There's lots of talk going around about a possible economic downturn. In some areas, evidence of hard times is already visible. How can construction firms strengthen their businesses to survive during lean years?
The answer is in the question: keeping a business afloat during a recession requires strengthening its operations in line with overall goals and visions. This article will discuss a few things you can do to ready your construction business to survive a recession.
First, let's define a recession, so we can decide if the US is in one or can expect one soon. According to , the country is in recession when the economy experiences negative gross domestic product (GDP) for two quarters in a row. By this definition, the US entered a recession in the summer of 2022.
However, rising unemployment, reduced retail sales and manufacturing activity, and other factors may also be considered in declaring a recession. is regarded as the authority on pronouncements of a recession's beginning and end. It has not declared the US in a recession since the downturn in 2020.
The backlog of building projects in the construction sector has so far protected the industry over the past few months from many factors of recent economic compression, keeping building demand, total construction spending and new construction starts high. But beginning in the latter half of 2023, economic conditions may change, and the construction industry must be prepared to feel the full brunt of a wounded economy 鈥撀燼ffecting both residential construction and nonresidential building. Here's what construction business owners can do now to get their business ready.
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Get nimble
Remember in 2020 when the word "pivot" became a favored term? Things were so unpredictable that it became necessary for people and businesses to learn how to change direction on a dime.
The bluster of the pandemic has passed, but there's still a great degree of uncertainty facing the construction industry. While contractors deal with increased construction costs, materials shortages, supply chain issues, and a skilled labor shortage, the industry is also undergoing a digital revolution that requires new skills and mindsets. With all this going on, adaptability is still a valuable skill set.
The need for flexibility extends beyond overall business direction to individual project work. Flexible construction companies can recognize complications early and rejig the project schedule to maintain pace and momentum, avoiding widespread project delays. Flexibility also means maintaining project viability with fewer construction workers by using employees effectively. Achieving these goals requires complete information about how project teams currently operate, and the mental space to problem-solve any issues that arise.
Contractors should strive to bring flexibility into their construction contracts, too. Throughout 2022, material prices varied drastically, impacting contractors' business costs over longer building projects. Governments and industry associations are helping contractors draft to include in their contracts to protect them from surging prices.
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Improve efficiency
Surviving a recession means doing more with less. Employees shouldn't have to work harder 鈥� just the opposite. Efficiency means using people, materials, and systems better to achieve the same results with less effort. Easier said than done, right?
Efficiency doesn't come by chasing your tail, trying to get faster and better at what you're already doing. Innovative construction companies improve efficiency by closely examining business practices and goals, then using an open mind to find a better way of doing things.
Examples of improving efficiency might be
- minimizing waste through thorough planning and reduction of rework
- identifying construction workers' skill sets and placing them where they're needed most
- streamlining and automating repetitive manual processes, including accounting and receivables tasks
Efficiency does more than save you time and money, it actually makes you better at what you do. It means you're making fewer errors and creating better quality work while using your resources responsibly.
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Go digital
How does a construction company become more flexible and efficient? As mentioned, trimming the fat around operations necessitates deep knowledge of current business operations. You need hard numbers demonstrating how you're using building materials, construction workers, and time, so you can figure out how to use them better for maximum output.
In other words, what you need is digitization. Using digital systems to schedule your construction projects, people, equipment, and payables and receivables facilitates tracking everything you do, giving you the knowledge you need to work smarter instead of harder.
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Control your cash
Now that you've prepared your construction business to be a lean, mean building machine, you need to get extra smart about where your cash is and where it's going. Many construction businesses fail because they lack the cash flow to continue their projects, so a bit of savings on hand could be the saving grace for your business. However, there's a balance to strike between saving for a rainy day and hoarding to the point of preventing growth.
Prepare for a recession by better managing your cash flow, by
- Maintaining a cash flow document
- Establishing a cash flow backup plan
- Cleaning up and automating your accounts payable and receivable systems
吃瓜新闻 is an online payment solution that can help you get your cash flow in order while streamlining your accounts payable and receivable systems to maintain greater control over your money.
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Experts continue to debate the certainty of a coming recession, but contractors don't have to wait for an economic forecast to bolster their businesses against one. By revamping business operations to align with long-term vision and goals, and becoming more agile, streamlined, and technologically savvy, contractors can make their businesses stronger no matter what happens in the economy.
