Planning for Success in Lean Economic Times

Blog
April 23, 2020

Seasoned construction contractors and sub-contractors understand that bullish economic cycles are inevitably followed by leaner market conditions. Amid the economic uncertainty brought on by the COVID-19 health pandemic, it is a very good idea to check your company’s preparations to ensure you can survive through a prolonged economic downturn. Although the construction industry usually lags behind economic cycles, contractors should always pay close attention to some of the early warning signs of an economic slowdown such as:

  • Productivity decreases amongst the architecture and engineering communities.
  • Available projects shrink and participants on bid lists grow.
  • Supply and demand drive bid margins down.
  • Financial institutions (banks/sureties) start tightening lending products and more stringent risk conventions are put in-place.
  • Account receivables start to lengthen out.

Where there is smoke, there is bound to be fire, but contractors should not panic. Instead, they should be developing a shrewd executable contingency plan for these uncertain economic times. As your on-going projects proceed and backlogs continue to churn, consider taking these steps to shore-up your internal operations:

  • Spend wisely: Don’t spend frivolously or let company spending get out of control. With the workforce shifting to more remote working conditions amid health concerns, companies should invest in technology, training & digital marketing.
  • Proactive cash management: Liquidity crunches should invoke owners to take a more thorough approach to their bottom lines. Owners should have regularly updated 30/60/90 day cash and revenue forecasts that clearly detail where money is spent and received from operating, investing, and financing transactions.
  • Focus on staffing issues: In an industry already suffering from labor shortages, owners need to be cognizant of further workforce disruptions and productivity losses from employees affected by the current health pandemic. When factoring in potential longer term project delays and/or outright project cancellations, owners may be forced to consider making tough decisions regarding employee furloughs.
  • Stress communication: Be as transparent as possible in reporting to employees how the company is doing, and what your expectations are of them. Ensure company management and project management teams are in lock-step on project updates and critical paths.

Assessing your company’s current condition can be helpful in making decisions that are paramount to the future success of your organization. Taking a detailed inventory of your short and long term company goals can help map out an actionable plan to avoid potential costly pitfalls. Detailed planning efforts may entail some of the following key concepts:

  • Be careful about shifting into new markets. Focus on markets you know well, and pursue projects you already execute successfully as a company.
  • Get closer to the field work (depending on COVID-19 related restrictions). Sending an “all hands on deck” mentality can help prevent fee erosion and can be good for field staff morale.
  • Reconsider any hiring of “non-essential” staff that may be in the works.
  • Reanalyze proposed new equipment purchases. There may not be enough cashflow to cover the purchases.
  • Reevaluate office expansions, renovations or office moves. Afterall, do you really need more space and overhead cost burdens?

If you have any questions regarding this blog, or other business inquiries, Aronson’s construction team is here to help you. Please contact Brendan Bohan or Tim Cummins to discuss planning strategies we can assist you with during the current health pandemic and beyond. For additional guidance on cash management during COVID-19, read here. For more resources on COVID-19: Construction and Real Estate, head over to our hub.