Recession Proofing Your Business

Construction is booming in Eastern Idaho and profits have been strong. In strong economies, many bad business decisions are covered up with profits. It is only in an economic downturn that the sheets are pulled back and the bad practices are exposed. By why wait for another 2008 economy to start building a stronger company that will weather a recession?

Recessions are healthy for our economy – they are a check and balance!

Here are a few suggestions for you to implement now – better business practices that will see you through good times and more importantly, bad times.

CASH IS KING! That statement cannot be emphasized enough. Either your business or your shareholders should have cash or investment reserves that can be drawn upon to supplement operations in slower economic times.

BANKING RELATIONSHIPS – make sure you maintain strong relationships with more than one banking institution. There is risk in only having one bank when recessions hit as banks are susceptible to failure as well.

LINE OF CREDIT – even if your company doesn’t use one, make sure you have one in place and continue to renew it annually. Access to available short term credit is imperative when construction markets slow down.

FINANCIAL STATEMENT REPORTING – in strong economies, surety and bank credit tends to be easier to obtain, requirements for financial reporting ease up, and accounting practices are moved down on the priority list. Then a recession hits and everyone scrambles. Pay attention to the accounting practices in your company and issue regular financial statements and WIP reports on a timely basis.

SURETY REPORTING – Ask your insurance agent what level of financial reporting is required for your company. Invest in having a CPA prepare compiled, reviewed, or audited statements at least on an annual basis. It may be more than your surety is asking for now but in tighter credit markets, your company will be the shining star because of your established record of providing timely and accurate information.

BACKLOG QUALITY – pay attention to the diversity and strength of your backlog. Is your backlog coming from one industry, one customer, one geographic area, one type of construction? If you answered yes to any of these, your company is at risk in a recession. Diversity is key to seeing through slower economic times. Review profit margins by each of these components and then look for opportunities to expand these areas.

LABOR POOL – yes this is an area of risk. The buzz word has been the lack of quality labor force. So the inclination is to overhire. Profits cover these bad hiring decisions. Review your labor force and make sure you are keeping those that are the best qualified and motivated to make your company profitable. Do the others a favor and allow them to move on to other careers that they may enjoy more.

These suggestions are just a few that will make your business stronger in slow economies. By implementing them now, during strong economic times, you will put more profit into your pocket.


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