How to Prepare for an Economic Downturn & Protect Your Company’s Future
Date Posted: November 8, 2019
Posted In: Ideas,
From Construction Business Owner: When is the downturn coming? It’s the million-dollar question causing consternation in construction company boardrooms. Whether the next downturn is a depression, recession or simple market correction, there will be ripples experienced across all industries, but perhaps none more than construction.
Undoubtedly, the damage from the last recession is burned indelibly in every leader’s mind, causing varying levels of anxiety. However, it shouldn’t take an economic correction to prompt businesses to shape up. Financial and workforce management, market differentiation and process adherence are surefire ways to absorb any impact and maintain a healthy business.
Financial Management
If the Great Recession taught businesses anything, it was the importance of superior financial management, particularly cash flow and collections. Accounts receivable are only good if they generate cash flow in a timely manner. Top firms have a keen eye for collections and adopt a disciplined process for handling risk-prone accounts and customers who slip in the murky waters of 60-days past due.
Additionally, top contractors ensure their cash management through a healthy working capital and ethical, positive overbillings value. This does not mean they lose all semblance of customer service and strong-arm customers, but rather, proactively monitor customer behaviors and ensure managers are doing their jobs. Great leaders should routinely ask themselves:
What is the age of our average accounts receivable invoice?
What month-to-month trend do we use to measure client payment reliability?
Are we cash-flow positive or serving as a no-interest, low-risk lender for customers and clients?
People Management
Another lesson from the Great Recession was that talent development waits for no market. Many organizations decided against investing time or money in talent development, even culling team members who no longer made sense. Employee reductions came about as a necessity, rather than as a routine part of doing business. Additionally, many companies paused training and development because budgets didn’t allow for it, and that focus was better applied to work that kept the lights on.