Will there be a recession? Are we already in one? How will construction be impacted? While the debates rage on, it’s prudent to prepare your business, just in case.
Starting with some basics, Investopedia says, “A recession is a significant, widespread, and prolonged downturn in economic activity.” While construction is not typically a recession-proof industry, there are steps construction companies can take now to strengthen their ability to withstand economic uncertainties.
Construction Dive’s recent article “What a Recession Would Look Like for Construction” (Obando, Sebastian. August 16, 2022) says preserving cash, building backlog, and going after Federal contracts is a winning game plan according to a few sources. In addition, we’ve identified seven tips repeatedly mentioned by a variety of sources to help construction companies prepare for and ride out a recession. Here they are:
- Stick to what you know, what you do really well, and what’s profitable, and then focus on that.
- Keep a close watch on your business’ finances and have a financial plan. Focus on managing projects to promote profitability and do what you can to ensure contracts protect your interests. Know your costs and look for opportunities to reduce expenses. Hold off on large purchases. Preserve cash (see our prior post on “Tips to Help You Manage Cash Flow During Volatile Times.”) Build emergency funds to help cover expenses for at least three to six months. Pay down debt while you have the money so you can also build credit worthiness should you need to tap into additional resources in the future. Also, be smart about financing and loans – make sure you know what’s available through the Small Business Administration, the state, and the Federal government.
- Do not rely on backlog. Have a strategy for consistently drumming up new business over the next six to 18 months and focus on a long sales cycle.
- Keep your best workers. While downsizing is a typical reaction to a recession, the construction industry is in a unique situation because of the labor shortage plaguing the industry. If possible, hold onto your best employees – and even look for new ones – to adequately staff jobs and be in a better position after the downturn.
- Look for Federally funded and local municipalities’ projects – there are plenty of them (including new opportunities from the Inflation Reduction Act) and they can serve as a lifeline.
- Stay close to customers. Build and maintain open communication and strong relationships. By keeping the conversation going and seeing what you can do to support your customers, you build positive relations and garner information to help you strategize.
- Do some scenario planning. Gather your top people around a table to speculate about what may happen. Then, proactively develop a plan for how you’ll respond, so you can act quickly.
And perhaps we’re a bit biased but one other thing you can do is partner with RBT CPAs for all of your accounting, tax, and audit needs. For over 50 years, we’ve worked with businesses across the Hudson Valley and beyond to deliver professional, quality, and ethical services that deliver peace of mind. That way, our clients can focus on what they do best. To learn more, give us a call.