Build a Strategy: Tips to Help Construction Companies Weather a Recession
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It’s no surprise that the construction industry has it’s ps and downs and runs in cycles. When the economy takes a turn for the worse, construction businesses are often some of the first to feel the effects. A downturn in the economy can mean a decrease in consumer spending, which leads to fewer new construction projects. And even when there are still construction projects taking place, competition for those jobs is fierce, driving down prices and profit margins. So how can you protect your construction business during an economic recession? Here are a few tips, courtesy of Lendzz.
Lower Your Debt and Cut Costs
One of the best things you can do to protect your business during an economic downturn is to reduce your debt and cut costs where you can. If you’re carrying a lot of debt, it will be difficult to weather a financial storm. Paying off debt should be a priority, even if it means putting off other investments or taking on additional short-term debt. Cutting costs is also important. Take a close look at your budget and see where you can trim the fat. There’s no need to make drastic cuts, but every little bit helps.
Carefully Monitor Revenue Projections
Closely monitoring your revenue projections is another critical step in preparing for an economic downturn. Adjust your projections accordingly. It’s also important to have a plan B (and even C) in case your original projections turn out to be too optimistic.
Convert Your LLC to an S Corp or C Corp
There may be certain situations where chanhing your LLC to an S-Corp or C-corp could be advantageous, *but you should speak with an attorney or account before doing so. S corps and C corps are taxed as regular corporations, which means they’re subject to corporate income tax rates. However, they’re also eligible for certain deductions and tax breaks that LLCs are not. As a result, you may be able to keep more of your hard-earned profits during an economic downturn.
Better Job Cost Estimations
Inaccurate job cost estimates can put a serious strain on your bottom line, especially during an economic recession. Make sure you’re using up-to-date data and technology when estimating the cost of materials, labor, and overhead for each job. This will help you submit more accurate bids and avoid unprofitable jobs. For instance, if you could benefit from being able to measure your plans and make quick but accurate bids, this deserves a look.
Grow Your Cash Reserves
Another way to protect your business during an economic recession is to boost your cash reserves. You can build up your cash reserves by setting aside money from each job or by taking out a loan prior to the onset of an economic downturn. It’s usually wise if you don’t put all of your eggs in one basket by diversifying your investments, and spreading out risk.
The key to weathering an economic recession as a construction business owner is preparation. By taking steps such as reducing debt, cutting costs, boosting cash reserves, and accurately estimating job costs, you’ll be in a much better position to ride out the storm. Of course, no one can predict the future, but if you plan for the worst, you’ll be in good shape no matter what happens.
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