The pains caused by an economic downturn can be excruciating, which is why most of us dread it.
A recession can mean massive layoffs, jobs becoming harder to find, and wages frozen, which means consumers hunker down and spend less-- often worsening the slowdown unknowingly.
For most businesses, especially small businesses, recessions can be brutal. Just take, for example, the Global Financial Crisis (GFC) that struck the world in 2008. Between December 2008 and December 2010, approximately 1.8 million small businesses shut down. When Investopedia looked into the financial crisis's impact on small businesses after a decade, they found out that business creation has not yet returned to pre-crisis levels.
As the battle against COVID-19 is far from over, global financial markets have been impacted, consumers are tightening their belts, and global demand is falling. All these signs point to one thing: the next economic downturn may be right around the corner.
Don't get us wrong; we are not here to scare you. Our hope is for you to build a successful, future-proof construction business. That means you need to be aware of the possibility of another recession so you can prepare adequately.
Stay Close to Your Numbers
Without a crystal clear picture of your business' financial health, you will not create an effective strategy that will help you weather this significant business challenge. By making an effort to understand your financials, including your revenue, expenses, profits, and cash flow numbers, you will be able to plan accordingly.
Check-in with us and we'll help you review your cashflow forecasts. These forecasts will help you conduct best, moderate, and worst-case scenario planning. Doing this will help you make sound business decisions based on updated financial data, rather than being driven by emotion, intuition, or just guessing!
Improve Your Cash Flow
Cash flow is the lifeblood of your construction business, and ideally, you should be bringing in more income than the amount you are spending to sustain your business. However, before you can improve your cash flow, you must first ensure that you have accurate financial records and an effective accounting system.
Once you have these sorted out, it will be easier for you to control your cash position through:
- Payments from clients-- timely invoicing, chasing debts, and offering to restructure overdue payments
- Reducing your expenses by reviewing software subscriptions, renegotiating terms with your suppliers and lenders
- Secure financing from government stimulus funds, take on investors or get short-term financing. However, if you are thinking about incurring debt during a recession, we would recommend consulting with your accountant or financial advisor first.
- Make extra effort in nurturing your relationship with existing customers
- Enhance your products and services
Maintaining, Or Even Better, Growing Your Client Base
If you want your business to thrive during a recession, you likely need to grow your client base. One way to do this is by digging deeper into your target market and coming up with ways to tweak your offers to entice them to hire your services even during severe economic conditions. You should also research your competitors, identify your point of difference, and plan how you will communicate those selling points to interested customers.
We understand that getting more clients during a time like this is easier said than done, but what many business owners fail to realize is the fact that their existing customers are often their best opportunity to make more sales. Keep your clients happy, identify how you can add more value to their lives, and reach out to them to take advantage of untapped sales opportunities.
Focus On Your Strengths
The concept of "diversification" is usually taken in the wrong way. Merely adding a host of different products and services to your offerings will not magically transform your construction business. It may be a waste of time and resources and stop you from focusing on the things you do best.
During an economic downturn, you should re-evaluate your existing services, and focus on your key strengths or core competencies.
Improve Your Marketing Efforts
One of the most common construction business owners' mistakes is that whenever they need to minimize their expenses, they automatically cut their marketing budget or even re-allocate it entirely.
Marketing and sales go hand-in-hand. So if you want to keep a healthy flow of sales coming in, you need to have strong marketing.
In today's fast-paced world where consumers are restless, they will become even more careful in their buying decisions. Marketing is your tool to help them find and see your services as the best options. So instead of quitting marketing, now is the right time to step up your marketing efforts.
Don't Be Afraid to Play Offense
Those who go full survival mode and limp through the economic downturn will be much slower to recover and have a lower chance of catching up.
Secure your cash reserves and know when is the right time to play offense. Think about ways to innovate your services, streamline your operations to boost efficiencies, expand your market share by improving your offerings to be ten times better than your competition, and consider mergers and acquisitions.
There is No Fool-Proof Way
There is no specific strategy that will make your business 100% recession-proof, but these tips will make a difference in navigating through these difficult times.
In the business world, ups and downs are normal, and growth stalls are inevitable due to cyclical reasons. Thriving in a recession boils down to having exceptional industry expertise, getting better business visibility, implementing efficient processes and best practices, and having a business advisor who can provide you with expert guidance, fresh insights, and timely advice.
And, more importantly, condition yourself for success. Be-Do-Have. Be the person, do the work, have the results. In life, contractors produce reasons or results, and reasons don't count.
What's next for your business? Get in touch with us, and we'll help you work out a customized strategic plan for your situation.
About The Author:
Sharie DeHart, QPA is the co-founder of Business Consulting And Accounting in Lynnwood, Washington. She is the leading expert in managing outsourced construction bookkeeping and accounting services companies and cash management accounting for small construction companies across the USA. She encourages Contractors and Construction Company Owners to stay current on their tax obligations and offers insights on how to manage the remaining cash flow to operate and grow their construction company sales and profits so they can put more money in the bank. Call 1-800-361-1770 or firstname.lastname@example.org
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