In 2020, construction firms were presented with some extraordinary new challenges. COVID-19 brought a revolving door of worker safety issues, site management and supply chain concerns, along with various stimulus programs designed to help keep employees engaged. So now with a new year firmly underway, what can we expect in 2021? New opportunities!
For those who have been most significantly impacted by the virus, safety protocols, testing, updated cost structures and daily safety fire drills have become the expected norm. But with COVID infections and hospitalizations headed in the right direction and our nation’s vaccination program gaining traction, many experts in the construction field are more optimistic about what 2021 has in store for their respective firms. While we are all eager for better news, it is difficult to ignore the uneasy feeling of uncertainty that 2020 carried, whether it’s from politics, pricing variables, labor challenges, or financial insecurity that all remain very much front and center. It seems the only thing we can be certain of, is that the future remains- uncertain! If given the chance, fear of what’s next can add up to tremendous anxiety and can cause poor decision making. So what can construction leaders and busines owners do moving forward this year? Here are some items to consider when positioning your firm for success in an uncertain marketplace.
Define Your Business Strategy
The pandemic has undoubtedly changed the way you go about your business, but not altered the core of what you do or what you offer the marketplace. A defined business strategy is the most crucial step in ensuring long-term viability of your construction firm. Due to daily demands and fire-drills of running a firm, many owners overlook the importance of a robust business strategy. This has never been more important as it is right now. With only so many hours in the day, construction owners were forced to handle the most immediate and pressing needs. Your firm’s operation and financial recovery demands you make time to revisit the core principles. Many believe they have checked this item off their list by taking the time to draw up an annual budget and communicate top line goals to key members in the firm. As we learned in 2020, those budgets need to adapt to current and even unforeseen realities, and this strategy makes your plan obsolete as soon as it is completed. But a properly designed business strategy weaves the mission of the company into the monthly, weekly and even daily activities of those employees tasked with carrying out the greater corporate mission.
When possible, construction firms should obtain outside input throughout the strategic planning process and as the plan moves toward completing short and long-term goals. This outside input could come from an informal board of advisors familiar with the sector or sectors in which the company operates, a professional business advisor or another internal executive who is charged with performance of an unrelated geographic location or sector. A well-developed business strategy will identify internal and external risks and help avoid operational and financial strain. Properly done, it will be the backbone that helps guide your team through unpredictable future challenges.
Get Your Team on Board
The strategic plan will only be as successful as the individuals who work toward those goals on a day-to-day basis. Employee buy-in and ownership of the plan during their daily responsibilities are critical to its success. Historically, a large uncertainty for any construction firm is labor retention and construction firms have had the opportunity to develop a strong bond with their team during a very trying year. Many firms now have stronger ties to employees at all levels by providing a safe atmosphere while increasing communication throughout the pandemic. Employee commitment increases when firms communicate that they take safety seriously, especially in a crisis. But why stop there? Developing a strong culture where the rank and file understand the mission of the Firm and “why we do things the way we do” will go a long way in retaining employees long term. Arguably, an executive’s most significant responsibility to employees of the company is to create an environment where each employee has the resources to contribute at their highest level, including the opportunity for technical, safety and appropriate financial training that helps everyone understand how their daily activities contribute to the corporate mission.
Employee satisfaction directly affects the Firm’s bottom line and creating an environment where the team can succeed is key to achieving financial success. If your employees are leaving or underperforming, it becomes that much harder to compete in an industry already plagued by workforce challenges when qualified candidates are scarce. Executives also need to be mindful of how existing compensation packages motivate employee behavior as the business and industry evolves. Many firms have a standard compensation package that has been in place for years despite significant changes that may have taken place in their industry’s competitive landscape. Often, these dated compensation packages limit corporate growth or are even detrimental to the overall goals of the firm. A review of how the firm motivates individuals through compensation, in appropriate detail, may result in a better use of the company’s assets in achieving the strategic mission. The result of a properly aligned compensation program will improve culture and create a sense of ownership, which increases participation from those who have first-hand knowledge of how to improve the day-to-day processes.
Understand the Impact of Technology
2020 was an accelerator for everything technology. Virtual meetings became a daily, if not constant, requirement to keep communication flowing. But why stop at communication? An unavoidable consideration for any construction firm is how the use of technology for effective estimation, accounting, project management and field operations can put your team in a better position to perform. The proper use of BIM collaboration, cloud computing, mobile data, drones and robotics can be a major asset that allows companies to maintain ideal cost structure by delaying or replacing personnel costs and maintaining the company’s ability to achieve proper margins. Also consider how technology can improve the experience and understanding of clients, employees, vendors and other contractors. 3D scanning, virtual reality, offsite construction, and subassembly all need to be considered to understand how they can contribute to the overarching business strategy. Construction firms should focus on solutions that will allow for the timely and accurate sharing of information, which can help limit excessive remediation costs if a major problem surface. But ultimately, technology’s effectiveness depends on the buy-in of the executive team and customizing the solutions to meet the needs of decision makers and stakeholders. These technologies are constantly improving and a regular review of new offerings to your industry sector will help give your firm the tools to remain best in class.
Monitor Your Cash Flow
Periodic financial results are usually communicated to executives and outside stakeholders on the accrual basis of accounting. Although these financial reports are useful in determining the financial health of the company, they are based on historical results. Construction executives need a complete picture of the availability of current and future cash reserves to operate the business and make key decisions. Construction firms should develop and regularly analyze a cash flow model to avoid expensive cash shortages and operational delays down the road. In addition, key stakeholders, like the bank and surety, can focus on cash flow. Direct knowledge of your firm’s cash position and the uses and sources of cash will better prepare you for productive conversations with your financial partners. Cash flow financial modeling should incorporate seasonal or cyclical trends, anticipated market conditions, changes in key customer and vendor relationships, known capital investments or expansions, costs to comply with new regulations, merger and acquisition opportunities and tax consequences to the firm’s owners. The model should then be compared to the firm’s rolling budgeted results and help leadership identify necessary changes to the existing budget for future periods.
Perhaps the most important component of the cash flow model is understanding and evaluating the financing options available in the marketplace. Having proper financing available when the firm is not under financial strain will make navigating a bump in the road more manageable and allow the firm to negotiate funding options from a position of strength, not desperation.
Perhaps the biggest lesson learned in 2020 is that uncertainty can only be managed, not eliminated. Construction firms can minimize the distraction of uncertainty by sticking to the basics: Develop and monitor a strategic plan, invest in employee retention and technology and, regularly monitor cash flow to make quick and effective decisions. These critical initiatives, and a little luck, will best position your firm to be celebrating this time next year.