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Engr. Bayo Adeola, speaks on business sustainability issue relating to consulting firm.
The immediate issues are cash flow, how much money do you have available to meeting staff salary and other consumables like rents, and other overheads. Some smaller firms who work from month to month will likely have reserves that can last for about two (2) months. What happens to them after three (3) months?
The question now is; do we spread our cash reserves by reducing salary for staff and other consumables. Do we pay some key staff and let others go? Most firms are faced with this dilemma. Cash flow is key! How much money do you have now! Some firms would have already collapsed by now because they do not have the cashflow to sustain themselves.
Which money will come in the short return, in other words, who are your clients? How much has the COVID-19 impacted them? In other words, how has their cashflow been impacted so far? If they have been seriously impacted, they will not be in a position to pay you. That means your inflow stream will be severely hampered and you might already be in a crisis. But if you are fortunate to have clients that have stronger cash flow, if they are not operating? How do they process the payment for you to get the money if everybody is on lockdown. What happens to you? Even if you want to borrow money from the bank, the whole process takes some time and the climate is not just right for it.
What do we do with our staff?
If we cannot pay them, what do we do with them? One option is to tell them to go! But these are skilled staff, and you cannot just tell them to go! Because you will not be able to replace them when you need them. So, you have to negotiate with them a reduction in salary. Will it be a temporary reduction in salary or a permanent reduction in salary? We do not know how long it will last. So we are confronted with how to manage our overheads vis-a-vis our staff.
You have a number of projects in your portfolio, how many of them will sustain post COVID-19? How many of your client will still be in a position to want to continue with those projects post COVID-19? Either because they can’t afford to? or because they don’t need them again. Because some realities have emerged and they are reassessing the whole issue. And even if they are going to make the decision, it might take them a couple of months to come to a decision whether your project is going on or not.
So, we have three dimension to deal with
- Managing cash flow,
- Managing our human resources and
- Managing our projects.
All these dimensions are bashing in on us simultaneously!
In the short to medium term, we then say what is the new normal? What will happen to the construction industry? Which projects will be on? In a country like Nigeria that is heavily dependent on the price of oil, you can see that the price of oil has crashed and the budget of the country has been severely reduced because revenue has reduced severely. So, how many of those Federal government projects will be able to go on? And therefore, your source of projects to survive, what is going to happen to them? And if you are dependent on the private sector, each sector is impacted in diverse extents. In Nigeria, the oil and gas is a huge part of the economy. Without COVID-19, the sector is suffering its own pressure. Therefore, how many of the oil and gas projects will go on? how many of the infrastructure projects will go on, how many of the private sector projects will go on? So, we are challenged by these issues of the uncertainties of the short and medium term future of the consulting engineering firms doing business in Nigeria and subsaharan Africa.
With all that the COVID-19 has impacted on our activities, working from home, not needing some production equipments as we thought we needed them, and many others might become the new normal. Which is just emerging! So, the consulting engineer needs to think what type of new projects might we need to be involved with. For instance, what happens with a train station or a bus station if we have to maintain physical distancing for the next three to four month.
We need to make the infrastructure responsive to the behaviour of the new normal that we want to encourage. Therefore, there might be new opportunities in that type of space to re-modify, re-model, re-think, re-construct a few of the existing infrastructure that we have. We need to become more creative, imaginative, and try and see where the new business opportunities are! Then we need to invest in them. It will take time, it will take energy, but what I see really is a significantly challenged cash flow, balance sheet, and sustainability to consulting firms.
The solution is to address it like FIDIC is doing and bringing the issues to the front burner and in a creative way trying to imagine the future and designing responses to them as businesses.