11 Tips to Recession-Proof Your Construction Business

26
May 2022
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During the Great Recession, the construction business industry suffered greatly. More than 2.3 million jobs were lost in the construction industry when workers left for greener pastures, early retirement, or because of layoffs.

Is it possible to recession-proof your construction business? There are definitely some steps you can take to help your business survive a recession.

1. Stress Test Your Company

Knowing your company's vulnerability is imperative, and not just during a recession. When you stress-test your construction business, you can be prepared for times of economic uncertainty. Follow these steps to stress-test your company:

  1. Evaluate the amount of cash you use.
  2. Project how much cash your construction business needs for the next six months to a year.
  3. Calculate how much time you need to get more cash.
  4. Use cash flow reports to make projections.

2. Nurture Relationships with Loyal Customers and Partners

When the economy is bad or in decline, it's the best time to focus on customer service and strategic partnerships.

Having a robust relationship with your best customers and partners will help everyone involved weather the storm.

3. Keep Your Best Employees Happy

Skilled labor can be hard to find, so keeping your best employee happy during challenging economic times is a must.

When new workers enter a construction business, they typically lack the same expertise and skill as veteran employees.

4. Keep an Eye Out for Signs of a Recession

If you know a storm is coming, it's easier to prepare. The same concept applies to a recession.

One way to know a recession may be pending is drastic economic changes such as stock market dips. Another key indicator of a pending recession is a financial panic. You'll begin to see customers react by backing out of construction projects.

5. Avoid Relying on Backlogs

Most construction companies have a backlog of projects. However, you can't count on these backlogs during a recession because projects may be canceled or put on hold.

Instead of relying on backlogs, strategize how you'll keep new work coming into the business.

6. Cut Excess or Non-Essential Expenses

If you have equipment that's sitting idle or employees who are ineffective, a recession is a good time to evaluate where you can cut some of these unnecessary expenses.

A recession is a time to stop spending money that doesn't directly relate to your strategic growth. This can also be a good time to downsize your inventory.

7. Diversify Services and Revenue Streams

During a recession, customer demand often changes. A great way to respond to shifts in the economy is to focus on projects or services that are in demand.
Brainstorm ways you can diversify your service offerings.

8. Keep as Much Cash on Hand as Possible

Work can become more scarce in a recession. Having cash on hand can alleviate much of the stress involved during lean times.

It's always a good idea to have enough cash to cover overhead and operating expenses.

9. Protect Your Lien Rights

Project funding can be one of the first things to quickly disappear in a recession. In some cases, expensive or large construction projects are paused pending a better economy.

It's essential to protect your lien rights in the event a customer goes bankrupt.

10. Continue to Invest in Marketing

Some construction businesses make the mistake of cutting advertising and marketing during tough financial times. Keeping your company's name out there is essential to continue bringing in revenue.

11. Innovate Whenever Possible

If your brand is visible, customers see your construction business as stable. Also, advertising costs are usually cheaper during economic downturns.

Using advanced technology and innovation can improve the productivity of your construction business. Work can be faster, more efficient, and easier.

Don't fear the possibility of an upcoming recession -- with some pre-planning, strategy, innovation, and a bit of luck, your business could become recession-proof.
 

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