The Global Downturn is very real and has various repercussions for different businesses and industries.  There are many things we, (in the building industry) can do to mitigate risks and capitalise on opportunities which come up during these topsy turvy times.  Please find some areas to focus on in the coming year.

Harry Pontikis – Director

Financial Services

Master Builders Association

STRATEGY:

1.             Focus on new opportunities which exist in times of uncertainty.

2.             Keep an eye out for ‘deals of the century’ – e.g. Forced property sales, deceased estates or semi completed projects in distress.

3.             Look for properties needing quick settlements – if you have your funding organised, you can negotiate harder on the price.

4.             Focus on the profitability of your business and business activities.

5.             Manage costs conservatively – even if you are busy, tighten your belt!

CUSTOMERS:

1.             Know who is a ‘preferred customer’ and why they are preferred. 

2.             Reward and recognise your current ‘preferred customers with cards, gifts or thoughtful actions.

3.             Seek to understand your ‘preferred customers’ by asking them about areas you could improve in your business.

4.             Get expert advice on attracting, caring and growing your clients.  (Master Builders Business Advice service)

5.             Ensure you and your staff are focussed on servicing your preferred clients.

FINANCE:

1.             Plan your finance & lending needs for the next 2 years with your Accountant and Lending Consultant.  I.e. if you need to borrow in the near future, have your tax returns in order and consider showing more income in your tax returns.  If you do not need to borrow, ensure your current lending structure will serve your needs for the next few years and continue to minimise your taxable income.

2.             Only deal with finance experts in YOUR industry.  Deal with Accountants who specialise in the Building Industry and with Master Builder Financial Services. www.mbav.com.au  Do not deal with home loan brokers or with the banks directly as there may only be 1 solution in the current environment.  Do not take unnecessary risks with inexperienced people or with banks – focussed on their margins.

3.             Insist on paying a Fee when asking experts to deal with your business’ finances - Applies equally to your Accountant and Lending Broker.  This ensures they focus on your needs rather than making their commissions by selling you products or asking you to change banks. 

Credit Risks:

1.             Choose your customers well. This crisis affects everyone so do some diligence on your clients before undertaking any work for them.  E.g. ask for a copy of their loan approval, ask for a copy of their Credit Report www.mycreditfile.com.au .

2.              ‘Losing’ clients who do not pay are not really clients.  Use a debt collector for well overdue clients or those who avoid you.

Cash flow:

1. Do not be used as an interest free bank by your clients.  Tighten your collection policies – reduce payment to 7 or 14 days.

http://www.abc.net.au/news/stories/2008/07/08/2297371.htm

By business editor Peter Ryan

Posted Tue Jul 8, 2008 10:23am AEST

The MBA says builders have less room to move thanks to the credit crisis.

Most residential builders are small business operators who live or die on their relationship with a bank.

Many have survived on high interest, low documentation loans, which are now at risky end of banking.

But as the credit crisis morphs into credit rationing, builders - especially small operators - are learning where they stand in a much tighter credit landscape.

Brian Welch, who heads up the Master Builders Association of Victoria, told AM that two years ago credit was freely available but now builders are being told “sorry, we can’t help you”.

He says a third of builders recently surveyed had seen their access to credit deteriorate.

“The way they would use that money would be anything from purchasing the sites which they would build on and develop [to] the cash needed for their business, whether it is for buying materials or simply wages for their employees and subcontractors,” he said.

There has been a lot of talk from some of the big banking chiefs, particularly from the Commonwealth Bank and the National Australia Bank about credit rationing. But are we already seeing that?

“We’ve been seeing credit rationing going on in the building industry for some time. Prior to the turn of the year, we were seeing builder’s credit opportunities slipping,” Mr Welch said.

Until recently, many builders dealt with mortgage brokers who carved out the best deal with banks.

But tighter lending controls have slashed broker commissions and broking houses are thin on the ground.

So, without a negotiator, often unsophisticated small businesses now deal directly with big banks.

Harry Pontikis of the broker Chocolate Money is at the forefront of the credit squeeze.

He says banks are now taking a much greater interest in the building projects they’re being asked to fund.

“This new landscape has allowed lenders and banks specifically to become very negative in everything they look at,” he said.

“Which means that usually they’re lending significantly lower amounts than they would have six months ago and charging a lot more for them, which has the net effect of causing the builders to build less, for example, townhouses or houses.”

Mr Welch says credit rationing is jeopardising construction at a time when the rental shortage is quickly becoming a crisis.

THE financial crisis triggered by the collapse in US sub-prime lending is contributing to Australia’s housing shortage, with builders claiming they are unableto obtain finance for new developments.

Master Builders Australia chief executive Wilhelm Harnisch said many builders were being turned away by lenders, which meant fewer homes were being built.

“Even some of our biggest building members, despite having been major clients of the big banks for many years, are now being told there is just not enough money to go around,” he said. “But the impact will be most pronounced for smaller operators and it means some development will not proceed or will be substantially delayed.”

Click here to read the full article

…said John Symond, Managing Director Aussie Home Loans, to The Weekend Australian. 20 September 2008.

“The major lenders still have low-doc loans in their suite of products but it’s more for window-dressing because trying to get a loan approved is now virtually impossible…Our people won’t even go there because it’s a waste of time. This is the death of the low-doc loan.”

We have received many enquiries from stressed members after reading the above article in the newspaper on the weekend. Mr Symond’s comments may be the case for many brokers and lenders, but Chocolate Money still has access to many low documentation loans due to its focus and experience within the building industry.

Therefore, I implore everyone who is unable to verify their income (or currently has a low documentation loan) to take the following steps:

1. Contact Chocolate Money to discuss your current and future financial requirements and lending structure;
2. Plan your personal, commercial and business lending needs for the next couple of years with your Chocolate Money Lending Consultant;
3. Get your financial matters up to date with your accountant;
4. Do not approach the banks directly for a loan (speak to us first); and,
5. Do not risk using an inexperienced broker.

No one knows how long the financial uncertainty will last, so do not take any chances – consult with the specialist team at Chocolate Money for lending advice.

Yours Sincerely,

Harry Pontikis

Director

Chocolate Money

1300 137 539

0411 258 058

harry@chocolatemoney.com.au

Shifting Sands - The lending environment is changing daily.  The onus on your business is to adapt pre-emptively.

The next quarter is going to set the scene for builders and developers for the next 12 to 18 months.  The secret for Builders to do well during this time of uncertainty is to see what is written on the horizon and to adapt to the new environment.

Some of the changes which are forecast are:

• Low Documentation home loans are to be endangered species
• Low documentation construction  and development finance is soon to be extinct
• Development / construction loans without presales are to vanish
• Beginning new relationships with banks, to finance projects will no longer be an option
• Will not be able to borrow without showing up to date financials
• Will not be able to borrow without showing income and ability to fund projects.
• Any previous credit blemishes will severely limit your ability to borrow - personally and as a business

Actions we recommend:

• Contact Chocolate Money to start reviewing your current and future borrowing requirements
• Begin relationship with Chocolate Money so we can introduce and manage your relationship with lenders as part of a bigger group.
• Plan your borrowing needs for the next 12 months incorporating what your tax returns need to show to allow you to apply for loans
• Need to have very clear exit strategies for projects prior to submitting applications.  E.g. presales strategy / marketing plan
• Obtain your credit report as a matter of course

Harry Pontikis
Director - Chocolate Money
harry@chocolatemoney.com.au
0411 258 058