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Like death and taxes, recessions are inevitable. Whether caused by geopolitical conflict, economic shock or stock market disturbance, these destroyers of wealth and jobs are part of the circle of business life. Of course, knowing recessions will recur doesn’t make them any less disruptive. In the already cyclical construction industry, plans must be in place, and decision makers need real-time access to key information. To survive the next recession, companies need the right management in place; real-time, on-demand reporting systems; and the ability to forecast.

Good Planning Is Straightforward

There are situations when seat-of-the-pants thinking can be appropriate, and some business owners are brilliant (or lucky) enough for this “Hail Mary” approach to actually work. But the odds are against using hope and improvisation as main business strategies, especially with a recession underway.

First, acting without planning does not inspire confidence among the troops. Leaders who appear to be grasping for (or constantly changing) direction are doomed at the virtual water cooler. Second, the management team does not need to resort to this kind of corporate divination to get through a recession when the path is already straightforward and proven. The answers come from talking to the team, listening effectively and asking the right questions.

The next steps should be dictated by the contingency plan, not by emotion. Chances are, company management has been through several recessions, and the one thing recessions have in common is that they all eventually end.

Be a (Data) Sponge

As managers manage and execute company contingency plans for working through a business slowdown, they will need up-to-date data. Indicators like weekly hours worked, building permits, and backlogs are helpful but generally not current. Without real-time, specific information, it’s difficult to take effective, targeted action. Knowing whether business is short by 10%, 20% or 50%, for example, dictates a different level of urgency.

Management (rather than financial) reporting systems are key. Financial reports are extremely useful, but these are primarily externally focused for public audiences to facilitate company-to-company comparisons. Management reports are internal and private. These allow for much deeper dives into topics, such as profit/loss by department or client, sales by team, or utilization rate.

As an example, construction firms may have specialized divisions, with one handling lodging and another building public safety facilities. According to the U.S. Census Bureau, lodging construction is predicted to fall more than 13% this year, but public safety spending could increase by more than 11%. This is a government forecast, but it provides some direction as to where future problems (and management attention) may be focused.

By scrutinizing the different business segments, the drivers of profit (and loss) can be easily identified. Management reporting systems cost money, and many companies would see this kind of expenditure as discretionary in a recession. Don’t make that mistake—management reports are critical for managing any business, particularly in tough times.

See the Future

Most of us don’t have that proverbial crystal ball. However, construction management reporting provides a means to gain visibility into likely future business results by providing the data and trend information needed for effective forecasting.

Cash is king in a recession, and no business owner can make good decisions without an accurate cash flow forecast. A forecast provides answers to questions like, “Will there be sufficient capital to hire for the skilled trade workers we need this spring?” This would be good to know now so that leadership can make (or adjust) plans accordingly. Maybe the demand for design work has fallen so rapidly that it hasn’t yet been reflected in the downstream contracts. If so, it may be prudent to create forecasts under two or three (or more) scenarios. Each scenario will generate a different cash flow forecast, enabling management to prepare a list of necessary actions for each in advance.

Sometimes, cash payments don’t change, but the timing of receipts does. (Who doesn’t stretch out payables in a recession?) The cash flow forecast will highlight this and its impact, enabling management to take appropriate action. Remember: A problem with cash flow is the biggest reason by far that small businesses fail. Not knowing company cash flow is just as problematic as not having enough.

Three Steps for Success

To survive a recession, construction companies need their executive teams to make well-reasoned (and often difficult) decisions. Of equal importance is timeliness—it doesn’t help to make the right decision six weeks too late. Any company wishing to survive economic trauma needs a high-performing executive team, specialized management reporting, and accurate industry forecasting. These will enable managers to get in front of business problems (rather than be run over by them).

This is the first in a five-part series on surviving recessions. Look for part two on effective pricing next month.

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