It has been more than a decade since the global financial crisis of 2008 but the memory still persists for a lot of construction business owners. The construction industry was severely hit by the recession and several issues still linger, including the current labor shortage. Unfortunately, the threat of an economic downturn will always be around the corner. A business that is not prepared to face a recession will have difficulty continuing operations. Or worse, the business may be forced to close down.
There is no way to completely protect your construction business from a financial crisis. However, there are some strategies you can employ and systems you can put in place to limit its impact on your company.
In all industries, especially in the construction industry, unexpected circumstances can happen. It could be a natural disaster or a workplace accident, faulty materials shipment, computer glitches, and of course, an economic crisis. Your business may be insured against some of these emergencies, but insurance can take time to process and may not cover everything.
In addition, cash flow issues are common in the industry no matter the larger economic climate. The long period between billing and collection may result in periodic cash problems. Your business may have an inconsistent flow of income that will affect how you can take care of your payroll, utilities, rent, and other monthly expenses.
For these reasons you need to maintain an emergency fund so you can have immediate access to cash that will allow you to continue your operations during these crises.
It can be tempting to think that a financial crisis will not happen any time soon, especially if you are experiencing a significant increase in sales. But a disaster can strike anytime, even when you least expect it. This can range from natural disasters to workplace accidents. It will require a monetary outflow that may exceed your cash reserves, threatening the existence of your business in the event of a recession where business is slow. It is crucial that you are equipped to handle an emergency situation and prevent the financial and operational blow from getting out of hand.
A disaster plan should have a detailed set of actions for designated individuals. It should also establish a flow of communication and decision-making that will guide employees when a crisis happens. In addition, the disaster plan should also include disaster preparedness training for employees. The more educated they are about potential disasters, the better equipped they will be to handle emergencies. Finally, the disaster plan should be updated regularly to take into account workplace changes like new hires and changes in layout.
There is no insurance policy that protects your business from a recession. However, there are plenty of risks present in construction in any economic situation that makes obtaining a contractor insurance policy a must in the industry. Not all insurance policies are equal. As a general rule, the safest choice would be a policy with the fewest limitations.
Structural engineers deal with a lot of complex issues that involve a high level of technical knowledge and expertise. Because of the nature of the work, there will be plenty of instances where errors and omissions can happen. In the event that a client files a lawsuit, they could be found liable for damages and legal fees. There is usually an uptick of lawsuits during a tough financial time, especially because clients are likely straining or extremely cautious of everything. For this reason, it is important to get professional liability insurance to protect you and your work.
For steel fabricators, incidents leading to bodily injuries and property damage can happen. Commercial general liability insurance protects the business from third-party lawsuits by covering legal fees, court costs, and the settlement amount. For product-related damages, product liability insurance covers losses or injuries caused by a product defect. Review the circumstances of your business and consider which aspects of the business need to be covered.
Economic conditions, workplace uncertainties, and the current labor shortage in the industry are a constant threat to any construction business. Being prepared to face financial crises ensures that your construction business thrives even in trying times.
About the Author
Patrick Hogan is the CEO of Handle, where they build software that helps contractors, subcontractors, and material suppliers secure their lien rights and get paid faster by automating the collection process for unpaid construction invoices.