Tips on how to recession proof your construction company
Everyone talks about the recession. We are now facing a banking crisis; interest rates are rising, and things don’t look good. But look at the bright side. This is the time when great leaders will guide their companies through this storm and strive. Those who will work as before will not get through this recession.
Why do we know that a recession is coming?
Simply look at the publicly listed general contractors. See how well the order backlog looks. For example, some of the biggest market players in Scandinavia showed that there was a decline in order backlog.
What does “order backlog” mean? The order backlog represents how many contracts general contractors have already signed but haven’t done any work on site yet.
Research your local top investors who are publicly listed. They all have annual and quarterly reports where they inform their investors about future projects: how many projects they have in production, how many they have sold, and so on. I researched many of these investors. Again, mainly in Scandinavia and Europe, they are all reporting that they have reduced their orders. Some even by 50%.
How to avoid recession
Unfortunately, you can’t avoid or fix the recession by yourself. But you can prepare yourself, the company, and your employees for it. Those who get over the recession will become much stronger and more competitive. Many contractors probably will not be able to get over it.
Increase your sales power
Don’t make me wrong; you don’t need to hire an army of salespeople. Instead, look at how you can increase productivity and sales. Maybe you should invest in procurement software and improve your team’s negotiation skills. Certainly there will be much fewer projects coming, so you will have to compete for each one of them. You should also strongly consider whether now is the time to invest in SEO. A good SEO strategy can bring you more clients and tenders.
Don’t sign up for the wrong projects
Once you start to experience cash flow issues, it is very easy to focus on the wrong projects. You find the project, but it doesn’t have the scope that you usually offer, but you still sign off because you need cash flow. As you already probably know, tough projects can become very expensive, and this is not the time for risky opportunities. Reconsider every project with your team before signing. Find potential problems and see whether your team can deal with them.
This is the best time to increase productivity. Look at how you can increase employee productivity, whether or not you have too much staff. Besides, don’t forget that during a recession there will be fewer projects, so you will not grow during this time. See whether you need to change tools and so on.
Prepare cash reserves; don’t invest
During a recession, cash is king. Be ready that there will be times when you have less work to do and you will need cash to survive those times. Also, be aware of how much staff you have. Money can be drained very quickly as soon as you don’t have any upcoming projects. You can face the risk that your client is facing cash flow issues and your payments will be delayed. Or material suppliers can reduce payment terms or credit line. Strengthen your cash reserves however you can. Don’t invest in new production facilities or expensive equipment. You will probably have less work, so you don’t need to expand; you need to strengthen your business.
Adopt new software
There are many construction software programs that are focused on improving overall productivity for contractors. They forecast and schedule for you your project schedule and budget. Change management, document management, and more Not all of them can be suitable, but for example, if you are a specialty or trade contractor, PlanUpPro is ideal for you. For general contractors, for example, there is Procore. You can read about the best construction software here.
Monitor your clients and market
Whether you are a small or big contractor, pay attention to how well large construction companies and investors perform. You can find their annual reports by googling investor relations, for example, ‘Skanska investor relations’. You will be surprised at how well these reports usually are, and they are talking about where the industry is going. What challenges they face and which markets are performing. Talk to other contractors; ask what problems they have and how they are dealing with them. You have to observe the market in order to understand and make business strategy decisions.
No one knows how the recession will affect us or how long it will take to get through it. But for sure, I recommend being ready for the worst case scenario. Strengthen your sales team, improve productivity, increase cash reserves, and be ready for changes.