Smart Business

The construction industry has been living a charmed life for most of the 1990s and continuing through last year. Never in my all-too-lengthy life span has our country witnessed such sustained prosperity. For most of the last decade, even people who didn’t know what they’re doing were able to make money.

It’s questionable how much longer the economy can continue to tick so lustily. Most economists are not saying the lights are about to go out on the party—they never do—but all of them seem to be saying that the guests are getting tired and the booze is running low. Housing starts are predicted to decline this year. As of this writing, the stock market has been in a year-long slump. Economic growth has been slowing down, and everyone knows we are long overdue for a recession.

If that happens, it’s not just the shleps who will get hurt. Plenty of otherwise astute contractors tend to get lulled into complacency during a strong economy. In fact, any of you who started in business for yourselves during the last seven or eight years have never as a business owner experienced the downward stroke of an economic cycle.

Tightening the belt

I’ve lived through several such cycles during my business writing career, and the difference is like scratching for runs in a 1-0 game as opposed to swinging away in a slugfest. When construction slumps, hordes of craft workers get laid off or suffer cutbacks in their hours. They try to pay bills by picking up jobs on their own, and they market themselves the only way they know how— by underbidding everyone else. Owners and GCs who used to find themselves “stuck” with certain subcontractors during a labor shortage suddenly find plenty of subs knocking at their doors desperate for work. The equation becomes more and more labor, willing to work for less and less, chasing fewer and fewer jobs. It’s not a pretty sight.

If you are the kind of contractor who could always rely on a steady supply of work from trusted clients, you may suddenly find yourself having to bid jobs you used to get selected for, and re-bid some of those you think you’ve won. If your only marketing consisted of waiting for the phone to ring, it may be time to start preparing to chase some work.

The construction economy, especially for subcontractors, has always been devilishly tough to predict because so much time frequently passes from the time a job is awarded until work begins. Your job backlog may look pretty good for the next three or six months, but what if things suddenly go south after that? If you wait until everything dries up, you could end up with large holes in your schedule and nothing to fill them. That’s when the temptation sets in to bid jobs “at cost” just to keep your crews busy.

Here are some of the things you ought to be doing to prepare for a downturn. What if a downturn doesn’t come? Great. None of the following suggestions will hurt you one bit in a healthy economy. They’ll just make you stronger.

Take 5

1. Come up with a marketing plan. Hire a marketing pro to prepare some brochures, mailings and presentation materials, as well as a game plan for productive networking. Come up with a budget to spend at least 3 to 5 percent of your revenues on developing future work.

This may seem like a silly thing to do when you’ve got more work than you can handle. But what you do now will not start paying off until at least six months down the road, when your workload may be drying up. That’s not the time to start a marketing plan. That’s the time to start reaping the benefits of one.

Your marketing plan should emphasize connecting with established clients. All studies show that it costs much more to attract new business than it does to generate more work out of the people you already know. By all means reach out for new customers, but make that a secondary part of your marketing program. First try to make sure you’re getting everything you possibly can out of the people who already know you.

2. Start cutting overhead. Examine how much you personally are taking out of the business during these heady times. You deserve all those little perks and bonuses you’ve been rewarding yourself and your family, but now’s a good time to start defining what is essential to your lifestyle vs. what’s a luxury. If business slows and starts eating into profits, the extravagances will have to go.

It’s not only your personal expenses that may have gotten bloated. When times are good, every business tends to grow lax in paying attention to what pays for materials, insurance, office supplies, etc. When’s the last time you bid or shopped around for all that stuff? Start getting in the habit.

3. Prepare your staff for lean times. Just like you, some of your key people may have adjusted their lifestyles to accommodate nice annual bonuses. Warn them in February that next December may not be so kind, rather than wait until they run up the credit cards with Christmas purchases.

Fight your tendency to approve any staff request for time off, for office furnishings and decorations, for holiday parties and other perks that cost money you can afford now, but may not be able to down the road.

4. Crack down on deadbeats. When you’ve got plenty of work and progress payments are flowing, it’s easy to grow lax in collection efforts. But the older the debt, the harder it is to collect. By letting things slide now, you may be laying the seeds for really hard times later this year.

5. Narrow your focus. It’s good to read a few business books and focus on the “big picture.” But when times get tough, you need to zero in on the things that directly make you money, i.e., producing quality work, on time, at a reasonable price. Anything that doesn’t concern those elements needs to be a secondary priority.