The increased material costs, chronic labour shortages and reduced bank funding that are plaguing the construction industry aren’t news to any trade businesses. But what is widely recognised as the longest and strongest growth phase in building activity in New Zealand history is now seen by some as the most dangerous time in the construction cycle.
That’s because the rapid escalation in costs is leaving some contractors and subcontractors susceptible to financial losses if they don’t accurately factor price increases into their quotes and bidding processes. Failing to do so has reportedly already left some firms out of pocket and on the slippery slope to insolvency.
What’s more, developers’ proclivity for securing lump sum agreements in order to offload risk to the contractor can have perilous consequences if not managed properly. The time between bidding for a job and work commencing can often be months apart and even in the space of a few weeks material costs can rise significantly.
If this increase hasn’t been factored into the bid, the project can very quickly go from being profitable to unfeasible. More often than not when there are delays, it’s the subcontractors who end up wearing the cost because they don’t want to lose the work by increasing their pricing.
Some trade businesses are also taking on more work than they can handle which is leading to project delays, financial losses and reputational damage. So, while the abundance of work is a great thing for the industry, it’s brought with it a number of risks that if not managed correctly can have dire consequences.
The power of a network
Kirkham Electrics, Andrew Baker Electrical, TJ Electrical and Sharp Electrical Solutions are four trade businesses that have found a way to not only navigate these risks but thrive in the current climate. The solution: NZ Trade Group (NZTG).
All four are members of NZTG - a nationwide membership organisation with 128 trade businesses on board. They provide their members with: cloud-based quote and job management software to optimise their operations, collective buying power through its supplier network, collaborative networking to manage workloads and a host of services including business training and education.
Stuart Kirkham of Kirkham Electrics in Tauranga runs his entire business through NZTG’s software which is compatible with the Xero accounting system.
“The NZTG software has a huge effect on our operations. We use it for all our plans, quotes, bill of materials, invoicing and reporting. It ensures our outputs are efficient and accurate.
“I believe having complete and fully operational software is the basis of running an efficient and successful business today,” explains Stuart.
It’s a view echoed by Andrew Baker of Andrew Baker Electrical in Auckland: “With NZTG’s electronic plan layout service, all you do is send the plans in with a description of what you want and they will provide a comprehensive electrical layout for the job, ready for you to check and email off with the corresponding quote. It only takes me 10 minutes which gives me more time with my family.”
The benefits extend beyond administration efficiencies according to Andrew who, through his fellow NZTG members, has the ability to navigate project delays and increased volumes of work by hiring and subcontracting tradies to and from other members of the network.
“I feel the network and support of electricians that help each other is huge. Whether you need labour help or have a question, everyone is willing to help.
“We have just completed a joint venture with a fellow NZTG member on a substantial electrical and automation fit-out in four weeks. NZTG has been a huge factor in my growth over the last six years.”
That growth has seen Andrew Baker Electrical grow from what was supposed to be a hobby business to a staff of nine in the last six years and he has increased his turnover substantially in the process.
The more NZTG members you speak to the more you get a sense of the impact having a network of experienced business operators to call upon has on their bottom line.
When Terry Joines started TJ Electrical in Auckland he had limited contacts in the electrical trade and found it difficult to grow the business in the direction he wanted to.
“Because of the systems NZTG has introduced us to we have been able to grow the business from a one-man band with an apprentice to a staff of eight, and it’s not showing any sign of slowing down.
“We have also expanded to service new regions and have introduced three more vans to our fleet.
“We have increased our turnover seven times over since joining NZTG,” says Terry.
Across the country NZTG has members with similar stories. Matt McArthur from Sharp Electrical Solutions in Christchurch says the efficiencies created by NZTG’s systems and support networks has allowed his company to focus on growth, increasing efficiencies and reducing overheads.
“We started our business two years ago with two staff and now we are up to ten staff. Our turnover has tripled in the past year,” Matt explains.
With plenty of work on offer in today’s climate, he adds that NZTG provides a solid platform for business growth.
“NZTG makes you more aware of what you should be charging to run a sustainable business, saving you from spending time on unprofitable work.”
With the construction boom showing no sign of abating, Andrew Baker Electrical has this to say about NZTG:
“The support is priceless - having a network of guys that literally help build your business is awesome. It’s a no brainer. I have learnt a lot from the group and always had a laugh with everyone involved, it’s such good a group to be part of.”
Photo: Andrew Baker of Andrew Baker Electrical, with Andrewe Brown – founder and CEO of NZ Trade Group.