To make matters worse, while other industries bounced back quickly after the recession, construction took on a much slower recovery curve. Several contractors, who were hanging on for dear life hoping for better days, were left hanging for years waiting for the industry to pick up.
Amongst this chaos, over 150,000 contractors lost their grip and were wiped from existence, making the construction industry one of the hardest hit during this time. If it isn’t immediately apparent, we are heading in a similar direction right now with rising interest rates, stock markets turning bearish, and inflation at its highest in 40 years with Canada at 7.7% and the US at 8.6%.
This is why it’s so important to not be caught off guard and do whatever you can to prepare for what is to come. Below I’ve highlighted 6 tips you should follow to help ensure your company is as recession proof as possible going into this bear market.
What It Means to Be Recession-Proof
Before we get into what you should do, it’s important to understand exactly what it means to be 'recession-proof'. Typically this means that either the industry or company is critical to the sustainability of society, no matter the size or type of crisis. It’s easy to see why this is the case by observing the different categories that they fall under as seen below:
Essential Commodity Suppliers - This includes grocery stores, drug stores, and gas stations.
Essential Maintenance or Repair Services - For example, vehicle mechanics or healthcare services.
Companies Providing Public Work Services - Examples of these include utility companies such as electric and gas.
Counter-Cyclical Companies - These companies actually thrive during the recession as their business model is such that business is booming when others are suffering. Examples of this include debt collectors, and bankruptcy attorneys.
Discounted Pricing Companies - These thrive in a recession due to their low cost offerings such as dollar stores, fast food chains, and big box retail stores.
As you can see above, most construction companies don’t fit under either of the above categories, so for them to be truly recession-proof is more about mitigation than prevention. This is why it’s so crucial for contractors to develop a strategy for succeeding during hard times, where jobs and good help are hard to come by.
Following the tips I’ve highlighted below is a great way to set your company apart from the competition and give yourself an extra lifeline during this next economic downturn.
How to Survive a Recession
1. Prioritize Cash Flow
When you think of the reasons why construction companies fail, a lack of cash flow is usually the number one culprit.
This problem is amplified by the presence of an economic recession, so it’s even more critical that you keep the cash coming in. Contractors need to prioritize saving money in preparation for sustaining themselves if they are caught without work for a period of time.
2. Fill Your Backlog Regularly
This is a huge mistake during a recession as those clients will also be affected, meaning work from them will slow down drastically.
To avoid this dependancy on your backlog, make it a priority to establish a strategy for picking up new work and projects no matter how large your backlog is. This alone can save your business and prevent the mass layoffs that are often seen during these hard times due to lack of work.
3. Keep Hold of Your Best Employees!
I know this one may seem obvious, but oftentimes our best employees are also the best paid. This means that in an effort to reduce overhead, many contractors reluctantly think this is the only way to survive, and in some rare cases this is true. The problem with this approach is that good help is so hard to find in the construction industry.
In this upcoming recession, inflation is at its highest in 40 years, meaning the things that your money could afford are now slowly becoming more and more expensive. As a result, the quality of your employees' lives is changing for the worse.
To counteract this and avoid key workers jumping ship for higher wages, it’s important to talk to them and see where their heads are at. Show them you care, and offer them higher wages to combat inflation and its effects.
This may seem counterintuitive at first, especially when you’re looking to trim the fat and cut costs, but it is definitely the right way to go because I guarantee you that you will lose more money overall with subpar help that isn’t as efficient or experienced. This way, when a project comes along, you’ll have your best crew available, allowing you to squeeze out as much profit as possible.
4. Establish a Clear Cost Tracking System
Profit margins are notoriously thin in the construction industry, especially during an economic downturn. Therefore, you can really shoot yourself in the foot if you don’t know exactly where your money is going at any given moment.
That is why it’s so important to have a detailed job costing system in place, especially one that can provide you with deep insights into where you are spending your money, and where it can be improved. The more details you know about your labour and materials spend, the better you position yourself to make the hard decisions you need to make to keep your business going for the long term.
This is usually extremely difficult to do without the use of a construction management software such as OnTraccr. If you haven’t already done so, I strongly suggest that you think long and hard about digitizing your current workflows so that you can easily scale your business up and down at any given moment without needing to hit pause on operations to see what is even possible.
5. Cut the ‘Fat’
This tip is one that you always try to avoid but often needs to happen in order to ensure your business can survive. This is when you need to sit down and figure out which employees are not performing at a high level, and cut them loose or lay them off.
You may also need to sell some of your resources such as extra equipment or supplies in order to make ends meet. This definitely takes serious consideration and a variety of variables can come into play when making this decision.
Therefore, make sure to discuss this with your team and create a plan for how things will be handled when things turn around. Communication during this step is key to keeping morale up.
6. Double Down on Your Strengths
What sets you apart from your competition?
During a recession, it’s crucial to know your strengths and double down on them when trying to secure new work. You also need to make sure you follow through on what you promise now more than ever, because you never know when that customer will come calling again due to the exceptional level of service they received from you.
This tip will not only improve your business, but it will also carry long term benefits that you can carry with you moving forward for years to come.
If you’re struggling to identify your strengths and weaknesses, just ask your customers! Make it a habit of having them review your work and your team to ensure that they are up to standard, and ask them what they like about working with you. This should be done on a regular basis whether you’re a service-based company or one with longer term project contracts.
If you find that your construction business is struggling or already having issues, a recession is only going to make things worse. Now is the time to work on things like creating job costing systems, monitoring your cash flow, increasing productivity on projects, and improving how efficiently things are done.
Using construction workflow automation software can be a huge help with this as it allows you to digitize your workflows and add layers of automation on top so that you can have a tightly tuned machine running in the background which allows you to make hard decisions at any given moment without the need to panic.