Construction Strategies

8 Effective Strategies to Recession-Proof Your Construction Business

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There will be tough times in the business. You can ask any of your fellow company owners and you will hear the same familiar tales of woe – defaulted balances, management failures, overdue and other hard-luck stories. The new construction downturn has placed intense pressure on company owners, wholesalers, contractors and many others involved in the industry.

Sooner or later, the majority of construction businesses are forced to weather a recession. But being prepared for any economic downturns is never about planning for the worst. Instead, it is about running a better business and still implementing proactive approaches to maintain its financial stability.

In this article, several strategies for effective recession-proofing of construction businesses are going to be outlined. Take a look below.

Potential Impact on the U.S. Construction Market

September of 2020 marks the 137th month of continuous economic expansion in U.S. This continued period of economic growth, which started in March of 2009, has been ongoing for over 11 years. It is considered as the 2nd longest cycle in the history of the United States. Despite the economy has remained strong by numerous measures and is currently sitting near historical peaks, there is a consistent discussion about the next recession.

Historically, recessions were triggered by any of the external events causing panic in the financial markets and industries. That is why construction business owners have to start searching for any effective strategies to recession-proof their business. Regardless if another recession isn’t impactful as the next one, establishing a resilient business that can withstand any forms of difficulties is always considered a wise move.

The following are some useful economic indicators that help construction company owners, representatives, consultants, and analysts observe the current situation in the industry and the construction market.

1. Positive leading indicators

· Construction employment has remained consistent and strong

Any changes for construction employment are considered as a potential indicator of economic activity. It might be harder to flag any signs from the employment figure during this current situation. However, in considering the current volatility, monitoring this indicator more consistently is achieved.

· Stock market performance is record-breaking

Several factors have contributed to the stock market’s progressing performance – low-interest rates, increased corporate profits, and the lack of yield in income investments.

2. Neutral leading indicators

· I/O Construction Cost Index Spread has remained stable

As the construction market continually expands, the spread between the two indices will widen as there are struggles for the supplies in meeting demand.

· Purchasing Managers Index (PMI) has continuously decreasing

Using data from 5 different weighted factors like supplier deliveries, inventory levels, and employment, PMI provides a health gauge for the present economy. It tracks changes in the demand and supply conditions for manufacturing sectors.

3. Negative leading indicators

· Yield Curve Flattening

One of the economic indicators is the yield curve. It has predicted any fluctuations within the economic cycle over the past several decades. Usually, in periods of economic growth, this yield curve will slope upward. It only then reflects the assumptions of investors that the future interest rates might be higher.

· Sales Prices and Home Sales started falling

Existing home sales have unfortunately dropped the last two years for four consecutive months. Meanwhile, the housing inventory that was being consistently declined for many years already has been growing. The lack of development momentum in housing is a big deal.

8 STRATEGIES TO MAKE THE CONSTRUCTION BUSINESS RECESSION-PROOF

1. Review budget on full details

To save yourself from making difficult choices once the recession hits, always give your best to keep efficient and lean books. Make sure to take ample time to go through your construction budget line by line. Doing so helps you determine the possible areas of waste like oversized building systems, low-efficiency equipment, or installation costs. These factors are affecting the long-term bottom line.

Minimizing unnecessary material costs or labor hours can also help smooth out the budget’s rocky edges. Besides, running a close-fitting fiscal ship the entire year can also help in having the construction business ready when the crunch time arrives. A task scheduler software is beneficial in saving financial data. Editing, storing and updating all information is best achieved using this software tool. It is also widely accessible anytime and anywhere because of its cloud-based storage.

2. Establish processes accordingly

Staying at the top line of your company’s billing practices will support the business in getting paid for project planning and hard work. Ensure there’s always consistency in sending timely voice reminders, progress payment bills, and preliminary voices to the clients. It will help clients in remembering their payment deadlines which are very crucial to the business.

A builder trends software can help in listing all invoices. You can save it, edit and update it anytime and anywhere. The accessibility feature and all other features of this tool are designed to meet all users’ needs. There’s no need to write it all from scratch because inputting the data has been made faster and easier.

3. Focus on Customer Service

Building a more robust and lasting relationship with customers and subcontractors is one of the best practical strategies to maintain stability. It also keeps the construction project coming down the bottom line. Ensure to communicate consistently, quickly handle customer requests and consider extending payment plans or discounts in your top clients. 

For better team supervision, the implementation of construction crew management is very suitable. This approach is proven to increase team productivity and enhance integrity. Doing so, you are building a great rapport that showcases the value you give to the business. Take actions and ensure that the business continues with excellence right after the immediate crisis ends.

4. Do what you think is best

In terms of recession-proofing, there’s always wisdom that keeps you in staying in your lane. Experimenting with new strategies, methods and latest materials, servicing new regions outside boundaries and embarking on any projects outside your usual scope of expertise can ultimately carry hidden risks and costs. It could pose a severe long-term threat towards the health of your company. That is why it is vital to focus more on offering one of a kind construction services specific to your company’s audience and niche.

5. Never Rely on Backlogs

During the last downturn, several construction firms saw some backlogs of 9-12 months gradually vanish as the construction projects were canceled together. The reason behind the cancellation is because no one was able to get financing. As the company owner, you have to start strategizing how you’ll maintain the operations. It only means that you need to focus on 1-2 niche areas or widen your current offers to your clients. There are many other ways.

Maintaining well-organized operations are best achieved when you utilize construction scheduling software. This application has allowed project leaders to monitor, track, and supervise everything related to the company – construction projects, subcontractors, resources, etc.

6. Monitor Company’s Portfolio and other related economic trends

Observe the mixture of business you managed and start looking at the areas you think the market is going. Next, begin a comparison with the work you have and the market’s plans. If you are not keen with your work mix, expect the company’s revenue will drop each year. For some, diversification is the solution but it might not help to solve the problem.

That is why it is always crucial to be more forward-thinking, wise and practical so that it will be easier to determine the next steps once the niche space started to dry up. Redirect your mental energy and talent in establishing the company’s portfolio where it is easier to market yourself into something familiar.

7. Embrace Technology and Innovation

Being innovative as well as implementing technology are considered vital in today’s situation. It should be a major part of the construction firm’s business practices. Consider using advanced technologies in order to improve productivity. For project management, invest in utilizing technologies like crew schedule software because it provides greater efficiency in work and productivity.

It makes work not just easier and faster but also more efficient. Real-time collaboration with the team and improved communication are some of its promising advantages once being deployed. All of the software features are designed to fill in every user’s needs to manage construction projects and the participating crew.

8. Be tactical about benchmarking

The best company owners are the ones who continuously strive to enhance everything they do for the company’s sake. They gathered tons of information to initialize a comparison between other companies from other states, regions, and countries. This is called benchmarking and doing this against peers is crucial yet very challenging.

The comparison to peers has helped in validating whether the construction firm is relative to the others. The challenge will lie in the ability of the owner to recognize the need for continuous self-improvement. Without benchmarking, construction companies tend to operate abnormally, making them believe in their infallibility.

Key Takeaways

Recessions will always come but then it’ll go. For the company to stand firm and remain competitive, being mindful of the costs and these business practices are essential even during the roughest economic circumstances. Wise and strategic business practices are timeless and there’s a point of investing in these practices. Disregarding waste, providing top-notch customer service, and streamlining operations are wise actions that ensure the business is continuing its operations if the financial world will take an upside downturn.

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