The financial, management, market differentiation & process changes that will prevent total doom
by Gregg M. Schoppman
October 25, 2019
When is the downturn coming? It’s the million-dollar question causing consternation in construction company boardrooms. Whether the next downturn is a depression, recession or simple market correction, there will be ripples experienced across all industries, but perhaps none more than construction.
Undoubtedly, the damage from the last recession is burned indelibly in every leader’s mind, causing varying levels of anxiety. However, it shouldn’t take an economic correction to prompt businesses to shape up. Financial and workforce management, market differentiation and process adherence are surefire ways to absorb any impact and maintain a healthy business.
Financial ManagementIf the Great Recession taught businesses anything, it was the importance of superior financial management, particularly cash flow and collections. Accounts receivable are only good if they generate cash flow in a timely manner. Top firms have a keen eye for collections and adopt a disciplined process for handling risk-prone accounts and customers who slip in the murky waters of 60-days past due.
Additionally, top contractors ensure their cash management through a healthy working capital and ethical, positive overbillings value. This does not mean they lose all semblance of customer service and strong-arm customers, but rather, proactively monitor customer behaviors and ensure managers are doing their jobs. Great leaders should routinely ask themselves:
Many business owners and key leaders, now a decade older and wiser, wonder if this pause in training may have stunted the growth of their teams long term. It’s important to decide for your business what resources should be cut in order to stave off mediocrity, and what resources should be developed and cultivated no matter what. Some key questions worthy of reflection on this topic include:
First, it is important to constantly examine the current workload and the quality of the future backlog. Examining a rolling, 12-month backlog projection is one way to provide an illustration of what the future holds. Then consider the actions required when specific triggers are hit.
For instance, if your firm’s backlog 6 months from now is projecting a 12% dip, what steps must you take to hedge against the repercussions? Simply looking at projected billings 30 days out is too myopic and barely provides enough reaction time.
Secondly, a firm can examine peaks and valleys in its backlog relative to market niches or sectors. Private/public, commercial/government, hard-bid/negotiated, etc., are all tranches that provide insight and validation to forecasts. As with any projection, there is some level of variability or uncertainty. Handicapping longer-range targets is one approach.
For example, if a strong client has on average 10 opportunities per year and the firm usually wins 50% of those bids, a conservative estimate might project a future backlog of three potential projects for an approximate revenue stream. Questions to consider here include:
Performance should be routinely evaluated, and internal processes measured to ensure there is one defined way to do things, and it’s the only way accepted. Ponder the following questions to ensure the processes and tools are the right ones used.
ABOUT THE AUTHORGregg M. Schoppman is a consultant with FMI Corporation, management consultants and investment bankers for the construction industry. Schoppman specializes in the areas of productivity and project management. He also leads FMI’s project management consulting practice. Prior to joining FMI, Schoppman served as a senior project manager for a general contracting firm in central Florida. He has completed complex construction projects in the medical, pharmaceutical, office, heavy civil, industrial, manufacturing and multifamily markets. He holds a bachelor’s degree and master’s degree in civil engineering, as well as a Master’s of Business Administration. Schoppman has expertise in numerous contract delivery methods, as well as knowledge of many geographical markets. Visit fminet.com or contact Schoppman by email at firstname.lastname@example.org.