4 Things You MUST DO to Protect Against a Profitless Boom

There’s no doubt about it, HomeBuilder has been one of the federal government’s most successful stimulus measures.

Add to this the fact that many cashed-up consumers are spending on renovations rather than things like international travel, we are seeing a boom in residential construction in Qld like we haven’t seen for decades.

Sorry folks – it’s not all good news…

Increased revenue and activity doesn’t always mean a better outcome for the bottom line – business 101 would say that if cost increases outpace the growth in revenue – not to mention the impact of supply chain delays – then you have a profit problem on your hands.

And that’s exactly the situation many builders are in right now. We are seeing real and anecdotal evidence that increases in material costs and shortage of labour are having a significant impact on profit margins, with many in the sector ringing warning bells about the prospect of a Profitless Boom.

With the extension of homebuilder announced in the 2021 budget and no immediate let-up in supply chain issues, it looks like the current state of play will be with us well into 2022.

Knock-on effect to QBCC MFR

If the perfect storm of cost and time overruns and increased demand wasn’t putting enough pressure on builders, the knock-on impact on Minimum Financial Requirements (MFR) and QBCC licensing settings could be another (surprise) kick in the guts.

In a form of license, bracket creep builders who have seen a big increase in revenue might unknowingly break through the 10% threshold on their Maximum Allowable Revenue, pushing them into a new license category and triggering an MFR Report. The MFR Report isn’t the only issue, the real challenge will be that the cost blowouts and time delays may have seen builders eat through cash and other assets, undermining their Net Tangible Assets. If that happens the QBCC can commence an action to suspend or cancel the QBCC license.

>> visit our QBCC MFR Report & Accounting page to learn more about managing your QBCC obligations. <<

And the million–dollar question: Is there anything you can do?

YES – 4 things actually:

1. Job Costing and Margin Analysis

When supply and demand are more stable you can probably get away with less visibility on margins. In the current climate, it is critical that builders are crystal clear on what their margins are in every aspect of a job – and know where they can create more buffer to protect against cost increases.

2. Be joined at the hip with your suppliers and your clients

It’s never been more important to get regular (daily!) updates from suppliers on delivery timeframes – yes there will be difficult conversations, but it’ll be better if you stay on top of delays and keep everyone in the loop.

3. Consider Cost Plus contracts

Cost Plus has fallen out of favour over the years and they won’t suit every client and every builder (particularly if the banks are involved) but the current climate has brought them back onto the table.

4. Don’t lodge your QBCC with your eyes closed

It is essential that you work with an accounting firm that specialises in QBCC and the building and construction space. We have a steady stream of builders come to us AFTER they receive a nasty surprise with the QBCC – it’s better to be on the front foot with something as critical as your builder’s license!

Don’t get caught on the wrong side of the current building boom… Get in touch with Mick and the team to put a plan in place to make sure you maximise profits and keep your QBCC licence on track.

We offer all QBCC license holders a complimentary QBCC accounting health check, to see if you’re meeting your licence obligations. So, before you lodge your financials with the QBCC, get in touch with us so we can help nip any problems in the bud.

Call our QBCC Hotline today on: 1300 233 723 or email: [email protected].

Or… visit our dedicated QBCC MFR Report & Accounting page to learn more about how to manage your QBCC license requirements.