In our first article on Construction Downturn Strategies we looked at External factors and how you can position your service offerings to weather a downturn. Our second article discussed financial strategies to make your business healthier and better able to withstand a drastic reduction in revenue. In this third installment we will explore how to evaluate your internal resources as an exercise in measuring return on investment and preparing to make difficult decisions.
If having put cash aside and diversifying your business isn’t enough to weather a downturn and you need to look to reduce payroll, you should have a plan that ensures the company will still be able to function at a high level.
Payroll is often the largest contributor to overhead costs. If you cannot ‘job charge’ your people you'll need to have contingency plans to reduce payroll.
As we have suggested, it is a healthy exercise to imagine a time in the future where you will have to do more with less. That exercise in the context of your employees could go something like this:
- Think about what a future organization chart would look like
- Who would be the first 3-5 people (or which 3-5 positions) you would eliminate?
- What duties can be combined?
- Who are your top performers?
- Do you have a process in place to regularly review and assess performance?
- What roles & people will the company need on the other side of the downturn?
- For the business to survive there are people and roles you will need in order to continue selling and performing work.
- What is the minimum staff needed to keep the business running, sell, and perform work?
No one likes having to let a good employee go. As a business owner, you understand the responsibility you have to the families of all of your employees. More than most industries, construction companies often develop a family-like culture.
There may be opportunities, as short-term strategies, to delay a formal lay off:
- Mandatory vacations
- Senior Leadership takes pay cuts
- Employees take pay cuts
- Rotating single-day, week-long or one-month furloughs across the organization
Regardless of any impending downturn, business owners should be able to apply discipline to their company culture and craft it the way they want. What are the expectations (technical, soft skills) of the people you have employed to get the results you and your clients expect? That discipline can take several forms, but essentially it is some sort of regular review of their performance against a defined set of criteria.
We want to take a minute to touch on something that might seem counterintuitive in a time where times are tight. Maybe a downturn is a good time to invest in talent? You’ve done a great job weatherizing your business, but other construction companies that aren’t as well prepared often need to let people go and there will be talented people looking for work.
It isn’t much fun, especially in this long economic expansion everyone has felt, to image times being tough. 2010 was a decade ago. It’s almost hard to remember. A strong economy floats all boats (even the ones that have small holes in them) and brings is own challenges. You’re probably spending all your time managing the work you have. You may even be saying: “Why would I want to imagine bad times? That’s a real bummer.”
The truth is that well-run construction businesses are already implementing many or all of the strategies we’ve touched upon. They’re using these strategies now to prepare for the inevitable downturn that is coming. If you haven’t thought about any of these strategies before, there is still time to prepare and make adjustments to strengthen your business.
Ready to start planning your downturn strategy but not sure where to start? The team as Ascent Consulting is here to help.
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