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By Jim Heron

 
 
Wet conditions plagued much of the lower 48 states for the first half of 2019, on the heels of a wet second half of 2018. If fact, according to the National Oceanic and Atmospheric Administration’s (NOAA) records, through May 2019, the continental U.S. had the wettest 12 months in the 124 years recorded. A climate report released in July by the NOAA reported that the lower 48 states had their wettest first six months of a year since 1895, with 19 states having a top 10 wettest January–June, from Nevada to Vermont.

The weather wreaked havoc on construction projects across the U.S., causing project delays and increased costs, resulting in financial stress for many contractors, both large and small. This also stressed human resources, as many contractors have asked their field staff to work 60-plus hours per week in an attempt to complete projects this construction season. The extra work placed stress on equipment and increased the need for additional rental equipment, as work needs to get done quickly.



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Even though the weather cleared in the third quarter across many parts of the U.S., it is expected that many businesses will report declining year-end financial results. Unscientifically – through discussions with contractors, dealers and trade associations – it is estimated that more than 70% of contractors’ financial results will be negatively impacted in 2019 as a result of increased precipitation.

As a leading bank-owned construction equipment finance specialty business in North America, Wells Fargo Equipment Finance understands the pressure inclement weather puts on companies. Here are four tips to help you stay financially ready and stand a better chance of staying afloat before, during, and after weather delays.

1. Maintain a working capital line of credit
Work with your financial provider to help ensure access and availability to a line of credit that can support your working capital needs. During business downturns, easy access to capital could mean the difference between closing shop and hunkering down to weather the storm until project opportunities resurge.

2. Think short-term when financing
When considering capital expenditures, choosing the longest finance terms to acquire assets is not always the best choice. Shorter terms allow you to build equity that can be tapped in times of need. Then equipment can be refinanced later over longer terms or sold if no longer needed, without your having to worry about banknote deficiency.

3. When possible, add price exculpation clauses into contracts
Construction contracts may allow businesses to adjust pricing due to weather-related impacts to the market, such as additional working hours, overtime and equipment hours that are needed to finish projects within a construction season. The same can be said about raw material costs.

4. Contact your financial provider early and often
Always maintain an active and open dialogue with your bank. Financial providers don’t like surprises. The worst time for a bank to find out you can’t pay them is the same month you can’t pay. If the weather is impacting your business where you will break financial covenants or not be able to meet payment obligations, contact your financial provider immediately to work out a solution. Communicating shortfalls early allows you the opportunity to make payment arrangements before late fees accrue, or the situation escalates into delinquency.

Weather delays can reduce revenue streams and add costs, thereby negatively affecting cash flows and financial performance. So, even when there is plenty of work to go around, Mother Nature sometimes permits less time and resources to complete important projects. The best strategy for any business that depends on clear skies to maintain a robust bottom line to prepare before the first raindrop falls financially.



Jim Heron is national sales manager for the Construction Group within Wells Fargo Equipment Finance, with more than three decades of experience in the equipment finance and commercial banking industry. Email him at james.t.heron@wellsfargo.com. Opinions expressed in this article are general and not intended to provide specific advice or recommendations for any individual or association. Contact your banker, attorney, accountant, or tax advisor with regard to your individual situation. The author’s opinions do not necessarily reflect those of Wells Fargo Equipment Finance or any other Wells Fargo entity.
 

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