In today’s economy, there are many factors that contribute to the increase and decline of business in the construction industry. Throughout peak pandemic and up until now, contractors have continued to be busy with a steady backlog of jobs. However, with recent fluctuations in the market and housing industry, an economic downturn could be upon us.
What is an economic downturn?
An economic downturn happens when stocks and property values fall, productivity grows slowly or shrinks and gross domestic product goes down or doesn’t move. Economic downturns are part of the natural fluctuation of the economy between periods of growth and decline. If the economy decreases for two consecutive quarters, it’s said to have gone into a recession.
How can construction businesses maintain success in an economic downturn?
The home building industry is often an indicator for the health of the U.S. economy, and even with a looming recession, builders continue to be optimistic about their business’ financial future.
According to research and data from the Association of Professional Builders’ State of the Residential Construction Industry report for 2023, 72% of builders surveyed have a higher revenue target for 2023 than they did in 2022 with the expectation of higher net profit margins.
That being said, it can still be unsettling to manage construction business amidst the uncertainty. Here are three ways to remain optimistic and successful during an economic downturn.
1. Ensure financial preparedness
You know what they say – knowledge is power. Staying informed in the current economic climate will allow you to prepare your business for a potential slowdown and ensure financial security.
One way to prepare financially is to keep current and backlogged projects moving as planned. You probably have savings built up from the increase in projects over the last couple of years in addition to the money you have coming in for existing jobs. This income will keep your business in a good place. However, in the event of a slowdown, you may also want to consider lending options. Having an open line of credit is a great backup resource to have – especially in this financial environment.
Lines of credit are a convenient option for covering not only your business expenses, but also for offering your clients a way to finance projects they might not be able to afford otherwise. This allows them to make improvements to their home, and it keeps a steady income flowing to you. It’s a win-win.
2. Embrace change and be adaptable
When there’s a change in the industry, it can be good to adapt and expand the types of projects you take on. This will give you more flexibility and ensure you always have business during slower times. This is especially applicable to home builders. As the market for buying or building new homes cools with rising interest rates, it may be beneficial to consider taking on remodeling projects.
On a recent episode of “The Building Code,” real estate economist Mark Boud talked about the advantage of diversifying specialties, so builders aren’t committed to a certain type of job.
“If builders can get into the remodel market, that’s a great market,” Mark said.
In a forecast done by Harvard, there was double digit growth through 2023. There’s potential for the renovation market to continue to do well with people choosing to stay in their homes.
“I think the growth rate goes down, but it’s still about 10% at the end of 2023. Those smaller builders who can move into the renovation market will benefit.”
3. Join a group purchasing network
Another great way to ensure success during an economic downturn is to join a group purchasing network like CBUSA. The APB’s report showed that 84.5% of builders surveyed aren’t members of a buying group. However, 27% of those who are members of a GPO belong to CBUSA – making CBUSA the industry leader.
CBUSA’s network uses the combined buying power of multiple builders to negotiate better pricing, service levels and account representation from material vendors and manufacturers nationwide. They simplify the purchasing process for their members and allow them to compete with large national companies. As a combined group, our members have the purchasing power of a top-10 national builder. You’re no longer the small business standing alone at the mercy of suppliers.
As a CBUSA member, you’ll also have the opportunity to strategize with other like-minded construction business owners on buying and best practices. Working as a united front helps each home builder become more profitable. Ultimately, as a member of your local chapter, you’ll benefit from having other business owners to discuss challenges and opportunities. During shifts in the economy, having a trusted network that helps keep your company profitable will become your biggest advantage.
Don’t let the state of the economy get your construction business down
Learn more about the current state of the economy and why builders continue to be optimistic in the APB’s SORCI report for 2023.
Start planning now to ensure your company’s success during an economic downturn. Apply to become a builder member of CBUSA. You’ll save on material costs, have access to our network of preferred local vendors and feel supported by other professional builders in your local chapter.