essential worker during the pandemic to facing the eventual disorder in supply chains. Due to governmental social-distancing prerequisites, fewer workers are allowed on site and operations are slower. This reduced productivity and created extra cost.
You will agree that the current worldwide crisis calls for vigilance on the part of contractors. It will become expedient to guard one’s sources of revenue for as long as the pandemic lasts. Below are ways to ensure construction revenue protection during crises.
Ensure That You Can File a Mechanics Lien If Necessary
Depending on the state you’re working in, there are explicit processes that you must follow to defend your right to receive payment for jobs done. It is highly advisable that you file a preliminary notice that informs the paying party that you have begun working on their project on the first day of a new project.
The preliminary notice is not the lien itself; instead, it informs the paying party of the job you are about to carry out and their commitment to pay you after your service. A preliminary notice protects the contractor’s right or subcontractor to file mechanics liens if the situation calls for it.
You can also file a notice of intent to lien. This notice is usually filed after the development of payment issues. It informs the paying party of your intent to pursue a lien due to the event of nonpayment. The advance notification discourages your clients from continuing late payments and also serves as proof of your professionalism.
Since the onset of COVID-19, it is expected to have more than the occasional client default on payments. This is why it is essential to make use of tools that allow for a certain payment.
Ensure Your Business Against Loss and Interruption
It is wise to anticipate the occurrence of loss in business. Loss of revenue can happen as a result of the unavailability of materials, natural disasters, and unreliable workforce, or the cancellation of projects. One way of protecting your construction business from the debilitating effects of lost revenue is by making provisions for compensatory insurance.
Business interruption insurance is a contract of insurance that ensures the insured party is compensated for any revenue loss due to the direct, physical, or indirect influence of a natural disaster. This insurance isn’t an independent policy but comes as an add-on coverage in commercial property policies.
For this reason, the coverage is limited to occurrences outlined in the primary property insurance. If the primary insurance doesn’t cover the fire, the contractor will not be compensated for any business interruptions caused by a fire. The business interruption insurance insures against lost revenue, cost of relocation, taxes, and even employee wages. With adequate insurance, any financial losses you incur will be covered until the business can be restored.
Examine the State of Your Finances and Explore Available Options
As a contractor, you cannot know how much work to put into protecting revenue if the state of your finances remains a puzzle to you. Some of the things to look out for are how much capital you have available for new construction projects and what other finance sources you can turn to if your reserves fail.
Make provisions for emergencies like a hitch in your supply chains and explore alternative financing sources to cover any unexpected costs. The
U.S. Small Business Association (SBA) makes financial resources available to small contractors for loans. Other financial aid sources are private lenders, bank loans, and stimulus programs run by the government.
It would be wise to hold off on any procurements that are not absolute necessities until there is a significant boost in the economy. Cash reserves will help cover any additional costs occasioned by social-distancing measures and hike the available materials’ cost.
Minimize the Amount of Construction Materials That Go to Waste
Waste is a characteristic feature of construction project sites. A lot of the construction waste that contractors end up having to dispose of could have helped increase their profit margins and save costs.
Minimize waste through storage. Instead of disposing of material leftover from construction sites like wood, soil, concrete, and steel rods, you can store them for use on another project. You can use them for repairs and other patch-ups. Another option is to have an arrangement with your suppliers where they repurchase any unused or leftover materials from a construction project.
Construction materials should be ordered for a project-based only on what would be sufficient to get the job done. In situations where the materials are obtained before designs are completed, the designs should be made to enhance the use of procured materials.
Explore Opportunities to Increase Your Profit Margin While Cutting Cost
One crucial part of business success is improving your profit margin. To protect your revenue, detect and channel resources toward profitable areas of construction. It is essential to preserve reliable resources while seeking out new opportunities. Being innovative demands that a contractor specializes in or focus on construction areas that are more profitable during the pandemic.
For instance, it is common knowledge that the lockdowns and transition to remote work have made individuals spend more time in their various homes. They are more aware now of repairs and adjustments to be made in their homes. Since people are in their homes more often than before and are making constant use of their living area, you can focus more on the building, repairing, or remodeling residential buildings.
To keep a relatively steady inflow of cash, you can consider leasing out equipment to other contractors or firms. Cut costs temporarily on social activity and transportation. There is a reason technology is available for remote meetings and surveillance; use the available means to your advantage and cut costs on utility bills.
Many owners will attempt to take financial advantage of their contractors by pursuing claims to warrant not paying. It’s expected that liens would have to be filed more often than usual to force payment since they inhibit the property owner from profiting off it until you are paid.
These are some negative influences of the economic crisis on owner-contractor relationships. The previously discussed methods will help to mitigate any fall in profit margins throughout this period.