Construction Company Should Do to Recession-Proof Business
With a 50% chance of a looming recession in the United States, construction companies must bolster their business to keep their workers leaving their jobs and keep themselves afloat during these uncertain times. During the Great Recession from 2007-2013, the construction industry saw a loss of over 2.3 million jobs as a result of layoffs, retirement, and employees leaving private sector jobs for more secure alternatives in the federal government.
Although the upcoming potential recession is not expected to hit the private sector quite as hard, the construction industry is on high alert as they've already been fighting through inflation, skilled labor shortage last recession, shortages, and supply chain issues.
Many construction business owners wonder how they can recession-proof their business to prevent complications if a recession should hit. If we're fortunate enough to avoid one, they will still have built a more resilient business and construction company that will have more workers to withstand future economic downturn and hardships.
Here's how you can avoid a catastrophe and keep your business running smoothly regardless of the economy's turn in the coming months.
Keep Cash On Hand
When times get tough, having some cash on hand to support yourself is always in your business forward best interest. This is particularly helpful for times when work is scarce, and you need sufficient funds to keep up with all of your overhead and operating costs, no matter how slow business might be. This is a great way to recession-proof your construction business; it's also good practice even during a thriving economy.
Don't Rely on Your Backlogs
In the previous recession, construction companies watched their backlogs dwindle as their projects were cancelled or placed on hold due to a lack of financing. Begin making a plan now for how you'll keep business rolling in, even when times get tough. You might want to consider niching down. You can also broaden your horizons by making your services more appealing; in turn, this offers more to your clients.
Retain Skilled Workers
One of the construction industry's most acute problems is a shortage of skilled workers. During the previous recession, the construction industry lost the experience and expertise of veteran employees and has struggled to build its talent pool back up again. To recession-proof your construction business, you'll need a team of skilled, capable, and resilient workers to go along for the ride. It's in your best interest to do what it takes to hire people and to retain them, whether that means offering higher wages or more incentives. To ensure your best workers will stick around, you can keep them busy with plenty of work.
Understand Your Costs
Money doesn't stretch as far as it used to. Between the recession hits, the rising cost of materials subsidized construction projects, tighter time constraints, more complex projects, and increased labor costs for general contractors, margins are thinner than ever associated with general contractors. As a business owner, it's critical that you thoroughly understand your costs so you can offer clients better estimates and increase your profit margins.
Lean On Your Strengths
Competition is high right now, and you need to have what it takes to stand out from your competitors. Do you have expertise in a particular niche? Do you offer higher-quality work? Are you dedicated to delivering projects on time? Whatever sets you apart, be sure to leverage your strengths to win over more clients in tough times. If your leads and projects begin to dwindle, you'll want to lean on those advantages to keep your business thriving during difficult and uncertain times.
Trim the Fat
Dig into your current operations and ask some tough questions. Are you taking on too many projects? Are you allowing equipment to sit idle for extended periods? Are some of your employees slacking? Are you spending your money strategically? Now is the time to trim the fat and streamline your spending to make your business lean and resilient should a recession hit. If your business is already struggling, any issues you already have to deal with will be magnified during a recession. Work things out now and begin to optimize your cash flow, increase your productivity, and improve how your business functions to make sure it is in tip-top shape to weather the storm.
Invest in Marketing
For some construction businesses, the marketing budget is the first thing to be cut when tough times roll around. Although it may seem like a luxury expense, the truth is that spending money and continuing to invest in marketing will keep your business in front of potential customers. This will keep the work rolling and cash coming in to help you stay afloat in troubled times.
Be Innovative
The more visible your business is, the more potential customers will believe that the economy and you are stable. Advertising is often more affordable during economic downturns, so now is the time to take advantage of technology and innovation to get your business in front of an audience. Focus on effective, efficient advertising strategies to recession-proof your business and keep the work coming in regardless of the economy.
Nurture Your Relationships
When times are tough, you must rely on your connections to keep customers coming through the door. Now is the time to optimize your customer service, build rapport, and nurture relationships with current contacts. A robust relationship with your top partners and clients will help your business withstand a recession.
Construction Industry
The construction industry encompasses the planning, development, and execution of buildings, infrastructure, and other physical structures. It involves a diverse range of professionals, including architects, engineers, contractors, and laborers. From residential homes to massive commercial developments, this sector plays a crucial role in shaping societies and economies worldwide. Advancements in technology, sustainable practices, and innovative materials continually influence the industry, enhancing efficiency and environmental impact. However, challenges like regulatory hurdles, fluctuating material costs, and skilled labor shortages persist. The construction sector remains pivotal, constantly evolving to meet modern demands while balancing traditional craftsmanship with cutting-edge techniques.
Do a Stress Test
Do you know how vulnerable your company is? Understanding your vulnerability is crucial for long-term success, not just when a looming recession is overhead. To test it out and see how your business fares, follow these steps:
Assess how much cash you use
Estimate how much cash you will need for the next 6-12 months
Calculate how long it will take you to earn more cash
Use your cash flow reports to make accurate projections
Times of uncertainty in economic activity can be stressful for business owners. Planning ahead will help set you up for success, recession-proof your business, and keep the cash flowing even during economic downturns.
Embracing Technological Advancements
Technological Innovation: Leveraging technological advancements can help construction companies market their services, streamline operations, and enhance customer engagement. Digital marketing tools, project management software, and advanced construction techniques can boost efficiency and set businesses apart.
Adopting Sustainable Practices: The growing demand for environmentally sustainable practices provides an opportunity for many construction firms and companies to embrace eco-friendly solutions for public buildings, infrastructure investment and healthcare facilities. Not only does this cater to the shifting market demands but it also aids construction firms in cost reduction and enhances brand reputation.
Prioritizing Risk Management
Proactive Risk Mitigation: Identifying potential risks and developing proactive strategies to mitigate them is crucial to make better business decisions. Whether it's financial risks, market risks, or regulatory changes, having a risk management plan in place strengthens a company's ability to withstand unforeseen challenges.
Establishing Emergency Funds: Creating contingency funds beyond regular cash reserves can act as a cushion during tough times. This financial buffer helps to navigate unforeseen crises or disruptions in public affairs or the housing market.
Strengthening Industry Relationships
Collaboration and Networking: Building strong partnerships and alliances within the construction industry creates a support system for contractors. Collaborating with other contractors, suppliers, contractors, subcontractors, other contractors, and other construction firms can provide contractors and construction others with additional resources, expertise, and market insights.
Community Engagement: Active involvement in the local community not only enhances a company's brand image but also opens doors for potential projects and partnerships. Being a recognizable and engaged entity in the public buildings private sector of the community can be beneficial during uncertain economic times.
Here's a table summarizing what construction companies should do to recession-proof their business:
This table provides a comprehensive overview of actions construction companies can take to recession-proof their business, covering various aspects such as financial management, operational efficiency, marketing strategies, technological innovation, risk management, and workforce development. By implementing these strategies, construction companies can enhance resilience, adaptability, and long-term success even in challenging economic environments.
Educating and Upskilling the Workforce
Investing in Employee Development: Providing ongoing training and upskilling opportunities for the workforce to pursue projects not only ensures a highly skilled team for construction work but also aids in staff retention. A well-trained team contributes to improved project quality and efficiency on the job site.
Adapting to Changing Labor Dynamics: With a shortage of skilled labor in the construction industry, offering more jobs, attractive incentives, career growth opportunities, and a supportive work environment can significantly down job costs and aid contractors in retaining and attracting skilled workers.
The Bottom Line
Navigating through economic downturns and potential recessions is an intrinsic part of running a successful construction business. By implementing a combination of strategic measures – from financial planning overhead cost, and operational efficiency to marketing innovation and workforce management – construction companies can not only survive economic downturn, but thrive during uncertain times.
Building a recession-proof construction business requires foresight, adaptability, and a proactive approach to risk management. Embracing change, investing in innovation, prioritizing strong industry relationships, projects and strategic initiatives, and nurturing a skilled construction workforce will contribute to the resilience necessary to weather any economic storm.