The current economic cycle is the second longest expansion that our country has seen since the inception of economic growth measurement. The economy has been recovering since 2009 following the major recession of 2007-2008. While the economy has been expanding for the last nine years, some economists predict a slow-down or the next recession to begin around 2019 and onwards. Here at MCA Inc. working with our contractors we believe, based on the collective backlog and barring any major catastrophic events both naturally and socially that we may see the next slow down around 2022-2023. If there is a recession to follow, we don’t believe that it would hit until 2025.
So, now what? Well, see if you can answer yes to any of the following questions:
Are you busier than you have been for the last few years?
Are your customers pickier than before?
Are you running out of skilled labor to do the work?
Are job margins barely covering your overhead and SG&A?
If you answered yes to two or more of the above questions you are experiencing the same things as everyone else. These types of things always happen when the economy is good. All of the projects that were put on hold over the years are now being released, which causes a flood of work in the market. Since the owners’ just experienced tight budgets a few years back, they are not willing to spend enough on their jobs to make the jobs profitable until there are not enough contractors to do the work. The contractors, on the other hand, are going to have a hard time finding good people to do the work. It’s a catch-22, you like to have the work, but you can’t get it for the profits that you want and need. Then if you do get the work you don’t have people to do it.
How can a contractor, in a simple way, deal with this paradox? Try introducing these steps into your company’s next strategic planning session:
Keep an eye on the construction economic indicators in your trade magazines
Follow the market breakdown in your area to understand the market mix
Analyze your historical data to find your sweet spots
Set up budgets for your Direct, Indirect and SG&A
Calculate your composite rate and see which jobs you won or lost and back into where your composite rate should be
Use any prefab or tracking that can help you reduce your composite rate
Create a plan for your taxes, revenues, savings and LOC
Use the recent depreciation laws to renew your equipment and put more cash in your pocket
Create a “War Chest” for the next down turn
Build reserves in form of assets, short and midterm funds
The following is a more detailed explanation of the readiness steps:
1. Keep an eye on the construction economic indicators in your trade magazines:
Every year trade magazines provide a breakdown of the construction market based on US Census data, permits, housing starts, employment, GDP, etc. While these do provide an overall picture of the market, they can be rather vague when it comes to anything specific in your area. MCA Inc. has their proven methodology to breakdown the construction market not only into the specialty trades: electrical, mechanical, finish trades, but also the segments of markets available for each of the trades in the area of operation. Figure 1 shows the overall electrical construction market for the U.S. from 1964-2017.
2. Follow the market breakdown in your area to understand the market mix: