How to Tough Out Tough Times
Rumblings of an economic slowdown have been circulating for some time now, almost to the point of willing one to come. Typically, signs of a recession are measured by several things including gross domestic product, which rose by 2 percent in the second quarter in 2019 compared to 3.2 percent in the first quarter. Let’s keep in mind that there was still growth. For example, new construction put in place is up and is forecast to reach more than $1.53 trillion by 2022, with residential being a primary driver. Commercial property remodeling saw an average 8.9 percent annual increase over the five years up to 2019, but is less likely to be as prosperous moving forward. It seems then that what could be in the pipeline is a “slowdown.”
Nonetheless, any dip in the market will always set alarms bells ringing and, like any diligent company, we are keeping a tight eye on trends, even while seeing our rentals rise by 5 percent during 2019. It’s important for any construction company to do the same and take crucial steps to ensure you stay afloat and ride through choppy waters.
According to research by Bain and Co., companies that prepared strategically for the last recession came out winners and even increased profits considerably. However, those hit the worst did some common recession blunders like extreme cost-cutting, pulling back on sales and marketing/PR activities, and laying off good talent. In order to get a true picture of staying agile and profitable no matter what the economy is doing, let’s take look at some of the biggest setbacks that are currently hitting construction:
• Lack of skilled workforce — It’s been widely reported that the industry is in desperate need of new blood. With the average construction worker now aged 50, it’s more crucial than ever to entice a new generation into the trade. Those companies that invest in training, tactical recruitment and apprenticeship programs will be the ones that will reap the benefits in a slowdown.
• Technology — A younger generation is obviously more tech savvy, but your company also needs to stay ahead of the curve in terms of updated equipment and materials in order to have a competitive edge. Investing in new-generation working methods, and adopting and embracing future tech can mean the difference between winning a contract or losing out to a more forward-thinking rival.
• Weather – You only have to reflect on the last year to realize the impact the weather can have on our business. The country experienced one of the wettest and coldest winters in 40 years, bringing hurricanes, unprecedented rainfall and snow storms. If your core business is in a bad weather trough or you’re worried about Mother Nature stripping you of profits next year, then now is the time to act and prepare.
• Regulations — There is concern government agencies could impose stricter laws on environmental protection including materials use, pollution and emissions.
Furthermore, electric vehicles are growing in popularity within construction globally due to improved battery technology, safety and efficiencies. It goes without saying that it’s extremely important for contractors to always keep on top of any new OSHA laws. Having the foresight can mean the difference between a job completed or one abandoned.
As with any organization, the C-suite must put together business strategies and calculate risks to ensure that revenue in your construction company remains on target during a slowdown. This plan needs to include:
• Protecting cash flow — Cash flow is a necessity to keep your company thriving and ensuring you’re making a profit. You may need to renegotiate the terms of your invoicing to ensure payments are received quicker, or you may decide to switch from paying bills early to on the date they are due to keep cash flow running. It’s important to understand how your cash flow works and keep regular tabs on it for a healthy balance sheet.
• Strict inventory control — Estimating job costs isn’t always easy and you can often end up with supplies that you don’t need. Remember that every single piece of material that is not used is a dent in your profit. When business is good, those extra bags of cement or pallet of bricks may not have seemed important, but when a recession hits they will be part of your strategy for cash flow. You may also consider switching suppliers for more savings. It may be difficult to break away from certain partnerships but your bottom line is more important.
• Sticking to what you’re good at — Recession can prompt companies to jump into other sectors deemed as a hot potential, but ultimately most fail. That’s because it was not their specialty and not a core competence. It’s always better to focus on what you do best or you will end up damaging your reputation and may see your business decline. That’s not to say you can’t diversify a little — perhaps add a few more services to your offerings. This may involve partnerships with other local contractors or specialist service providers. Just make sure it’s someone you can trust and prepare mutually agreeable business terms.
• Keeping customers happy — The panic of a slowdown can spark a frenzy to find new clients to ensure a healthy jobs sheet. However, your current customer base could be the key to growth. Statistics show it costs six times more to acquire a new customer than to retain an existing one and a great customer experience has the potential to double business revenue in 36 months. You just may have to shift your sales focus. That brings me to my last point:
• No cutting back on marketing initiatives — You can all have the best product or service but if no one knows about it then what good is it? Curbing spend on marketing is a bad move for any company in a slowdown. After all, customers will be making hard choices and you want to make sure your voice and value proposition is heard above the herd. This is where online and social media can make a difference.
Additionally, while you’re being proactive to ensure your customers’ needs are being met, your competitors may not be. Check on your competitors’ customers and demonstrate how you differentiate and can provide better services. Come up with imaginative ways to boost sales such as by offering different packages/discounts or even incentives to staff. Ultimately, you need to protect your bottom line. Don’t take a passive approach waiting to see if there is a slowdown coming. Acting now will ensure you stay agile and profitable no matter how the economy is doing.
Jim Arabia is vice president of marketing at BigRentz, a construction rental market place that supplies equipment to commercial, industrial and residential construction business owners.