Recession-Proof Your Construction Business NOW | 25 Crucial Tips for Contractors

according to forbes.com a recession is a significant decline in economic activity that lasts for months or even years experts declare a recession when a nation's economy experiences negative gross domestic product gdp rising levels of unemployment falling retail sales and contracting measures of income and manufacturing for an extended period of time putting it bluntly people lose work pensions are lost businesses make fewer sales and the economy struggles what causes a recession recessions are typically caused by excessive debt and too much inflation which is about where we're at right now how long does a recession last according to the national bureau of economic research from 1945 to 2009 the average recession lasts 11 months although it's difficult to predict a recession or financial collapse of any kind there are measures you can take right now to prepare you and your construction business for this video we've spoken to dozens of contractors equipment suppliers and even economists to bring you and your business 25 crucial tips not just to weather out the storm but thrive here's a quick disclaimer regarding the following tips each is obviously more effective if implemented before a recession and that being said some tips will take the perspective during a recession as the average contractor tends to find themselves in the middle of these financial dark times before they even know what hit them in addition yes of course most of these tips should be executed on a regular basis we know but this is the obvious case then why are most construction businesses not already taking these actions all things considered there is a common denominator found within all these tips and it's a tip better yet a code to live by that we love to mention in every video work your butt off number one assess your current financial status when a recession strikes you should immediately review your current financial status start by conducting a comprehensive assessment of your business take a close look at your books and figure out how much money you have on hand what your cash outflow and inflow looks like and what your project timelines and deadlines are also you may want to take a look at your supply chain do you have suppliers that are located in regions that are vulnerable to economic failure take the coveted crisis for example consider how it was difficult and still is difficult to get certain materials in some areas of the united states for those of you asking shouldn't i be doing this already on a regular basis you bet you second have a plan of action contingency plans are ideal to have ready for any kind of emergency whether it's a natural disaster a medical emergency or of course a financial collapse what exactly is a contingency plan well a contingency plan is a course of action designed to help a construction business respond efficiently to unfortunate and often unforeseen events take the amount of construction jobs available for example consider how many times you've heard politicians debate over the infrastructure budget and job market unfortunately some of those public servants they don't even think twice about misappropriating that precious budget or even slashing it entirely which means you guessed it less work for us what's your plan for when this happens your contingency plan should include step-by-step guidelines to address how exactly your construction business will respond to a financial collapse these guidelines might include a head count and staff changes selling material that's lying around the yard canceling loans on equipment that isn't being used enough and regarding marketing and most amateurs out there would tell you to cut it out however a savvy construction business owner will take a careful look at their marketing and consider how they can cleverly adjust their strategy for a smaller budget and when you've finished your contingency plan don't forget to share it with the right people within your circle your entire team needs to be prepared number three is act quickly if the economy takes a dive you certainly don't want to make impulsive and reckless decisions however it's important that you don't procrastinate as this can have costly consequences if half of your upcoming jobs are cancelled and your income's cut in half the sooner you act the better maybe you need to cancel some equipment leases maybe you need to make some temporary pay cuts every month every week every day every hour is costing you money you can't afford to waste time when you're forced into a situation where important quick decisions have to be made it's always ideal to have a meeting with your key decision makers talk these things out it keeps people from acting rashly and making well otherwise stupid decisions that they shouldn't be making working together as a team and remember and this is most important don't ever react always respond four is investing in insurance there's no insurance policy out there that will protect you from an economic collapse completely that being said the last thing you need is to pay out of pocket for an accident on the job site or a disgruntled employee who's out to sue you we know it's tempting to nix insurance and save that extra cash every month but you better be more safe than sorry and keep your insurance or at the very least take time to go over your policies with a fine-tooth comb most of the time we find that contractors aren't necessarily paying too much money for insurance but they're paying for the wrong coverage maybe there's a more suitable and even cheaper policy out there that'll better serve your construction business be sure to review your policy with your agent and even get quotes from other companies number five is looking for new business opportunities now a recession it's not the time to take significant risk at least for most contractors you should always have your eyes peeled for profitable opportunities though consider how entrepreneurs have made millions during the hardest of times and there's plenty of data to support that as we talked about in our video building a multi-million dollar construction business the ultimate guide for contractors our good friend had his most profitable year after hurricane frances and jean when he converted his landscape business into a debris removal business he traded his mowers for grapples and other debris removal equipment when times get tough who are you going to be the guy who sells his equipment fleet and goes on unemployment are the guy who doesn't make excuses and gets resourceful remember that although the problem seems like a lack of resources the true issue is actually a lack of resourcefulness six is be wise with your financing and loans now we've all got different financial situations some of us already have active loans some of us don't some of us refuse to ever take a loan and some of us are planning to get one in the near future but whatever the case may be just remember getting a loan during a recession can be challenging and even impossible for some construction business owners for that reason it's a good idea to plan ahead will you need a new piece of equipment several months from now how about more inventory of certain material or even construction for a new warehouse or garage for your business if so you may want to lock in that solid interest rate now because believe me you don't want to pay those ridiculous rates when times get tough and you're desperate on a final note about financing and loans the u.s small business administration offers some helpful financial resources like micro loans for small construction businesses number seven is whole strategic planning meetings now we know you think you're smart but two heads are always more productive than one well most of the time anyway when a recession hits or any issue for that matter a strategic planning meeting should be your go-to reaction get together with your partners maybe even your employees if it's appropriate and start making a list of potential challenges you see coming down the road ahead what's next and you guessed it start brainstorming those solutions when it comes to strategizing and meetings reviewing your backlog is essential are there any jobs to pursue that have better margins maybe you want to temporarily or even permanently focus on a different niche we'll touch on this a little later on remember a problem discussed is a problem cut in half when times are tough there's nothing worse than resentment that festers and this resentment only leads to blow ups but of course you don't need to wait until an argument to hold a meeting and start talking solutions number eight monitor policy changes and economic projections now we're going to assume that most of you would like to spend the majority of your time actually working on a project we get it believe me but part of running a successful construction business entails research and keeping up with current events and we can assure you that your competitors are doing this and if they aren't well here's your opportunity to get ahead recently a popular topic has been the white house infrastructure bill maybe you want to take a peek at it and see if it's really going to affect you also consider government aid like tax relief and economic impact payments at this moment it looks like they might be coming to an end does this mean fewer contracting jobs number nine cash cash cash one of the most fundamental and important rules of survival is certainly applicable to running a construction business keep cash handy during a financial collapse cash will take you far whether you're renting a piece of equipment buying material hiring an employee consider how a vendor will be more willing to negotiate when you have cash projecting cash flow is just as important and with the abundance of financial software out there that will do the heavy lifting for you no pun intended there's no excuse don't be lazy because covering your operating and overhead cost are essential to keep your construction business thriving during a recession number 10 become margin driven now let's quickly go over the basics of profit margins a profit margin is the difference between the sale price of the product and the cost of making the product when a construction business consistently sells products with little profit that's a low margin business a high margin construction business will acquire products at a low price and has the ability to sell them at a marked up price for greater profit high margins are good especially during a recession now if you disagree and there's always somebody feel free to comment why below if your margins are low do you need to drop everything and quit your business no of course not but maybe there's some clever margin management that you can pull off like working with a more affordable efficient subcontractor maybe you can find cheaper material from a different vendor or like we mentioned before maybe renting equipment versus owning might improve your margins maybe that guy darwin was onto something when he said it is not the strongest of the species that survives nor the most intelligent it is the one most adaptable to change number 11 take a closer look at your contracts and service agreements someone also said and we're not sure who the devil is in the details well it's important to take a close look at those contracts and service agreements to see if you and your construction business can operate more effectively let's look for the following terms and factors scope of work what exactly is expected of the contractor indemnities which are obligations for one party to compensate the other for things like damage loss and expenses liquidated damages the compensation you may have to pay if the project's not completed on time reasonably unfavorable will the project owner claim the design isn't up to par incorporation clauses a subcontractor can be bound to the provisions of the prime contract between the general contractor and the owner now these are just a few and there are of course many more factors to consider when reviewing a contract which we'll be reviewing that in another video have you made mistakes with contracts in the past well that's good learn from those mistakes get stronger get smarter so you can even be more efficient during the inevitable hard times coming ahead number 12 is know your target market you can't afford to waste any time pursuing prospects that aren't going to pay off especially in the middle of a financial collapse we know that most of you can already answer this question but who are you targeting for business and why we're surprised each time we ask a client or someone who's looking for help what's your target market and they go well um hey going after new business requires valuable time and energy so get very clear about what you want the more precise you are the more results you're going to see and what exactly are you offering these prospects it's crucial to know what your potential customers are looking for in a contractor and what issues they need or want solved we couldn't agree more with mark cuban when he said the greatest value you offer a client is to reduce their stress if the service you're offering can solve a client's problem and reduce the amount of stress on their plate they will want to work with you it's that simple there's no sponsor for this video we just asked that you help us out by crushing that like button and giving us some comments below and don't forget subscribe to the channel and hit that notification bell we greatly appreciate your support number 13 is be careful with backlogs in case any green horns out there aren't sure what a backlog is a backlog is the amount of work measured in dollars that a contractor is contracted to do in the future the more value the backlog manifests the more comfortable a contractor can be with their current finances and financial decisions while a strong backlog is a good indicator of a healthy construction company during an economic crisis be careful to not rely too much on your backlog as the chances of a project being delayed or even canceled has now dramatically increased so what can you do about it well hopefully this galvanizes you to take even more action get hungry if you chase hard enough after a few jobs you won't need to worry as much about a delayed or cancelled job on a backlog and remember best construction companies never stop moving their feet they never stop taking action 14 use technology to your advantage we really like tony robbins definition of business efficiency maximizing your outputs from your given inputs or making the most of your resources if you haven't thought about how to improve efficiency in a business you may well be overlooking places where you can cut down on the time you're spending on a particular task one of the most important objectives if not the most important objective of any construction business is to be as efficient as possible putting it bluntly you want to make the most amount of money with the least amount of effort while of course behaving ethically and producing the highest quality of work possible for your client and one of the most crucial and effective ways to improve business efficiency is with technology these days there's plenty of software out there that can improve the productivity of your construction business with features like project management employee management streamline bidding estimating tools warranty and punch list and to-do list and the list goes on and on it's great that you're working hard but also remember work smart take advantage of technology and improve efficiency of your construction business during a recession your business depends on it 15. anticipate lost profits the best contractors are constantly reviewing p l searching for any sign of profit loss and that's during a stable economy we'll take into consideration that even these contractors who are regularly doing their due diligence will most likely struggle during a financial collapse now consider the typical contractor who rarely checks for those signs of loss of profit they won't stand a chance here are the most common reasons a construction business loses profit poor hiring decisions weak employee management lack of a business strategy under-bidding projects sloppy bookkeeping spending too much money when it comes to lost profits the most important thing to keep in mind is this anticipate it's easier to plug a hole in the dike when the hole is still small 16. reduce debt and cut the fat we know that some of you are currently operating your construction business with debt and we understand that some of the debt out there is considered good debt but during or better yet before a recession you need to be very very careful with debt for those of you in need of a loan during a financial crisis and you plan to manage the debt responsibly remember that your chances of obtaining a loan without any current debt are far greater so it's always wise to be debt free until you really really need it but most of you who are looking to cut back and avoid debt at all cost here's some things you should consider are you taking on too many projects do you have equipment sitting around or employees that aren't pulling their weight could you be cost estimating your jobs in a more efficient way can you renegotiate and possibly even restructure loans with existing lenders are there any creative payment resolutions or alternatives such as bartering services or materials that you could discuss with your vendors or clients have you maximized your pledged assets to ensure you're receiving full credit with your bank on a final note about debt just remember this it's easier to not spend a thousand than to make a thousand number 17 put processes in place to help you get paid faster when it comes to getting paid faster or even paid on time we find that most contractors are just too lazy or afraid to put a process in place to ensure prop payment when you've got employees to pay material to buy you can't be lazy or paralyzed by fear let's take a quick look at how fear plays a role in a recession during a financial collapse people get fearful and when people get fearful they get desperate and desperate people do desperate things like refuse to pay vendors and suppliers most of us already know what it feels like when a client doesn't pay doesn't feel good does it for this reason you need to be even more vigilant than usual during a recession and we can assure you it will pay off if you haven't already be sure to use invoicing software that automatically sends invoice follow-ups as some of you are already aware some clients tend to ignore an invoice when it lands in the inbox you need all the help you can get 18. invest in your workforce

when the chips are down you need to be able to depend on your employees if we haven't established this by now you can't do this alone we understand that it's hard to make payroll when the bank account is looking sorry and scary but it's a rookie maneuver to neglect your employees remember they've got mouse to feed too if you don't already know who they are find out who your strongest and most reliable employees are and take care of them whether this means you increase their salary or you buy them a gift whatever the incentive may be keep them happy there's already a labor shortage in the construction industry and we can assure you it will not improve during a recession 19. know your operating cost and keep them low unless you've been living on the moon the last 24 months you've noticed material and labor cost have really increased heck some of us can't even find a plumber or handyman to fix something around the house these days while projects are becoming more complex with shorter timelines profit margins are becoming pretty thin and it doesn't look like it's going to get better anytime soon what can you do about this at the very least you should have a thorough understanding of what your operating costs are these costs might include raw material equipment rental labor cost etc but whatever they may be you won't be able to manage and adjust these costs unless you understand them knowing is half the battle and with so many options available for construction management and accounting software there's no excuse for not keeping your operating costs low or at least being aware of them 20 overhead cost and productivity while you should remain vigilantly aware of operating cost it's equally important to manage your construction company's overhead cost overhead expenses are costs not related to raw material and equipment rentals instead overhead pertains more to insurance office staff vehicles other expenses necessary to run your business while you can't get rid of overhead entirely there are three areas of your business where you might be able to make adjustments bidding accounts receivable and accounts payable use an estimating program to calculate your material needs and organize your bid files at the same time file your taxes workers comp and unemployment insurance via the internet use an online payroll service to do your payroll needs this may take some time but streamlining these tedious necessary tasks will ultimately add more hours to your day number 21 is play to your strengths during a recession people change the market changes the industry changes and oftentimes it's necessary for you to change too this may entail reconsidering your niche and leveraging your strengths strengths that you may or may not have realized you have now as corny as this sounds now is a good time to look within yourself what do you want what are you good at what are you not good at or how about what have you always wanted to do in the past maybe you were passionate about a certain career or niche but you never took time to pursue it maybe you made a living building swimming pools and because of the recession the work is gone or it slowed dramatically so why not focus on landscaping or a maintenance business that you've always wanted to try whatever lies down the road ahead try to stay open-minded and honest with yourself things just seem to work out better that way 22 negotiate wisely although we may be entering times of survival be very careful with survival bidding yes you need the work and the client probably understands this but if you're under bidding every project you put yourself at serious risk of losing money and that's money you can't afford to lose but at the same time don't let a client hold you hostage you're running a business and paying employees and your client needs to respect that whether they want to or not stand your ground don't be a doormat this is what separates the men from the boys or the girls from the women you might step on some toes you might hurt some feelings if this bothers you just remind yourself you've got mouths to feed when it comes to negotiating it's pivotal that you find some sort of harmonious balance that works for you and your construction business strategy number 23 improve estimate accuracy becoming a skilled construction cost estimator is a talent that can take you far especially during a recession a solid estimator must be experienced knowledgeable accurate methodical poor estimating practices result in under and over bidding both of which can have dire consequences and add in a financial crisis you have a recipe for disaster we'll discuss more about estimating in a different video but for now take some time to sharpen the acts you can start by reviewing prior projects compare what you estimated to what you actually spent on each project what could you have done differently how can you improve the accuracy of your next estimate 24. have an emergency fund ask any financial planner and they'll tell you the same thing having an emergency fund in place is one of the best things you can do for you and your construction business an emergency fund is essential during a recession what if you need a few hundred extra bucks to cover the cost of a material or what if your most important excavator breaks down and you need cash to buy a spare part you never know what you'll need extra cash for when it comes to emergencies expect the unexpected as murphy's law says if anything can go wrong it will 25. make an emergency checklist emergency checklists aren't only necessary for a natural disaster and a serious injury but they're imperative for a financial crisis as well for example how are you going to handle the loss of key personnel labor disputes or material delivery delays these situations not only threaten your revenue but can hurt your reputation as well it doesn't look too good when that lumber you ordered doesn't arrive on time for a client's project most of us have already experienced those crises on a minor everyday scenario so imagine these challenges on a national scale during a recession it's not pretty remember once again what we said about murphy's law if anything can go wrong it will so what should your checklist include your list for natural disasters and injuries might look a little different but here's what we feel is essential for a recession backlog income from upcoming jobs is vital have you confirmed with the client the job's still on are you 100 sure the materials have arrived or will be arriving soon can you reduce the labor needed for that job are you and your team fully prepared for the job so there's no delays equipment fleet are you 100 positive you need every piece of equipment in your fleet if not why not sell it or rent it unused equipment sitting around the yard does you no good during a recession materials do you have unused materials sitting around the yard why not sell that steel sheet piling before it gets rained on again heck hustling and selling used material around your yard might generate some solid income and increase your cash on hand today might even help that emergency fund personnel what are you going to do if an employee quits or gets sick the day on the job during a financial crisis there's no room for mishaps like this so you need a list of potential replacements right there on hand security theft is an issue to begin with and it only will get worse in a recession materials will start to mysteriously disappear from job sites even large pieces of equipment have been driven off in the middle of the night we recommend security cameras buy them now before you learn the hard way insurance do you have all of the necessary insurance have you reviewed your current insurance to make sure you've got the right coverage at the best price loans have you reviewed your current loans will you be able to afford them can you renegotiate with your lender attorneys all smart construction business owners have a good attorney on speed dial what if a client sues what if an employee gets hurt or what if there's a contract discrepancy and cash do you have cash handy for emergencies do you have some other checklist items to add hey drop them in the comments below so everyone will know about it hard work never fails and the bottom line is recessions are an inevitable part of the organic economic cycle they always occur and we're likely overdue for one right now but don't panic a little fear is healthy but panicking accomplishes nothing if anything be grateful the construction industry tends to perform pretty well during hard times many construction companies not only survived but thrived during the covid pandemic unfortunately other businesses like restaurants now they weren't so lucky but like we said in the beginning of the video don't worry you'll be fine just remember to work your butt off you

2022-03-22 19:01

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