Contractor Strategies for Weathering the Economic Downturn
While much of the Construction industry continued to operate throughout the COVID-19 pandemic – or suffered a much shorter shutdown than other industries – the impact of new safety measures, limited capacity on job sites and lost revenues are starting to hit bottom lines across the sector.
Even as job sites are remobilized around the country, it is more important than ever to implement strategies that prepare your construction company for the ongoing effects of the pandemic, possible virus resurgence and economic downturn.
Cash flow should be on the top of every contractor’s mind during an economic downturn. Cash is always important, but never more so than when you are faced with major changes to your revenues and expenses, like the ones brought on by the COVID-19 pandemic. Preparing a rolling 13-week cash flow projection that assesses your company’s financial position can help you make confident financial decisions based on a new reality.
Despite the many unknowns of this economic crisis, there are many factors on which you can base your cash flow projection. First, remember that the economic impact is also being felt by your customers, so openly communicate with them to understand their ability to pay. Evaluate the impact that stalled projects and backlogs will have on your revenues. Work closely with your project managers to understand the realistic timeline for job completion and payments. And finally, don’t forget to factor the added costs of project remobilization, staggered shifts, new health protocols and increased insurance costs into your cash flow projection.
During an economic downturn, workforce planning is also key. While it is never ideal to lose any employees – especially in an industry plagued by labor shortages – it may make the most financial sense to furlough or terminate a certain portion of your workforce. Other strategies include pay reductions, salary reductions or forced use of paid time off.
If you do not have an in-house Human Resources function, consider hiring an HR Consultant or outsourced Chief HR Officer to help you make these important decisions.
Strategic Job Selection
While you may want to jump on the first job that becomes available during an economic downturn, be strategic and selective in the projects you take on. The job will not be profitable if your company doesn’t have the skills, technical proficiency or experience required to succeed in a particular niche and comply with its unique regulations.
The future may be far from clear, but these tried-and-true strategies can strengthen and prepare your company for many different scenarios that could lie ahead.
This article originally appeared in the October issue of the New Jersey Land Improvement Contractors newsletter.