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Ecmweb 24199 Construction Outlook 0319 Pr 0
Ecmweb 24199 Construction Outlook 0319 Pr 0
Ecmweb 24199 Construction Outlook 0319 Pr 0
Ecmweb 24199 Construction Outlook 0319 Pr 0
Ecmweb 24199 Construction Outlook 0319 Pr 0

2019 Outlook Is Cautiously Optimistic

March 19, 2019
Is now the time to start preparing for a market slowdown?

Now that all of the forecasts for this year have come out, there seems to be some consensus among industry analysts that the economic outlook is still trending positive, with indications that the recovery that jump-started 2009 will continue at least through 2019. Despite this cautious optimism, it would be a head-in-the-sand mentality for electrical contractors not to brace for a bit of a tremor by the time 2020 rolls around.

Most electrical contractors, in particular — and the skilled trades, in general — are currently above full employment. In my opinion, many employers are beginning to display similar behavior patterns to the period right before the last recession. Contractors are overpaying licensed individuals with very little experience and putting them in situations they just aren’t capable of handling. They’re also stealing employees from each other with offers exceeding their current pay by 20% to 50%. The concern here is that the additional employees and higher wages are not being figured into projects they are bidding now; they are just covering commitments that were made on projects bid many months ago. The result of these increased expenses on current projects may mean they are completed on time and avoid penalties but will result in a much lower profit or even a loss for the subcontractor.

Now is the time to remember the past and reflect. According to forecasters at ITR Economics, here are some key steps you can take now to prepare for a possible downturn that might be looming on the horizon.

1. Know if your markets are heading for a soft or hard landing. Keep on top of reports that focus on what’s down the road, such as Dodge Data & Analytics Reports and industry publications like EC&M. For example, a soft landing would mean that building in the commercial market will be slowing but not completely stopping due to a lack of demand and large current inventory. The hard landing would be more like developers/property owners not building a single new building for 12 months or longer.

2. Beware of linear budgets, and make sure you are not in denial. Ensure you have the information you need to accurately budget. Many expenses rise as your business is running at full tilt, but they will not fall as quickly as you slow down. The biggest expense in any of our budgets is payroll. Don’t hold on to people too long when you don’t have the work for them because you are afraid you will not be able to replace them. Cut payroll as soon as you can.

3. Stay on top of aging receivables. If your customer payments stall, chances are that the slowdown is beginning on their end. Be aggressive in collecting payments. Don’t get caught in the trap of “we won’t get the next job if we don’t wait for the money.” Use all your means to collect money, even to the point of using lien rights.

4. Revisit capital expenditure plans. Take a long look. Be realistic, and consider what can be put off. Remember you may get a better deal during the slowdown.

5. Eliminate unprofitable business segments. If part of your focus is municipalities — and you see cities and towns are hunkering down — move on to those that have a more robust outlook. Also, take a look at your customer list to determine whom to align with during a slowdown and whom to avoid. Begin mutually beneficial alignments now.

6. Use competitive pricing to manage your backlog. This is not the time to try to make a few extra bucks on projects that are further down the road when you may need the work. At the same time, managing your backlog may mean higher pricing than you may be comfortable with on projects happening in the near term. Manage your backlog and bidding process as today’s pricing for labor and material may not be the same eight to 12 months from now.

7. Avoid committing to long-term expenses. Lock in revenue. Make your money now by thinking short term. Focus on today’s projects and profitability. Take the long-term look when deals are more pliable and you have more time during a slowdown.

8. Go counter-cyclical. Know the cycles of your niche industries or customers. For example, if your biggest customer focuses on facility maintenance when new construction slows, then start working with them now — even if it means reallocating people and resources now to focus on maintenance. By locking in on a counter trend now, you will survive any slowdown easier.

9. Evaluate your vendors for financial strength. This means reviewing your customer base to evaluate who pays you quickest and who is set up with the best structure to endure a slowdown. Align with the strongest folks and discuss now how you can work together in a mutually successful way during a slowdown.

10. Cross-train people to prepare for workforce reduction. Layoffs will eventually have to happen. Make sure you train your staff to not only do their job, but also the job of the person beside them.

Will you be among those contractors still standing when things start to brighten after a market slowdown? Like bears stocking up to survive a long, cold winter, only those who have the foresight to seek shelter from the storm will survive — and perhaps even come through stronger on the other end.

Donahue is president of Crown Supply Co., Inc., a distributor of electrical, security and fire alarm products, with locations in Rhode Island and Massachusetts. For more information, visit www.crownsupply.com.

About the Author

William Donahue | President

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