Recession proofing your business
In this article, we'll cover:
Home improvement projects increased across the UK in 2020 and 2021 as homeowners couldn’t book holidays and needed to adapt to new home working patterns.
2022 is a different story. Cost of living rises, material shortages and price hikes, and now a recession looming, it’s a tough time for everyone, businesses included.
It’s time for tradespeople to really explore the current climate and plan their next steps to protect their business and staff.
How would a recession affect construction companies?
In January 2022, the construction industry recorded growth across most sectors. According to the Office for National Statistics, Monthly construction output increased by 1.1% in January 2022 compared to December 2021.
This is a long way from the last recession of 2008 when an estimated 150,000 construction firms closed between 2007 and 2013. Over 2 million jobs were lost during this period as a direct result of the economic situation. This included redundancy, workers taking early retirement and workers moving to different sectors.
As we have seen from past experience, construction companies aren’t immune to recession. There are, however, ways to protect your construction company in times of economic uncertainty.
The importance of budget management
Good budget management is essential for a construction company to stay profitable during a recession. The first thing to do is conduct a full business audit. This will give you a comprehensive view of your income, expenditure, profits, losses, material prices, and staff wages.
Once you fully understand the precise financial situation of your business, you can start to implement some budgeting measures. These may include:
- Investing in new areas (green technology, renewable energy etc.)
- Negotiating supplier prices or finding new suppliers
- Utilising existing stock (selling or using old materials)
- Working more locally to reduce fuel costs
- Implementing rigorous invoicing procedures – typically, in a recession, customers are late on payments.
As a last resort, you may need to reduce your workforce or cut staff hours. This should be viewed as a temporary measure, however, as the most successful business during a recession are often those that invest in their employees. Don’t forget that adapting core working hours could actually boost staff morale, allowing positive changes in overall team work-life balance.
Growing your team in a recession – investing in people
Although this may seem to contradict the idea of reducing business costs, growing your team during a recession is actually a shrewd business move. It’s important to remember that your employees are your biggest and most valuable business asset. They may have worked for you for years and have valuable experience, skills, and qualifications that enable your company to thrive.
When a recession hits, your employees will understandably be concerned about their job security. As a business owner, you must reassure them that their job is safe. Be as open and honest as possible with your staff. Talk to them about your plans for the future and get them involved. Remember, they know your business and will often be able to provide valuable insights that you may have overlooked.
Reassuring your team during a recession is a great way to boost positivity and enhance productivity. With the correct planning, you can also use a recession as a time to grow your business. Job markets will fluctuate leading to more opportunities and new staff looking for work.
Motivating your new team
Motivating new team members during a recession can be tricky. News of a recession will be widely reported as having a negative impact on society. A great way to combat this negative view is to offer your employees the opportunity to develop and progress in their careers.
Existing employees with years of experience can help to train new starters and apprentices. This will help to motivate both the experienced worker and the ‘newbie’, as both people will feel they are a valued part of the team.
Look at investing in training courses; some of these may be government subsidised, which is a win-win for everyone involved. Don’t just train your new starters, however. Ask your existing employees what they feel they need to improve their work. This can easily translate into offering your customers a better experience and, in turn, boosting your company’s credentials.
Offering your customers something unique
The construction industry is highly competitive. Whether you run a building company, an electrician’s business, or a plumbing and heating firm, rivals will always compete for work in your area.
During recession, it’s more important than ever to offer your customers something that your competitors don’t. You need to stand out from the crowd; to do this, you may need to think outside the box.
Some unique ideas to differentiate your business include:
- Streamline your services
- Always talk to your customers
- Offer incentives (e.g. Buy four windows and get a patio door at half price)
- Embrace digital technology
- Provide comprehensive guarantees
There are many ways to make your business stand out from your competitors. The best ideas almost always involve understanding customer expectations.
Planning for the short-term
During times of economic uncertainty, it can be difficult to plan for the long term. Short-term projects are an excellent choice during times of recession when the economic landscape is continually changing.
Taking on more short-term projects gives you more control over the project. They are less vulnerable to market changes and are less likely to be impacted by supply chain problems, rising costs, and unexpected delays.
When you plan your business just a few months in advance, it’s far easier to accurately manage your finances. Your workers may also be more motivated because of shorter schedules. This, in turn, will lead to happier customers who will give positive feedback and help to promote your business.
Using technology to improve customer satisfaction
Technology should never be viewed as an alternative to human interaction. It can, however, be a great advantage to a construction company. It can also provide customers with a better experience working with your company.
As a construction company owner, you can use the latest technology to improve customer satisfaction. This may involve:
- Instant online quotes
- Online reviews
- A user-friendly website
- Interactive chatbots
Becoming a Checkatrade member is also a great way to attract new customers and reassure existing ones that they are working with a reputable company. According to a recent survey, 6 out of 10 of people who use a Checkatrade tradesperson go on to recommend to others*.
What businesses do well in a recession?
Businesses that sell essential items perform best during a recession. This includes healthcare, food & drink, and transport. Almost any business can survive and even thrive during a recession with the correct planning.
What happens to the construction industry during a recession?
The construction industry is reasonably robust during a recession. Work schedules may slow down, and some projects may be delayed or cancelled. Repair and maintenance work, however, is relatively unaffected, as are larger civil engineering projects.
Will construction costs go down in a recession?
The cost of labour, materials, and equipment usually decreases during recession due to reduced demand. Rising fuel costs, however, may temper these reductions.
Will construction material prices continue to rise in 2022 and beyond?
Construction materials costs have continued to rise throughout 2022. This trend seems to continue in the short term due to global market instability. If a full recession hits, material costs are likely to experience a reduction.
*Claims are sourced from a survey conducted by Deep Blue Thinking on a nationally representative UK sample in November 2021.