Without a doubt, it is true recessions can ruin a business. Since recessions of multiple levels have been happening each three to four years in various markets, a lot of businesses have been affected by them. Construction businesses are sadly not immune to them and can be adversely affected.
Thankfully, not each recession is detrimental to the operations of most construction companies. With the correct knowledge and tools at hand, construction companies can dodge the effects of a recession. This can help them remain strong amongst many in the crowd.
This post will help business owners recognize signs of a recession and based on the findings of Forensic delay analysis experts, here are some tips on doing so.
Key signs in the industry that a recession is coming
Recessions are often executed by external factors/events causing panic and fear in financial markets. This has a domino effect on economies, companies as well as industries, businesses, cities, and states. Examples are the Great Depression of the 1930s and the Global Financial Crunch of 2008, as they showed how economic declines shattered the real estate industry.
Construction company owners and management executives understand how recessions can affect businesses. Here are some signs that construction company executives should be on the lookout for:
Rise in the availability of subcontractors
If subcontractors suddenly have more availability than before, then this is a certifiable red flag that a recession is coming for the construction industry. Those who are easily able to schedule a subcontractor and do not have to play the game of revolving themselves around a lot of potential dates, it means that their schedule has become free due to a lack of clientele.
Though hassle-free schedules and extended waiting periods are good to have they can have bad effects on the construction industry.
A lot of real estate is available for sale
Anyone noticing more properties up for sale, then it is a red flag for the construction industry. Though they are good to buy at affordable prices, homes going up for sale at exorbitant prices with no buyers and staying up for sale for extended time periods means they are unaffordable with the rise of mortgage rates.
If people cannot afford to pay for mortgages on their homes, this means the construction industry could be headed for a recession.
Federal Interest rates on the rise are a bad sign
The risk of recession becomes higher when federal interest rates continue rising. World issues such as global pandemics and war are never solved overnight. They cause issues like problems in the supply chain which hence drive material costs up, thus causing an unbalanced economic situation. The end result is hence a recession.
Permits are becoming approved quickly
It usually takes a month or two to obtain a construction permit. If permits are being obtained quickly, though it does vary from one place to another, it is hence a sign of a problem and of course, another red flag. This means the market is cooling down as permits take quite some time to be obtained.
A lot of projects are getting postponed
In the US market as of August this year, a shortage of almost 425,000 construction workers was recorded. Unfortunately, that number is going to rise over the next few years if things do not improve. A combination of labor shortage and inflation has caused the postponement of a lot of projects. This means a large slump is headed for the industry.
Protecting construction companies from recession
Keeping cash at hand
Having extra cash at hand may seem obvious, but a negative cash flow is something that derails construction companies. They need a positive cash flow and a lot of money in reserve for projects and other overheads. Even with the most accurate predictions of bidding costs, there is always room for minor errors and needed adjustments.
Employee retention
Hiring new employees costs money. The usual cost of hiring an employee cost almost twice their monthly pay. Just imagine the resources spent on job postings and ads. Those who wish to hire new employees continuously will go bankrupt., It is wise to go for employee retention. A project advisory expert based in Dubai UAE is a witness to this fact.
All that extra money can be saved by focusing on investing in them to improve their prospects. Promotions, training, and raises are key to retaining great employees.
Streamlining processes of cash flows
It is important to keep cash at hand. This is the reason cash flow processes need to be streamlined. Making budgets, keeping track of invoices, and tracking each expense accurately is helpful in this regard.
Knowing the expenses
Construction companies should know how much they have and where they are spending money. It is important if they want to keep their company away from a recession. Though it can be quite difficult to keep up with a lot of project expenses and different other costs associated with running a business.
Hence investing in construction business management software of the highest order is necessary because it can help nicely.
