In the current economic times, contractors find themselves between a rock and a hard place.
So, what should they do?
I suggest to either:
Be aggressive while there is still work out there.
OR...
Tighten up now before tough times set in.
In other words, it’s time for contractors to sit back and engage in 'strategic thinking'.
Navigating The Stormy Seas
When I use the word “strategic”, most contractors roll their eyes.
They consider “strategic thinking” academic speak which tends to make them restless.
On the other hand, a lot of successful contractors I have known eventually buy a boat.
So, let's use a boating metaphor...
When an experienced captain finds themselves in choppy seas, they don’t stare down at their compass and adjust the helm every time the needle moves off their plotted course.
Rather, they gradually nudge the helm toward a point on the distant horizon or a celestial object.
They know where they want to go and don’t let every small nudge on the bow cause them to oversteer.
They batten down the hatches, steer a true course, and never lose site of their intended destination.
They are engaging in strategic thinking.
Batten Down the Hatches
In the choppy waters of this post pandemic economy, trade and construction business owners are struggling to stay the course and not get distracted by every nervous economic prediction.
In stormy seas, the reliable captain "battens down the hatches" to stabilise their vessel and stay on course.
Trade and construction business owners in this post-pandemic disorderly economy need to "batten down the hatches”, stabilise their company, and wait till this economic storm passes.
In Search of Excellence
By “stabilise” your company, I mean set a goal of “excellence” in all company functions and spend the next two to three years implementing those goals.
The reason is that if it turns out that there is less work around, maximising performance on the work you have becomes critical.
The five most immediate goals as we navigate this choppy market are:
- Shore up your balance sheet. The most powerful tool in a contractor’s kit during down markets is a strong balance sheet. Rarely do contractors have an excess of cash on their balance sheet to see them through downturns. For the next two years, task yourself with improving your cash reserves and cash flow by aggressively collecting accounts receivable, eliminating capital expenditures, and trimming overhead to fit existing business activity. Free cash flow is the most important financial measure during stormy weather.
- Improve employee relations. There is no more valuable asset when things get tough than an experienced, well-trained, loyal workforce. Do not rely exclusively on human resources or “commoditise” your workforce that has partnered with you to build your business. Interact with and respond to employees throughout your company regularly and learn to listen. Personally welcome new workers at all levels and invest in in-house training programs that maintain and improve productivity.
- Improve customer relations. Your objective is to become the contractor of choice in your market area. Clients will label your company their “contractor of choice” only after you have completed multiple jobs for them on time and on budget. Stop all volume-driven “low-bid” work outside of your normal market. The appetite for growth at any cost becomes “too costly” in reputation and in down markets your company could be left off the preferred tender lists.
- Improve supplier relations. In this post-pandemic disorderly economy whipsawed by rampant inflation and impending recession, good relationships with your suppliers will be an essential stabilising factor. Paying on time, and being known for it, will go a long way in enhancing your reputation with suppliers and grease the skids if or when relaxed payment terms are needed to smooth cash flow. Being moved to the head of the line when short supply rears its ugly head depends on your ongoing relationship with your suppliers.
- Reimagine job selection. Do what you do best. Resist the (ego-maniacal) self-image of “we can build anything” that leads to overextending both your workforce and your finances.
There is no overacting even if a recession does not occur because it takes so long to prepare to prosper through a market downturn.
With a viable “threat” of a recession, prudence demands preparation.
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Article contributor: Dr Thomas C. Schleifer
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