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Liquidity describes the degree to which an asset or security can be quickly bought or sold in the market at a price reflecting its intrinsic value. In other words, liquidity is the ease of converting an asset into cash (per Investopedia). Liquidity is important to a business, especially in a time of crisis. No one expected a pandemic like the coronavirus (COVID-19) to have such a large impact on the U.S. economy. Contractors with a financial plan to handle a crisis will fare better than those without one. What contractors have all learned from this experience is that one thing can quickly change the course of the future. 

Contractors that are highly liquid have a better chance of managing the financial constraints of this pandemic than those that are not. They will be able to turn their assets into cash faster for their true value. Low liquidity assets may be harder to sell for their true values. Most common examples of liquid assets are cash, certificate of deposits, marketable securities, short term loans, accounts receivables, bills receivables, stock, government bonds and promissory notes. Non-liquid assets include real estate, materials, equipment, collectibles and retirement accounts. 

A company's liquidity indicates its ability to pay debt obligations, or meet current liabilities, without having to raise external capital or take out loans. High liquidity means that a company can easily meet its short-term debts. Low liquidity implies the opposite. The stability and financial health, or lack thereof, of a company and its ability to pay off debt is of great importance to lenders, sureties, creditors and investors.

Companies with low liquidity face severe challenges to their future if they do not act. These contractors may not qualify for a commercial loan, bonding or other types of financing needed to continue operations. Companies with low liquidity are not able to face a problematic situation and especially not a pandemic like COVID-19. 

There are several steps that a contractor can take to ensure that they are in the position to continue operating during challenging times, and some of these practices should continue once normal operations are restored. These include:

Run “what if” scenarios and cash flow forecasts 

Run “what if” scenarios and cash flow forecasts to see which projects will have the greatest impact on working capital. Consider postponing projects that could be vulnerable to a shut down or other delays due to COVID-19. Think about the impact on the permitting process, as well as inspections, many of these are delayed by the current pandemic. Also consider if suppliers will have the building materials needed at the right time of the project’s lifecycle. Talk with clients to determine if they can pay according to the terms of the contract. Make sure that they want to proceed with the project before breaking ground. 

Project what will happen if a jobsite is shut down to protect workers

Determine the financial and legal impact of being shut down for various lengths of time. Look at the materials that are already on hand and the cost of keeping these materials in storage for an undetermined amount of time. Discuss with owners or general contractors who received payments for these items, as well as suppliers, to postpone future payments on these items until the jobs restart. 

Analyze the impact of legislation 

Analyze the impact of legislation such as the Families First Coronavirus Response Act (FFCRA H.R. 6201). Among other things, FFCRA requires that workers get 12 weeks (10 paid) for a Public Health Emergency Leave. The first two weeks are not paid. The next 10 weeks would be paid by the employer at two-thirds of the employee's "regular pay rate" based on the number of hours the employee would otherwise be working. This would apply to employees that need to be absent because either they or a family member that they must care for has COVID-19.

In addition, FFCRA also gives workers 80 Hours of Emergency Paid Sick Leave. Employers would have to provide a bank of 80 hours of paid leave to full-time employees to use as a result of absences related to COVID-19. Part-time employees would receive an amount prorated to their regular work schedule.

Although contractors will be reimbursed in the form of tax credits, consider how to pay for these benefits now. Factor in the cost of health care and other benefits that employees would still be entitled to receive.

Take advantage of federal and state programs 

Take advantage of federal and state programs to gain access to cash. Disaster Assistance Loans are available for businesses affected by COVID-19 through the Small Business Administration in certain areas. Review what is needed to qualify for such a loan. Ensure that company financial statements are up to date so the information readily available, if needed. 


Communicate with employees about what is being done and why. It is important to paint a realistic picture of the situation. Being honest is important to combat rumors and relieve some of the fear employees have about losing their jobs. Sound leadership and transparency will go a long way to keep the team loyal and engaged.

Determine if suppliers have the materials needed and for how long they will have them. Evaluate the terms of contracts and the repercussions of cancelling orders. See if payment terms can be renegotiated. Find alternative suppliers and more sources of materials.

Talk with lenders, landlords, utility companies and others about deferring payments if necessary.

Be transparent with stakeholders. Honesty will be appreciated and might help in a bind. 

Remain positive

COVID-19 will pass. The work that needed to be done beforehand will still need to be done afterwards. There will be more opportunity in the future, and everybody can learn from this pandemic. 

Keep in mind that everyone and everything is being impacted by COVID-19. This situation is not going to go away overnight nor will the economic impact. Contractors need to be prepared for the worse and take action that will provide for the best. 


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