Six Ways Construction Companies Can Work to Be Recession-Proof

There are multiple industries that can easily survive a recession. Some even thrive during difficult times. History has shown that the construction industry is not typically one of them. In fact, construction is usually one of the hardest-hit industries during recessions. The last recession caused nearly 2.5 million layoffs in the construction sector. In addition, nearly 150,000 construction companies closed their doors permanently during that time.

While other industries bounced back relatively quickly after the recession ended, recovery for the construction industry was slow. Companies in this industry cannot afford to be unprepared for the upcoming predicted recession or they may not survive.

First, What Makes an Industry “Recession-Proof”?

A recession-proof industry is usually defined as one that is critical to the sustainability of society, no matter the crisis. This can show up in many ways, such as:

• Industries that provide essential maintenance or repair services for objects and people. Auto mechanics and healthcare services are examples of these industries.
• Industries that supply needed commodities. Grocery stores, drug stores, and gas stations are included in this category.
• Industries that offer discounted prices. Fast food chains and big box stores are examples of these.
• Industries that provide public works services. Electricity companies and gas companies fall under this category.
• Counter-cyclical industries. These are companies that actually thrive when the world is going through a recession. Debt collectors and bankruptcy attorneys are a part of this category.

While construction certainly continues even during the worst recessions, they are not considered recession-proof. It is imperative for construction companies to strategize for success when the next recession comes. Let’s take a look now at how you can prepare your company for crisis so that you can survive long into the future.

Ideas for Helping Your Construction Company Weather a Recession

1. Don’t Rely On Backlogs

If you rely on your backlogs alone, you may find yourself suddenly without any work. Projects can be put on hold indefinitely or canceled altogether. Rather than place all your hopes in your backlogs, create a strategy now outlining how you’ll drum up new work during a recession.

2. Hold On to Your Best Employees

Focus your efforts on keeping your best workers happy so you have reliable help during an economic downturn. This may mean offering higher wages to stop them from seeking employment elsewhere. While paying more during a time when money can be scarce may seem counterintuitive, you will lose more money overall with subpar help.

There are other, options for keeping employees happy outside their wallets. Getting team feedback is always a great way to get buy-in and ownership of projects. A 2020 talent survey suggests that a 2% increase in profit margins can come from a 15% increase in employee engagement. While this study is not specific to the construction industry only, the principles apply.

3. Get Clear On Your Costs

Profit margins can be thin, especially in times of crisis. They’re made even thinner when you don’t have a clear picture of your overhead costs. The better you know the exact price for your labor and materials, the more effectively you can price your projects. This will lead to better profit margins, which can mean the difference between survival and collapse during a recession

RELATED READING: Innovative Ways of Saving Time and Money Using Materials Financing

4. Cut Non-Essentials

In times of scarcity, we must dispense with the dispensable in order to preserve the essential. You may need to sell extraneous equipment and lay off employees who are not performing at a high level. This takes some serious consideration, but the hard decisions you make will keep you going so your business can survive for the long term.

5. Lead with Your Strengths

A recession is not the time to venture into new territory. It is, however, the perfect time to leverage your strengths as a company. What makes you different from your competitors? What sets you above the rest? Lead with your strengths and specialties when securing new work, then follow through on what you offer. This will not only improve your business during a recession but long afterward as well.

6. Keep the Cash Coming

We all know, a lack of cash flow is a major reason why many construction companies fail. When a recession hits, cash flow becomes a much more serious issue. They need to be able to pursue projects, and may also need to simply sustain without work for a time. Either way, they need a backlog of cash. A combination of saving money where possible and ensuring that invoices are paid on a timely basis is needed to survive a recession.

And of course, one great option for having a cash flow buffer is using an option like Accounts Receivables financing. Companies like CapitalPlus offer these services to help bridge the gap while waiting for invoice payments. And we all know having options, especially in the financial department, is paramount during a recession… especially when your competitors don’t.

If you would like to discuss options that AR financing supports your construction business during a recession (or any time), contact us. We have cash-flow options to fit all needs… either immediately or proactively, to get you the capital you need, often within 72 hours or less.

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