Building Resilience: Key Actions for Trade Contractors to Withstand Recession

In 2022, TD Securities predicted a 50% probability of the United States experiencing a recession in the next 18 months. This is partly due to the construction industry's previous struggles during the recession. 

For instance, between 2007 and 2013, many construction firms decreased by almost 150,000, resulting in over 2.3 million job losses due to layoffs, early retirement, and employee attrition. 

Although the next recession may not be as intense as the previous one, the construction sector has faced challenges such as inflation, supply chain disruptions, and an ongoing labor shortage. 

Therefore, construction business owners are advised to begin taking steps to recession-proof their companies to safeguard against any unforeseen challenges. 

This is a wise move, regardless of whether or not another recession occurs, as it will help establish a strong and resilient business capable of overcoming any adversity. 

Whether it is a recession, subcontractor defaults, unprofitable projects, or other potential business-ending disasters, the following are some strategies to ensure the ongoing success of your organization.

Top 4 Things that Contractors Can Do to Survive Recession

1. Get a Comprehensive Understanding of Your Company's Finances

It is common for business owners to feel like money is leaving their company, but they may not know how much or where it's going. 

This feeling can be tolerated during good economic times, but during tough times, gaining control over expenses is important. 

Construction Experts suggest that companies making over $3 million annually allocate 15% of their revenue to fixed expenses, amounting to approximately $450,000 for a $3 million per year business. 

Several microsoft appsource construction software provides a list of fixed costs that construction businesses might incur, including rent, labor costs, insurance, utilities, government fees, licenses, and taxes. 

Understanding these fixed costs can help with strategic decision-making about variable costs. 

Experts also recommend reviewing supplier contracts and considering which costs are fixed and which could increase. 

They also suggest pre-purchasing materials and considering the supplier's ability to maintain inventory levels during a recession. 

Finally, it's vital to maintain cash reserves during tough times, as cash provides bargaining power with vendors.

2. Take on Dedicated Projects Cautiously

During a recession, taking on more risk or expanding your business is not advisable. Instead, focus on providing the best quality of work in your area of expertise and search for stable projects to maintain a steady flow of work. 

To prioritize commercial projects during a downturn, experts recommend taking advantage of the Infrastructure Investment and Jobs Act, which will provide $350 billion in public infrastructure spending until September 2026. 

Additionally, the CHIPS Act and the Inflation Reduction Act are creating further opportunities. 

Turmail cites electronic vehicle manufacturing facilities in Kentucky,  Tennessee, Georgia, and Texas as locations with strong construction demand that could survive during and after a recession. 

However, it is essential to continue seeking opportunities and not depend on backlog work to sustain your business during a recession. This is where construction software for subcontractors can help to simplify the work process. 

During the previous recession, many construction firms saw backlogs of a year as projects were put on hold or canceled due to financing issues. 

As a result, it is critical to start devising a strategy for keeping work coming in during lean times.

3. Consider Alternatives to Reducing Costs, Such as Avoiding Layoffs

The cost of labor is the largest expense for most businesses, and when looking to reduce costs, business owners often turn to cut jobs. 

In preparation for 2023, many small business owners have either paused hiring or plan to do so, according to a survey by insurance carrier Nationwide. 

However, cutting jobs during a recession can be detrimental to a business, as layoffs harm workers and can be costly for companies. Instead, some businesses opt for operational improvements to save money. 

If cutting labor costs is necessary, layoffs, hour reductions, and performance pay are suggested by experts. 

4. Optimize Your Technology Resources and Secure Your Construction Business Against Economic Downturns

To ensure operational efficiencies, it is crucial to ensure that your teams are using the appropriate digital tools. 

Suppose the microsoft appsource construction software used is too extensive for the job. In that case, it may come with unnecessary features, leading to users customizing the tool too heavily or creating complicated workarounds to suit their needs. 

We have a guide to help select the appropriate software for trade contractors. Still, for recession planning, it is vital to consider three tips from that guide: 

• First, comprehensively understand and outline your team's regular operations. This will allow you to determine whether a piece of software will suit your team as soon as you try it out. 

• Second, match these operations with specific features, enabling you to compare software offerings easily. 

• Finally, ensure that any new software you purchase is user-friendly. Any efficiency gains made by investing in tools that your team members struggle with will be lost.

Conclusion

A recession can worsen the problems of a construction company that is already struggling. This could eventually lead to the closure of the business. 

Therefore, it's essential to take action now and focus on areas such as improving cash flow management, increasing project productivity, and enhancing overall operational efficiency.