How To Recession-Proof a Construction Business
It’s no secret that recessions can ruin a business. And because they happen frequently enough — about every three to four years — your construction business is likely to experience one during its time.
Luckily, recessions don’t have to be detrimental to your construction company. With the right knowledge and tools in your toolbox to recession-proof a construction business, you can come out on the other side still standing.
Learn how to recognize when a recession might be on the horizon and how implementing these 11 tips can help your business survive.
- CM Fusion: Helping Construction Companies Stay Organized and Efficient Through a Recession
- 5 Tell-Tale Signs in the Construction Industry That We Are Headed for a Recession
- 11 Ways To Recession-Proof Your Construction Business
- How CM Fusion’s Construction Management Software Can Help Recession-Proof Your Construction Company
CM Fusion: Helping Construction Companies Stay Organized and Efficient Through a Recession
Simply put, a recession can take down a business. Without understanding risk management and utilizing tools to help your company survive, you likely won’t fare well when the unavoidable time comes.
CM Fusion is a cloud-based construction management software designed to help construction business owners stay organized and connected with their businesses. Nearly every feature available through CM Fusion can help a construction company see its way through a recession.
With CM Fusion you can:
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Track costs
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Send and receive bids
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Communicate with suppliers and workers
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Track time; and
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Manage money
But CM Fusion allows you to do even more, including:
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Document management
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Track daily field reports
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Update and assign projects
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Upload project photos
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Track and control change orders
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Manage submittals
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And more
5 Tell-Tale Signs in the Construction Industry That We Are Headed for a Recession
Recessions are often triggered by external factors or events that cause panic in the financial market, thus having a domino effect on many other cities, businesses, or industries. The Great Recession of 2008 is an example of how economic decline severely affected the real estate industry.
As a construction company owner, a recession can strongly affect your business. Be aware of these five most obvious signs that a recession is coming for your industry.
#1: An Increase in Subcontractor Availability
If subcontractors — especially popular and talented ones — suddenly have more availability, this should be a red flag that a recession might be coming for the construction industry.
If you’re easily able to schedule a subcontractor and don’t have to play the game of dancing around a ton of potential dates, this likely means their schedule is freer due to fewer clients.
Although avoiding scheduling hassles and longer wait periods sounds nice, this could be bad news in the world of construction.
#2: More Real Estate for Sale
If you’re beginning to notice more “for sale” signs around your town, this could also be a red flag for the construction industry.
More homes going up for sale — and staying up for sale longer — means that they’re becoming unaffordable with the rise of mortgage rates. If people can’t afford to pay for their homes, the construction industry could be heading toward a recession.
#3: Federal Interest Rates Go Up
As federal interest rates continue to rise, so does the risk of a recession.
Big world issues like global pandemics and war aren’t solved overnight. These cause problems like supply-chain issues which drive up inflation and create a more unbalanced economy. And from experience, when interest rates begin to rise, a recession can be the result.
#4: Permits Aren’t Taking as Long
Generally, it takes about one to two months to obtain a permit to build.
This can vary from place to place, but obtaining building permits is usually not the quickest process. If you begin to notice that permits don't take as long to obtain, this could be a sign that the market is cooling down.
#5: Projects Are Being Postponed
As of August 2022, there was a shortage of about 430,000 construction-industry workers. Unfortunately, that number is expected to grow over the next few years.
A combination of labor shortages and inflation has led to many projects being postponed — a big red flag that recession is imminent.
11 Ways To Recession-Proof Your Construction Business
You know the signs. You’re aware of what can happen to your construction business if a recession hits. You’ve seen it before and want to avoid it happening again.
So how do you recession-proof a construction company?
Begin implementing these 11 tips to help keep your company from hitting rock bottom should a recession begin.
#1: Keep Cash on Hand
Having extra cash on hand might seem obvious, but a negative cash flow could be a reason why many construction companies fall hard when a recession hits.
Keeping a positive cash flow and having some reserve funds for projects is ideal. Because even with the most accurate bid cost predictions, there is always room for small errors and necessary adjustments.
Remember, having cash is critical, so don’t spend it unnecessarily.
#2: Focus on Employee Retention
If you’re not a business owner, what you might not realize is that hiring new employees costs a lot of money.
Typically, the process of hiring a new employee costs 1.25 to 1.4 times their salary, depending. Do you want to be continually hiring new employees? Probably not.
Focus on employee retention. You can save that extra money and instead focus on investing everything you can into your current best employees with the hopes of retaining them.
Consider offering things like:
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Training
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Promotions; or
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Raises
#3: Streamline Cash Flow Processes
Just as important as keeping cash on hand is making sure your cash flow process is streamlined.
How can you ensure to maintain a positive cash flow every month?
Work on:
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Creating budgets
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Staying on top of invoices; and
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Tracking costs as accurately as possible
If this sounds like a lot of work, CM Fusion’s construction project management software can help. Our software offers many features, including cost control, to ensure money is allocated correctly, is being spent wisely, and remains positive in your bank account.
#4: Know Your Costs
Knowing how much money you have and where it is being spent is important if you want to recession-proof your construction business. It can be difficult to keep up with the many different project expenses and costs of running a business, so investing in construction business management software can help.
With CM Fusion’s cost tracking feature you can:
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Minimize cost errors
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Keep from spending unnecessary money; and
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Become painfully aware of much cash you have on hand
#5: Have a Growth Plan
Without a plan, your business is less likely to succeed. Create a growth plan by determining what it is that your construction business does best and focusing on those things. Design a plan that allows your business to grow in the direction you know it is most likely to succeed.
But don't stop there.
Track your progress and revisit your growth plan every six months to a year to ensure what you’re doing is working. If it’s not, reassess and get back on track.
#6: Focus On Customer Service
Unhappy customers can cost construction companies huge money. And happy customers are one of the greatest sources of referrals for construction businesses.
Hone in on your customer service and listen to what your customers truly want to:
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Avoid delays
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Avoid change orders
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Avoid dissatisfied clients; and
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Increase your business with word-of-mouth referrals
#7: Cut the Fat
Don’t spend money on what (or who) is not making you money. This can apply to both people and things. If there is …
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Unused office space
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Unneeded support staff; or
… spending money to keep it or them around can put you in the red during a recession.
#8: Prioritize Spending
Think about how and where you’re spending money. By simply…
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Allocating your money better,
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Keeping an eye on project costs; and
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Prioritizing spending
… you can help maintain a positive cash flow.
#9: Invest in Insurance
Insurance is an investment, but paying into the right insurance can save thousands of dollars in potential out-of-pocket payouts when unforeseen circumstances arise.
If your construction company has insurance, it should already be part of your monthly or yearly budget. Now when situations arise, like employee or company discrepancies or site accidents, you’re not scrambling in your budget to find the money for the payout.
#10: Renegotiate Contracts and Service Agreements
It could be worth talking to your suppliers to negotiate contracts to potentially save money. This open communication can help you cut back costs on things your business needs or wants.
You can negotiate almost anything, so it’s worth a shot to help control costs and remain positive in cash flow.
For example:
You have an invoice for supplies that totaled $1,000,000. By negotiating as little as 0.2% with your supplier, you can save $20,000 on this one invoice.
Negotiate with as many suppliers and contracts as possible because every little bit saved adds up to money in your bank.
#11: Invest in Construction Management Software
A 2020 STACK Construction Technologies report showed that most construction companies still didn’t use construction management software. More than half (56%) managed their business through spreadsheets, while 26% still used traditional pen and paper.
But construction management software can provide an advantage to those companies who chose to invest in one. Construction management software, like CM Fusion, makes it easier to manage …
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Documents
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Projects
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Workers
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Money
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And more
… all from the palm of your hand. And having all of these ducks in a row can help save your construction business when a recession hits.
How CM Fusion’s Construction Management Software Can Help Recession-Proof Your Construction Company
Gone are the days of paper files, hand-delivering contracts, or clocking in to work with a punch card. Construction management software, like CM Fusion, makes running a business much smoother and paper-free.
And a well-run business has a better chance of surviving an impending recession.
CM Fusion is designed to help construction companies experience more seamless workflows from managing paperwork to knowing where their workers are at all times.
With CM Fusion you can:
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Manage documents
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Manage scheduling
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Track daily progress with field reports
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Task projects and assignments with due dates
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Track RFIs
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Create bids
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Upload project images
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Utilize construction punch lists
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And more
If your construction business needs a more stress-free work environment, utilizing construction management software is for you. Even more, these endless features can help get your business on track to survive any recession that might come your way.
Try CM Fusion out for 30 days for free before committing!
Try CM Fusion, risk free for 30 Days – Your first project is FREE!
If you are trying to figure out where to look now, our company CM Fusion offers a free version of Construction Project Management Software. Not to mention, our customers brag about it’s ease of use, so you should be able to sign up and start managing your projects in minutes.