Navigating Your Construction Business Through a Recession
The U.S. economy is on the verge of a recession by all indications, and the construction industry is already feeling the effects. High prices, material shortages, and a severe lack of skilled labor have put thousands of contractors, architects, and other construction professionals out of work.
Although the situation is less than ideal, you still have a business to run. Here are five essential tips for navigating your construction company through a recession.
Photo by Joe Holland
1. Embrace New Technologies
Unprecedented times call for unprecedented measures. You may have to invest in new technologies to combat the construction industry’s economic challenges. There are two categories you should look into — big data and automation. These technologies can help you keep your projects on schedule and avoid cost overruns.
Some skepticism is understandable, but the construction industry is changing fast. According to a 2021 industry survey conducted by KPMG Global, construction and engineering professionals have the greatest confidence in the following emerging technologies:
Project management information systems
Building information modeling (BIM)
Advanced data analytics
Construction drones
Smart sensors
Mobile communication platforms
A project management system seems like a no-brainer, but only 29% of construction managers consistently use their software. If you want your company to survive the recession, you must use the technology at your disposal. Speaking of which, BIM is an absolute must-have for all construction companies moving forward.
BIM produces detailed three-dimensional models of everything from furniture to plumbing to electronics. You can’t avoid cost overruns and project delays during a recession, so you must do everything you can to reduce design and building errors and simplify collaboration with other professionals.
2. Prioritize Risk Management
Risk management must be a top priority for businesses when going through a recession. Many factors outside of your control can put you behind schedule, including material shortages overseas, equipment malfunctions, and suppliers going bankrupt. The only thing you can do to combat these problems is to know your company’s vulnerabilities.
Risk assessments should be a routine part of your risk management strategy. As a general rule, you should perform an assessment whenever you have limited knowledge of a hazard and how it might affect your company. These hazards can even include things like new design ideas, technologies or suppliers. If they’re foreign to your operation, they require a risk assessment.
Stockpiling tools and materials is another important part of navigating risks in the midst of a recession. You never know when another shortage might strike. This strategy also gives you a chance to build a raw material inventory and get involved with trending sustainability initiatives in the construction industry.
3. Retain Your Best Talent
Skilled labor will always be the most important resource in construction, recession or not. You must do everything in your power to retain your best talent. Unfortunately, talent retention has gotten more difficult as the construction workforce continues to age and the top professionals reach retirement.
Employee engagement is the key to talent retention. Some great engagement strategies include highlighting your growth opportunities for low-ranking employees, providing apprenticeships, and offering timely raises. Although raising your workforce’s pay isn’t ideal in a recession, it’s much better than losing your employees and increasing losses from subpar labor.
Another effective engagement strategy during training is to take a bottom-up approach and start with the lowest-ranking talent. They might be inexperienced, but they are your company’s infantry. If your subordinates buy into new technologies or building strategies, then stubborn managers will have to adapt as well.
4. Get Rid of Non-Essentials
On the flip side, you must also get rid of non-essential resources to cut your business’s costs. This preventative strategy is often necessary during times of economic instability. You might need to sell spare equipment, lay off some employees, or cut ties with suppliers who are no longer financially viable.
Since it’s always difficult to end business relationships, start with the equipment. You might find it more cost-effective to rent equipment for specific projects instead of buying everything. Renting will give you access to a greater variety of technology and relieve your business from maintenance costs.
5. Take Advantage of Tax Benefits
A recession doesn’t take away your ability to capitalize on tax benefits. Tax benefits can significantly lighten your financial burden and keep your company afloat. For example, Section 179 of the IRS is a popular construction tax write-off that provides all kinds of assistance, including price deductions for new equipment whether you buy or rent.
The $1.2 trillion Infrastructure Investment and Jobs Act also includes some generous assistance. One of the biggest is a $100 million investment in new construction technology. Construction professionals will get $20 million in each of the next five years to help them adopt emerging technologies with minimal costs. You should take full advantage of these benefits.
Stay Resilient During a Recession
It’s impossible to make your construction business recession-proof, but these five tips will make you more resilient. New technology, effective risk management, talent retention, clever cost-cutting maneuvers and a little help from the government is a solid recipe for surviving an economic downturn.
Author: Rose Morrison
Cover image by Daniel McCullough on Unsplash
