Recession Proofing Your Business: Why Smart Contractors Focus on Stability First

Construction is a cyclical industry. Boom. Bust. Boom. Bust. Each cycle can last for several years. Long-term success in construction is possible, however. Beat the cycle by assessing where your company is at risk and focusing on what is in your control — even before you feel the effects of an economic downturn — to achieve construction business stability during busts and manageable growth during booms.

Build Cash Reserves

Review your financial statements and determine how much money is needed to cover your monthly operating expenses. Then put aside a set amount each month until you have enough money in short-term investments and liquid assets to cover costs for 3-6 months. This enables you to continue paying employees or purchasing materials during a recession, even if customers aren’t paying you promptly or your funding sources dry up.

Diversify Income 

During booms, it’s easy to focus on a niche market. You do one thing and do it well. But diversity is necessary for long-term success in construction. Look for strategic ways to expand your offerings during any construction cycle. 

• Accept maintenance, repair and renovation jobs in addition to new construction.
• Advertise energy-efficient upgrades that property owners can quickly recoup the cost on.
• Broaden your geographical territory.
• Implement recurring revenue models.

Recurring revenue is especially helpful for recession proofing. It provides predictable income from existing customers in an unpredictable market. A contractor that installs fiber cement siding, for example, could offer a 5-year plan that includes annual cleaning, inspection and minor crack repairs. In addition to the recurring cleaning/inspection revenue, the contractor may also generate additional income from more significant repairs.

Streamline Processes

How many hours a week does your company waste tracking down equipment, resolving time card disputes, or dealing with miscommunications? Five? Ten? More? Those labor hours don’t add value, but they do add up quickly, costing companies tens of thousands of dollars a year. That’s money you could be putting in your cash reserves instead. Investing in technology is key to eliminating wasteful work and becoming more efficient.

Automating manual or mistake-prone processes with robotics is one strategy for reducing waste. But even investing in something as small as a time-tracking/job-costing app can significantly improve productivity. The BusyBusy app, for instance, is a scalable solution that collects real-time data and generates advanced reports that make better margins possible when it comes to equipment and employee efficiencies. 

Retain Employees

Overemphasizing business growth rather than business stability during booms leads to labor shortages. A survey conducted by The Associated General Contractors of America indicates that 61% of contractors identify labor shortages as the primary cause of construction delays. A company then hires like crazy to complete jobs and pays more in labor due to inexperience, only to let employees go when things get slow. It’s a costly cycle. Instead, focus on employee retention for long-term success in construction.  

• Crosstrain crew members.
• Offer productivity incentives.
• Provide opportunities for training and professional development.
• Make it easy to request time off and get approval.
• Create a culture of safety.

When employees feel safe on job sites and valued by their employer, it sustains productivity and efficiency over longer periods of time. A committed crew means you won’t be struggling to find skilled labor when growth occurs. You’ll be more likely to complete jobs on schedule and on budget.

Boom or bust, smart contractors focus on these construction business stability strategies to thrive in any economy.

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