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By: Kendall Jones on July 15th, 2022

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6 Tips to Recession-Proof Your Construction Company

Operating Insights

There's over a 50% chance the United States could slip into a recession within the next 18 months according to TD Securities. The construction industry really took it on the chin during the Great Recession. The number of construction firms fell by nearly 150,000 between 2007 and 2013 and over 2.3 million jobs were lost due to layoffs, early retirement, and workers leaving for greener pastures. 

While the duration and impact of the next recession probably won't be as bad as the Great Recession, the construction industry has already been dealing with supply chain disruptions, inflation, and an ongoing labor shortage.

Construction business owners should start looking at ways to recession-proof their construction business now. Even if another recession doesn’t hit, building a resilient business that can weather any hardship is always a smart move.

Whether it’s a recession, a couple of unprofitable projects, subcontractor default, or some other business-ending catastrophe, here are some tips on how to ensure your company’s continued success.

Have Cash on Hand

Squirreling away enough cash to get your company through tough times is a good idea. You don’t want to hinder your company’s growth by hoarding cash rather than putting it to work. If work gets scarce you want to have enough reserves to cover your operating expenses and overhead for a few months to supplement any shortfall.

Don’t Rely on Backlogs

During the last recession, many construction firms saw backlogs of nine to 12 months slowly disappear as projects were put on hold or canceled altogether because no one could get financing. Now’s the time to start strategizing how you’ll keep work coming in when things get tight. This could mean focusing on one or two niche areas or expanding your current offerings to offer more to your clients.

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Keep Your Best People

Construction employment hit a 10-year high last month and has been inching ever closer to prerecession numbers. Despite that, the construction industry is still dealing with a skilled labor shortage. New workers coming into construction don’t have the same experience and expertise as the veteran employees lost during the last recession.

If you want your business to survive another economic downturn, you’re going to need your best workers to get you through. This means offering competitive wages or other incentives and winning enough work to keep them busy.

Know Your Costs

Rising material and labor costs combined with increased project complexity and shorter timelines has resulted in razor-thin profit margins for companies that don’t understand their actual project costs, including job costs and overhead costs. Better knowledge and understanding of how much each job costs will lead to better estimates and higher profit margins.

Play to Your Strengths

What sets your company apart from your competition? Is it the quality of work, your ability to deliver projects on time and within budget, or your expertise in a niche market? Are there certain types of projects or service areas that are more profitable for your company than others? If work starts to dry up, you’ll want to lean into the type of work that you excel at in order to weather the storm.

Cut the Fat

Take a good hard look at your current operations. Are you overextending by taking on too many projects at once? Do you have equipment sitting idle for months at a time? Do you have employees that aren’t pulling their weight? Are you spending money on things that aren’t directly related to your strategic growth? If you answered yes to any of these questions, now is the time to cut the fat and get your company into a lean, mean, recession-fighting machine.

If your construction company is already having issues or struggling, a recession is only going to exacerbate those problems and force you to close up shop. Now is the time to work on things like tightening your cash flow, increasing your productivity on projects, and improving how efficiently your company runs.

Ready to get your construction business prepped for the next recession? Find out how ConstructConnect can help you find the right projects for your business.

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About Kendall Jones

Kendall Jones is the Editor in Chief at ConstructConnect. He has been writing about the construction industry for years, covering a wide range of topics from safety and technology to industry news and operating insights.