Many construction companies suffer from what I call the
arrogance of profitability. When times are good, the company
owner buys new tools and trucks, and the latest in
office equipment, and may also invest in speculative projects.
When the economy slows down, however, these
companies are left with no resources. Many have no
choice but to declare bankruptcy.
Wiser builders are more conservative, maintaining liquid
cash reserves equal to six months of overhead expenses.
They continually monitor their finances to protect their
company, their family, and their employees.
The difference between builders who survive a downturn
and those who don't lies partly in the way each uses
the two main types of financial