As much as we’d like the good times to last forever… the reality is, they don’t.
It’s just the nature of the economy.
We saw this over a decade ago following the GFC (Where a lot of trade business owners took massive hits to their companies).
For many their revenues were cut in half…
They were forced to let staff members go...
And unfortunately, thousands of trade business owners went into debt and many of those had to later file for personal bankruptcy which was just a devastating blow to the industry…
Which is why I believe that now is the time to get in early, pull your head out of the sand, and start planning for the future to stay ahead of the curve and best prepare.
I know there’s still plenty of work coming through the door right now BUT the hard reality is we know a downturn is coming.
And when the recession comes, you don’t want to be caught with your pants down.
Because if you’re prepared, and you’ve got everything sorted…
This could actually be one of the greatest opportunities that you’ll ever see in your business.
History has shown us that those who have dramatically amplified their success or wealth have typically done so, on the back of hard times…
You just need to be prepared.
Because when the fog clears, and the skies open up… the trade business owners who were prepared will have an ocean of opportunity come their way.
You just need to make sure you’re in a position to capitalise on it.
Because most trade business owners won’t be...
When the flood gates re-open, that’s when most will go under, which might sound counter intuitive, but at the beginning of a downturn, for most businesses, their cash flow’s great!
Money owed from past jobs continues to flow in and less money is going out to deliver future jobs, because less work is being performed.
But in a market recovery… the opposite happens. It switches.
And this is because there isn’t enough cash coming in from past jobs delivered during the downturn, to fund the increase in workload coming from the up-cycle…
The business needs more cash to grow and tackle new opportunities, than what it’s bringing in. There’s a lag effect that’s taking place…
And we saw a bit of this in Sydney and Melbourne during the covid pandemic in 2020 and 2021… where trade businesses were able to survive the shutdowns themselves… but once everything reopened, they’d drained themselves of cash, they were in debt, and they couldn’t fund the work that was coming their way…
It was tragic.
But if there's any silver lining, we can use this as a lesson of what to expect in this upcoming downturn.
This isn’t just about just surviving a recession… It’s about being in a position to thrive on the other side when the flood gates of opportunity open… because as much as it pains me to say this… most trade businesses just won’t be able to.
They’ll be in a tight cash position, or maybe even in serious debt, and they won’t be able to capitalise on the recovery.
That’s why, boosting cash flow now is more critical than ever.
You want to be in a position to capitalise on the bounce back.
You’ve got to play the game smart here guys...
And that means, prioritising cash flow.
Cash flow is king in your business. It’s the lifeblood. The oxygen.
You can get away with okay people, okay strategy, and even okay execution, but if you run out of cash it's game over.
That’s why both protecting and boosting cash flow has never been more important than it is today. Costs are rising… inflation is rising… there’s greater volatility… more red tape… more uncertainty… and a potential recession in the cards…
Strong Cash Flow is the key to surviving the tough times ahead, and more importantly, thriving in the recovery.
So, my challenge to you as a trade business owner is to ignore all the distractions around you and to only stay focused on what you can control.
Because the decisions you make now will determine the outcome of your business over the next 6, to 12, to 18 months from now.
So, follow these 7 steps to make sure you're ready for what's coming.
1. Control Cash Flow
Make sure that you have a tight handle on how fast cash comes in and out of your business.
Monitor what’s going on in a forecast with the aim to increase cash coming in and decrease cash going out.
Have your payment terms, timelines, processes, and collections absolutely dialled in. Avoid trouble clients at all cost. Don’t fund your own projects.
And let no money go uncollected under any circumstances!
2. Protect Your Gross Margin
Resist the temptation to follow volume driven contractors and drop your prices.
Trying to maintain volume in a downturn is just plain dangerous. Aim for the following margins as a rough guide:
• Maintenance/Service: 55-60%+
• Residential projects: 50%+
• New Builds: 35%+
• Builder renovations: 40%+
• Commercial: 30%+
Also back cost each job/project to track how you’re actually performing!
3. Carry A Light Pack
If you’re going to climb a mountain would you rather do that with a 50KG backpack, or a 10KG backpack?
That’s how I want you to look at your overhead.
The recession is the mountain, so, make sure you keep your overhead lean.
Commit to bringing only what is necessary for the climb!
From our experience, most healthy trade businesses have an overhead that accounts for around 20 to 25% of their revenue.
4. 10X Your Marketing Efforts
One of the biggest mistakes people make going into a recession is they stop marketing their business.
But if you want to survive and actually kick some tail you’ve got to double down on your marketing and build your brand – starting now.
Be smart. Identify your main lead sources, your main work types, and client types that feed you the best work… That way, you know where to put your time and your money.
Know what works and do more of it.
5. Improve Customer Experience
You can do all the marketing you want.
You can take your clients out to dinner or golf trips as much as you’d like.
But if the customer experience and service that you’re providing throughout the job is the same as all of your competitors… then you’re going to be at the mercy of price.
Most contractors are competent and just about all can do the work.
But the one who creates a positive, professional, respectful experience for their customer will just about always be the preferred contractor.
6. Have Cash Reserves
You need a cash cushion in business, especially in the downturns.
It’s your security and safety net if things go wrong.
What happens if a top performing employee leaves? A key client drops you? Or you’re unexpectedly struck by an illness?
You need cash!
If you have to jump to a line of credit when things get tough, your business could spiral into a bad debt situation quickly.
Not to mention, that credit is only going to be harder to come by when traditional banks stop lending as much coming into a downturn…
7. Use Specialist Trade Business Accountants
Behind every highly successful trade business owner, there is a team of financial experts and administrators helping them to keep their finger on the financial pulse of their business – while they get on with the job of running the business.
Regardless of your size, trade, or market... up-to-date, accurate and proactive accounting, tax management, bookkeeping, and strategic business advisory are essential when it comes to success.
ESPECIALLY in an economic downturn.
If you're an electrician, plumber, painter, carpenter, or any other tradie business owner turning more than $1M a year looking for assistance with your tax, accounting, bookkeeping, and business advisory - click here to learn more!
