Steps for Preparing Your Construction Business for an Economic Downturn
As a construction business owner, you know that your industry is temperamental. There are times when business is booming, and you can’t keep up with the demand for your services. But there are also times when business slows down, and you have to tighten your belt to ride out the lean times.
Right now, we’re in the midst of a pandemic-induced recession. Construction activity has slowed down considerably, and many contractors are struggling to keep their businesses afloat. If you’re worried about how this recession will impact your business, The Virtual Consulting Firm shares some tips on how to fight the challenges that may come your way.
Carefully Estimate Job Expenses
One of the biggest challenges contractors face during a recession is accurately estimating job costs. With material and labor costs rising, it’s more important than ever to make sure that your estimates are as accurate as possible. Here are a few tips to help you get more accurate job costs:
1. Get multiple bids for materials and labor. This will help you ensure that you’re getting the best price for both.
2. Use software to help you estimate job costs. There are many different software programs available that can help you estimate material and labor costs for your projects, which can result in huge time savings.
3. Use historical data to inform your estimates. If you have data from previous projects, you can use it to help inform your current estimates.
4. Make sure your estimates include a contingency fund. Things always seem to cost more than we expect, so Levelset notes that it’s important to build a contingency fund into your estimates. This will help ensure that you don’t go over budget on your projects.
Change Your Business Status from an LLC to an S Corp. or C Corp.
If you’re looking for ways to save money during a recession, one option is to convert your LLC to an S corp or C corp. Doing so can provide significant tax savings for your business. Here’s how it works:
1. S corps and C corps are taxed at a lower rate than LLCs
2. S corps and C corps can deduct certain expenses that LLCs cannot
3. S corps and C corps can elect to be treated as pass-through entities, which means that they’re not subject to double taxation
Decreasing Debt and Cutting Costs
Another way to protect your construction business during a recession is by reducing debt and cutting costs wherever possible. Here are a few ideas on how to do that:
- Divvy suggests renegotiating loans with lenders
- Cut back on non-essential expenses
- Delay or cancel capital expenditures
- Reduce inventory levels
- Lay off employees
- Close unprofitable branches or divisions
Keeping Your Best Employees through Competitive Wages
During a recession, it’s more important than ever to retain your best employees. They’re the ones who will help you hold the fort down and come out the other side stronger. One way to retain them is by offering competitive wages. Here are a few other ideas:
1. Offer flexible work arrangements
2. Provide additional training and development opportunities
3. Offer bonuses or other incentives
4. Enhance employee benefits packages
5. Communicate openly and frequently with employees
Keep a Watchful Eye on Revenue Projections
Finally, one of the most important things you can do during a recession is closely monitoring your revenue projections. This will help ensure that you’re making the necessary adjustments to stay afloat during these challenging times. Here are a few tips on how:
1. Use software to track your revenue projections
2. Meet with your team regularly to review projections
3. Make adjustments to your budget as needed
4. Compare your actual results to your projections on a regular basis
It’s impossible to predict how long this recession will last or how deep it will be. However, by taking steps now to protect your construction business, you can stand strong and come out on top.
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This article was written by a guest writer, Linda Robinson.
