This article also appeared on Construction Business Owner’s website on June 17th, 2020.
The COVID-19 pandemic has had far-reaching impacts on every aspect of daily life. World leaders and citizens alike are reacting to the rapidly changing situation as society enters a new reality for which there is no playbook. Business owners and executive teams from every industry are being tested. For those in construction, 2020 was off to a solid start as firms largely continued the positive trend of productive operations in the field and rewarding financial results. Strong backlogs, busy jobsites, and few signs of an economic slowdown gave owners little warning of the crisis on the horizon.
As the situation continued to evolve, construction firms responded to new safety protocols, governmental orders, stimulus packages and new operating procedures on job sites. Rapidly changing best practices required quick reactions based on the best information available at the time. The new reality caused by the pandemic was largely influenced by health experts, news reports, national and local elected officials, and political gamesmanship—all influences that historically would not have dictated how an owner and executive team would run their construction firm. Although helpful in gaining an understanding of the disease, leadership teams were tasked with digesting volumes of new information and responding in real time to best position their companies.
New information about the pandemic continues to progress and impact daily life, while owners and executive teams need to shift from reacting to the situation, to proactively charting the course. As your business moves back to work, the following are a few items to consider.
Right (Size) the Ship
Heading into 2020, most construction firms had a well-thought-out strategy on how to continue operational and financial success. Then along came the pandemic. Although we cannot ignore its negative impact on workers and businesses, strategic plans reflect the culture of a company and define what the firm is in business to do and how to do it in the current environment. Now is the time to get back to your strategic plan, layer on what the pandemic means to your blueprint, and adjust the business to meet the predefined goals. Strategic plans also reflect opportunities to achieve long-term goals, many of which have been impacted, but unchanged due to the pandemic. Stimulus plans were intended to reduce negative impacts from the pandemic, but are not a sustainable answer to ongoing operations. Many construction firms are experiencing decreased projected revenue and increased uncertainty in cash flow. Leadership teams need to proactively adjust the structure of the organization that supports revenue production. Once the stimulus programs run their course, focus on fiscal responsibility and controlling expenses. Smart and proactive decision making now will allow flexibility to capitalize on future opportunities.
Review the Ranks
Finding a qualified workforce has been extremely difficult and a main area of concern for construction firms in recent years. Employment data has drastically changed across the country in recent months. For construction firms, labor is a large component of any project’s cost structure and is often the easiest expense to trim when faced with decreased revenue volume. But before making any cuts, we must not forget the lessons learned about the difficulty of securing the right talent and how expensive proper training and experience are in the construction industry. When making difficult head-count decisions, consider both tangible employee contribution and intangible future contribution potential. Current resources may be strained and difficult decisions will be made. Focus on keeping production and potential where possible. Maintaining a strong and capable work force will be key to capitalizing on an economic recovery.
Maintaining adequate liquidity to offset potentially damaging delays in cash collections has been common advice for business owners during these weeks of uncertainty—and for good reason. After labor, equipment and other capital expenditures are a significant drain on cash reserves in the construction industry, but a necessary cost to be successful in the field. Current uncertainty shouldn’t stop you from maximizing jobsite efficiency or investing in your firm if there is a real opportunity to improve financial returns. As always, business owners and executive management teams should ensure capital expenditures have a direct and quantifiable positive financial impact. Even though your strategic plan to move the firm forward may run into direct conflict with conserving available cash reserves, don’t avoid a strategic investment.
Chart Your Course
Securing future work is the lifeblood of any construction firm. Maintaining a reliable backlog also gives some degree of clarity for leadership teams when making long-term decisions. As in any market, there will be opportunities on which it to capitalize, but construction firms should not jeopardize their future by securing a job that does not meet the required return just to keep employees busy and maintain a revenue backlog. The pandemic altered our reality and demanded our attention almost instantly, distracting some from the long-term impact of new work for the firm, or bid without considering the changes and additional costs required to operate in the current environment. Complying with new safety standards and changes in operational protocol could add time and unforeseen cost to the job, so now is the time to review estimating procedures and maintain a conservative and fiscally responsible approach. Ensure margins aren’t so razor thin that they can’t absorb a small bump in costs. It is highly likely that some construction firms will not make it through the current crisis. Others may be executing on a strategic succession plan and will approach the market differently than they did in the past. Regardless of your situation, maintaining a profitable backlog will best position the firm for future challenges and allow the firm to operate from a position of strength, rather than the alternative of working extra hard to break even and survive. Choose wisely now.
The silver lining is that the construction industry will be a significant part of the nation’s return to work. Take the time now to proactively plan how your firm will contribute during the recovery. Smoother seas are ahead for those who lead their construction firm through the storm.