With a 50% chance of a looming recession in the United States, construction companies must bolster their business to 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 for more secure alternatives.
Although the upcoming potential recession is not expected to hit quite as hard, the construction industry is on high alert as they've already been fighting through inflation, labor 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 that will withstand future 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.
When times get tough, having some cash on hand to support yourself is always in your 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.
In the previous recession, construction companies watched their backlogs dwindle as their projects were canceled 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.
One of the construction industry's most acute problems is a shortage of skilled workers. During the previous recession, the 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 retain them, whether that means offering higher wages or more incentives. To ensure workers will stick around, you can keep them busy with plenty of work.
Money doesn't stretch as far as it used to. Between the rising cost of materials, tighter time constraints, more complex projects, and increased labor costs, margins are thinner than ever. 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.
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 begin to dwindle, you'll want to lean on those advantages to keep your business thriving during difficult and uncertain times.
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.
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 continuing to invest in marketing will keep your business in front of potential customers. This will keep the work rolling in to help you stay afloat in troubled times.
The more visible your business is, the more potential customers will believe that 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.
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.
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 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.