Tips to Recession-Proof A Small Construction Firm

To to Recession-proof your construction firm
Posted by: Bruce Dugan Comments: 0

Many business owners don’t know how to recession-proof a small construction firm. No one wants to think about recessions. But in this example of a small business, let’s use a construction firm, and review ways for them to be prepared.

A recession can put a serious dent in your revenue, and if you’re not careful, it can even force you to close your doors for good. However, by taking some proactive steps now, you can withstand any economic downturn and come out the other side stronger than ever. The following advice is provided by one of the writers at Incognito Worldwide and focuses on what you need to do to recession-proof your small construction firm.

Reduce Expenses

If I was down to my last dollar, I’d spend it on public ralations

Bill Gates — Micrasoft founder and former CEO/ Chairman

Builtin Insurance notes that one of the first steps in preparing for a recession is to reduce your debt and cut costs wherever possible. Take a close look at your budget and find ways to trim the fat. Perhaps you can renegotiate vendor contracts or get better rates on construction materials. Do you really need such a large office building? If you lease, maybe move to a smaller space. Even small reductions in costs can make a big difference when revenue is tight.

However, according to A2Z Business Consulting, one of the areas you do not want to cut expenses in a slowing economy is marketing. Bill Gates had said public relations, but we’d argue that for smaller businesses it seemed more appropriate that they focus on SEO and other marketing components. Recognize the difference between sales and public relations to better grow your business.

Retain Your Best People

When making cuts, do your best to avoid layoffs if at all possible. The last thing you want is a personnel shortage when you have a new opportunity for a large project, or when the marketplace rebounds. If you absolutely must make cuts, Harvard Business Review suggests considering offering early retirement packages or voluntary reductions in hours instead of layoffs if possible. These steps will help you protect your employees while still reducing costs.

Tips to Recession-Proof Your Small Construction Firm

Watch Revenue Projections

It’s also important to closely monitor your revenue projections. You may need to adjust your prices or slow down the pace of new projects in order to stay afloat. Pay close attention to your financials and make changes as needed. The last thing you want is to be caught off guard by a sudden drop in revenue.

To accomplish this, there are a few things you should have done when you launched and maintained year-to-year, among them:

  • Set up proper accounting and accounting systems, including charts of accounts, budgeting, billing, and collections
  • Establish Key Performance Indicator (KPI) Charts
  • Use your budget vs actual, either through accounting software reports or the KPI chart to measure and adjust

If you need assistance with any of the above-mentioned, feel free to contact us for guidance or for us to set it up for you.

Improve Job Estimate Accuracy

Many construction firms underestimate the cost of jobs, which can lead to serious financial problems down the road. Take the time to itemize all expenses associated with each job so that you can submit accurate bids and avoid losing money on projects. You can ensure that errors are reduced or eliminated by implementing takeoff software, which also greatly increases the time it takes to send out bids.

Every step of your business, from marketing to job estimates, to client acquisition onboarding, job process, and completion, outsourcing, accounting, billing, and collection should have a set of process protocols utilizing business process management (BPM) whenever possible to automate and integrate a much as possible.

Seek a fresh set of eyes to make sure you haven’t missed key components.

Set Aside Cash

As the old saying goes, CASH IS KING! Lines of credit are also important.

A key part of preparing for a recession is boosting your cash reserves. This will give you some breathing room if revenues start to decline. Aim to have at least three to six months’ worth of operating expenses saved up so you can pay bills and meet payroll in the event of any hardships.

Revisit Your Business Designation

Many new business owners race to get incorporated without doing the homework to establish what is best for their type of business, or what state to incorporate in. There are a few states that are better than others to mitigate legal liability, while others are better for tax purposes. You need to assess these and weigh them all to find the best fit for your business.

Perhaps converting your LLC into an S corp or C corp is another optimal way to save money. This can help you save on taxes and payroll costs. Consult with an accountant or tax advisor before making any changes, but ultimately, this could be a smart move for your business during tough economic times. If you decide to make the switch, online formation services can make this a quick task.

A recession doesn’t have to spell disaster for your small construction firm — if you’re prepared. By taking some proactive steps now, such as reducing debt, building credit lines, cutting costs, and boosting cash reserves, you can weather any economic downturn and come out the other side stronger than ever before.

So don’t wait, start preparing for a recession today so that you’re ready for whatever tomorrow may bring, even if it’s another housing market crash.

Conclusion Tips to Recession-Proof Your Small Construction Firm

As previously written by one of the A2Z Business Consulting partners. starting a business is daunting, but sustaining its profitability, is more so. And while it is true that many businesses strategize themselves out of business because they don’t dig in to get stuff done, it is also true that that too needs a balance.

You have to make sure that you’ve set up the business correctly, and then set reasonable goals and reasonable expectations to achieve them.

It is easy when you launch a business and land a few accounts to see money come rolling in and expect it will continue to do so. It never does, and those that fail usually do so because either they don’t deliver on promises, or they simply try to build a bridge too far. And the latter is almost always continuing to expand without the proper cash reserves.

Many wonder what a business consultant costs. The better question is the cost of not hiring one and being sure that your business, processes, and systems are set up correctly.

Set up a free consultation today to find out or just ask a question

Sharon Wagner contributed to this article with Bruce Dugan

Image provided by Pexels

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