Solutions for a Difficult Economy

We get a lot of questions about what contractors should do during a recession. My answer is really simple – Do What You Should Have Been Doing When Times Were Good! There’s no time like the present to start doing those things that would have made you more efficient and profitable during the good economy.

What sort of things?

• Don’t waste money on unnecessary capital expenditures or overhead. That doesn’t mean “Don’t Spend,” but just be certain that the spending is for necessary and beneficial costs. If you’re overhead is bloated with more staff than needed, more office space and expenditures than needed, or other questionable costs that you know the company really doesn’t need and doesn’t contribute in a meaningful way to the company profitability, cut it out! How much more profitable would you have been during the good times if you had taken this approach then?
• Take a Zero Based Budget approach to your overhead. Don’t just accept the rationale that we spent this amount last year, so we’ll spend 5% more this year. Look at every overhead cost and ensure that it is necessary and productive.
• Don’t stop marketing! Just make sure that your marketing efforts are properly targeted and cost effective. Marketing during a down economy will continue to build market awareness of your company so that when the economy does rebound, your sales efforts should slingshot forward, unlike companies that cut their marketing when the economy started to slow down.
• Control your job costs as if your company’s life depended on it, because it does! A recent survey showed that job cost slippage, or the difference between estimated job costs and actual job costs was the single largest predictor of success or failure among a select group of remodeling contractors. Failure to accurately estimate job costs and failure to produce the actual work according to the cost estimate result in lost profits that fall straight to the bottom line.
• Perform job autopsies to learn why you have job cost slippage. Job autopsies should be performed on jobs to determine why you did well on some jobs and poorly on others. The information learned from an autopsy should then be used going forward to improve on future jobs. See my white paper on Job Autopsies for more information.
• Use your technology wisely. If you have invested in Sage Master Builder, make sure that you are reaping the efficiencies available so that your staff is doing the best with the limited resources available. If you aren’t using a purchasing management system for subcontracts and materials purchases, consider implementing one to increase management control over such costs.
• Training is a wise investment. Training staff to perform their jobs more effectively is almost a no-brainer! Making sure that your staff knows how to use their tools the right way, whether it’s a new machine in the shop or Sage Master Builder will increase staff efficiency, enabling them to do more work in the time allotted. Like any other cost, make sure that the training is cost effective and time and cost savers like the internet are being used, rather than spending large sums on travel and lodging.

I often worry that the media is stampeding everyone into a doom and gloom scenario during this recession, prompting businesses to overreact to the economic forecasts. Pay attention to your own economic indicators and react to them appropriately.