Commentary : What to Do Before Revenues Decline

By Terry Kramer

Build Your Levees Now

These slow economic cycles just seem to pass through too frequently, much like hurricanes sometimes do in the Gulf of Mexico. We know they are going to happen; we just hope they don’t cross our paths. When the slowdowns do cross the paths of construction firms, the owners’ business “levees” never seem to get built high enough or strong enough to prevent some damage.

Although the nonresidential markets are showing some resilience with continuing overall growth, most construction firms can’t help but feel that those days are numbered. Most owners are concluding that the news from the residential side and credit markets will catch up to them.

The positive side of the economy is represented by strong exports, low interest rates and governmental investments such as infrastructure projects. When you add the Federal Reserve’s capabilities in micro-managing the economy, it can be heartening to observe the reduction in potential damage to businesses. In the end, many companies struggle through slowdowns as if nothing had happened, yet many other firms reel from the impact.

For those construction firms that make it look as if they have things figured out, there is really a lot of change that transpires internally to prevent revenue declines that outside casual observers overlook. When companies want to confront potential revenue declines, they pursue action plans that trigger success before being sandbagged by a slowing economy. Here are some examples:

Profits

Construction companies undergo a profitability assessment that reviews every portion and facet of the company. Contrary to popular belief, this involves more about charging for items to increase revenues and profits versus simply eliminating expense and costs. However, expenses and costs are strongly examined too. Between the two, the sandwich effect of the assessment streamlines the companies and puts employees on the same page as owners and management. Some construction firms have increased bottom-line profits by more than 2% through this process.

Market Research

Most companies believe they have their work acquisition systems all figured out. The majority of construction firms actually have systems that function well during good times but then these working systems become dysfunctional during slow economic periods. The true test of solid work acquisition systems is when projects are postponed, cancelled or lost to the competition, and the company has multiple projects to replace them.

When weaknesses appear in work acquisition systems, companies need to step up and immediately find projects to fill the gaps. Market research delivers critical project information during those times that seem as if companies have fallen out of the market loop.

Organizational

Companies are often understaffed, even when they can afford to bolster their staff. When economic downturns hit, construction firms always seek more production out of their departmental, divisional and branch teams; however, they are already behind the organizational curve. Successful companies fighting through downturns start seeking the best personnel available and then compensate them accordingly. They also seek to hire personnel creatively, perhaps pulling from the residential markets, the mortgage industry and financial firms.

The key is to match your organizational structure to output and production expectations. Companies cannot increase revenues without sufficient work acquisition and operational/production personnel.

Strategic

It’s tough to watch construction firms that stay married too long to one or two market segments, only to see one collapse. Successful companies explore new market segments to serve as backup to their current success. Another distressing market angle is when companies pursue work across just about every market segment, and when economic downturns arrive, they find that customers become aligned to market-specific competitors. It is a fine line to walk when it comes to successful diversification.

Companies also stay committed too long to geographic areas when their market penetrations are excessive, only to have revenues fall as downturns hit their area of geographic focus.

It is best to review and update strategic plans before facing a potential revenue decline. There are often other project opportunities available. Aggressive construction firms often seek to acquire companies when a revenue decline looks apparent.

Reports

During economic slowdowns, information can be the key to meet the new cultural environment expectations. It is difficult to make an important company decision or to know about company profits if information is lacking. Successful companies take the time to assess their hardware and software capabilities to ascertain the report potential that exists, the current reports being produced and the personnel receiving report distributions.

Only the most meaningful information should reach the executive team during economic downturns.

The time to build business levees for your company is now. Construction firms should not leave themselves exposed to the path of an economic hurricane because everyone already has the economic weather reports.

Terry Kramer, president of Kramer Consulting, has been consulting within the construction industry for more than 20 years. He can be reached at 480-314-0711 or via e-mail at tkramer@k-advise.com.