Seven 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. According to the US Bureau of Labor Statistics, the last recession caused nearly 1.5 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 like Construction “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 does continue during the worst recessions, they are not completely recession-proof. It is imperative for construction companies to strategize for success when there is a downturn. Let’s take a look now at how you can prepare so that you can survive long into the future.

Ideas for Helping Your Construction Company Weather a Recession

1. Don’t Rely On Backlogs

Relying solely on your backlogs alone can be risky. 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.

The most obvious idea is to touch base with your old clients. A call or email is a simple reminder of past projects. And if there is now a new person in that position, your call might be the perfect way to begin a relationship.

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 recent talent survey compiled by talent and risk consultant Deloitte suggests that a 2% increase in profit margins can come from a 15% increase in employee engagement. While this study is not directly talking about the construction industry, the principles apply.

Consider offering training for your employees. They will feel valued and empowered, and their increase in productivity is a plus for you.

3. Get Clear On Your Costs

Profit margins can be thin, especially in times of recession. 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, materials, and other expenses, the more effectively you can make decisions about your pricing structure. This will lead to better profit margins, which can mean the difference between survival and collapse during a recession.

And if any costs now look out of line, consider changing suppliers or at least try to renegotiate the terms.

>> RELATED READING: Pre-Purchasing Construction Materials — Time Savings Translates to Cost Savings

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 under-performing employees. This takes some serious consideration, but the hard decisions you make will keep you going so your business can survive for the long term.

Related to cutting is remembering basic efficiency (and not just on the job site). If you are doing repetitive tasks that are pretty much identical, look for ways to streamline or even automate. A very basic example: if you are writing the same email 10 times every day, why not make it a template and swap out the recipient’s name? Something that tiny can save time that adds up.

The point is, look at ALL your processes and see if they are the most efficient they can be. Analyze the steps and consider cutting out any that don’t make sense or contribute. Doing something because “that’s the way we have always done it” is not always the best course of action.

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 and be exceptional with what you offer. This will not only improve your business during a recession but long afterward as well.

6. Keep Your Cash Flow Stable

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.

Even when they store any “extra” money and pressure their clients for on-time payments, it might not always be enough. Temporary cash infusions will be required. Even if you have been a long-time client, traditional lending like banks tends to get even more stingy during these times, especially in the construction industry. This will mean companies will need to consider other cash flow buffers using alternative financing like Accounts Receivables financing. Companies like CapitalPlus offer these services to help bridge the gap during these difficult times. And we all know having options, especially in the financial department, is paramount during a recession… especially if your competitors don’t have them.

7. Step Up Your Marketing

One way to be proactive is to increase (or start) your company’s marketing. Being top-of-mind of the decision-makers is paramount and marketing is instrumental in this.

You should ideally push as much as you can afford to your marketing budget. The Small Business Administration recommends spending 12% to 20% of your gross revenue on marketing if you are a smaller or growing business, and between 7% and 12% if you are an established small business with revenues of less than $5 million.

If those numbers scare you, word-of-mouth marketing is practically free and always one of the best marketing tools. Network with others any time you can. Business cards are cheap… give them out. And if you do great work, people will have no problem referring you to others.

Supporting Construction During Recession

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 supplementing options to fit all needs… either immediately or proactively, that will get you the capital you need, often within 48 hours or less.

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