Insolvency in the Belgian construction industry is at a new record high. How should we tackle this?

Research by our trainee, Justine, shows that the construction and transport industries in Belgium are heading for a record number of insolvencies, in contrast to the other main industrial sectors. However, what caught our attention is that the 2019 figure is almost as high as the 2013 figure, the annus horribilus of the last financial crisis.

Number of insolvencies per industry in Belgium (Source: Belgian statistical office (Statbel))

We wondered what could be causing this. We spoke to the Belgian Construction Association (Bouwunie) who told us that many people in the construction industry “don’t have a clue about business management.” Our contact went on to mention that insolvency is often due to poor management and incorrect costing or doing no costing at all. “We see a lot of people starting out in our industry. They usually know how to get cracking with the work.” However, running a business involves more than performing the work. Understanding the financial side of the business is almost equally as important.

Business management training no longer compulsory

Until 2017 in Belgium, you needed to have a Basic Certificate in Business Management before you could start a business. However, the Flemish Government scrapped that requirement from 1 September 2018. This is a shame, in my opinion. All the more so when you discover that this requirement was not brought in such a long time ago. The government only required you to demonstrate this knowledge if you graduated after September 2000.

I graduated in September 2000, so I slipped through the net, and I was able to get started without any problems. Nevertheless, I had a traditional education, meaning that I did not study one iota of economics during my six years in higher education.

This is a little like becoming the captain of a sailing boat if you have never had sailing lessons. I didn’t even know what a balance sheet was and how exactly VAT worked. I simply spotted a niche in the local market and I was determined to set up a successful business from scratch.

I still remember how I often used to get feedback from people, such as, ‘this business is a goldmine.” Almost everyone was a fan of our hamburgers and the shop would often be packed. I worked really hard and in order to do a good job I had to take on extra staff, but there wasn’t any money left over.

I didn’t pay myself a wage during those six and a half years and for quite a while my financial situation was really chaotic.

However, several things quickly became clear to me when I started to make plans. For instance, I discovered that we were selling some things way too cheaply. I also noticed that I was spending money beyond my means. I realised that I had to take urgent action. It was remarkably close, but I managed to prevent something far worse from happening.

You may be wondering why I didn’t talk to my accountant. In reality, many accountants don’t have time for this, because they are too busy working on the books. It took me quite a while to find an accountant who was better suited to me and who could give me real advice. Your accountant shouldn’t be spending all their time on your books as most of this is automated nowadays thanks to Yuki. (A quick tip: choose a firm of accountants that uses modern software. It’ll save both you and your accountant a huge amount of time, and money too. Take a look at our integrations.)

Identify your costs

A similar example, and you often see this in the construction industry, is setting an hourly rate for services. To work out their rate, “people look at the competition” and propose the same rate, or even a slightly lower one. This may be logical from a commercial point of view, but it makes absolutely no sense financially, and can lead to dire consequences.

The best way to set your rate is to first identify your costs. Every business has different costs. For example, consider the size of your workforce, vehicle fleet, insurance, training courses, infrastructure, marketing budget, and so on. When you know these costs and you have compared them to the work that you expect to carry out, you will be able to determine your hourly rate. Only then can you think about commercial factors, such as comparing yourself to the competition.

Conclusion

Most importantly of all, you shouldn’t just rely on your gut instinct. Ask your accountant for help or use the right tools to get an understanding of your costs. Even though you no longer need to have a Business Management Certificate, take it from me, get the certificate anyway, or at least do the course. After all, running a business requires financial know-how.

As the captain of your ship, you want to fully catch the wind in your sails. 

— Thomas

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