Preparing a Construction Firm for a Recession

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How Your Small Construction Firm Can Prepare for a Potential Recession

There's no certainty as to when the next recession will hit, but we know there's a potential one on the horizon, and small construction companies need to be prepared. The construction industry was one of the hardest hit during the last recession, and many small businesses were forced to close their doors. However, there are steps that small construction firms can take to protect their businesses from a financial downturn. The financial experts at Azalea City Tax and Accounting explain how.

Make the Right Cuts

One of the best ways to protect your firm from a recession is to reduce your debt and cut costs wherever possible. But Billd explains that, if you do need to use debt, you must be strategic about how, when, and why you use it. During a recession, revenue drops, and expenses often increase. This can put a strain on even the most well-run business.


To cut costs, take a close look at your budget and see where you can trim the fat. Do you need that new office space? Can you get by with a smaller fleet of vehicles? Are there any areas where you can negotiate better terms with suppliers? Any cost savings you can realize will help your business.

Avoid Layoffs in Your Cuts

When it comes to weathering an economic downturn, small construction firms may want to think twice before resorting to layoffs. That's because layoffs can have a ripple effect that does more harm than good. For starters, they can lead to a drop in morale among the remaining employees. And when morale suffers, productivity suffers.


What's more, layoffs can also make it more difficult to attract and retain top talent in the future, explains Cornerstone. So while it may seem like a good way to save money in the short term, in the long run, layoffs may do more harm than good.

Keep a Close Eye on Projections

You'll also want to closely monitor your revenue projections. In good economic times, it's easy to become complacent and let sales slide. However, during a recession, every dollar counts. By closely monitoring your revenue projections, you can make sure that your business is on track and identify any potential problems early on.


Instead of relying on paper records, go digital. Not only will you save space and reduce the risk of misplacing things, you can link to these files in your spreadsheets and some accounting programs so the records are always easily accessible. In addition, you can merge them into related larger PDF files for easier access. For example, you could combine all estimates for a given project together and then store them along with other related information into a project-specific file folder.

Be Careful With Job Costs

Another way to protect your construction company from a recession is to more accurately estimate job costs. In good times, it's easy to lowball estimates in order to win jobs. However, during a recession, this practice can come back to bite you. If you're not careful, you could find yourself completing jobs at a loss.


Look into takeoff software that can be loaded onto your smartphone or tablet. Not only are these apps a huge time savings, but they can help you to quickly and accurately provide estimates using real time costs, which can vary significantly during economic downturns. With this tool, you won’t underestimate your costs and hurt your bottom line.

Have Plenty of Cash on Hand

Building up cash reserves is another important step small construction firms can take to prepare for a recession. During an economic downturn, access to capital becomes more difficult and expensive. By boosting your cash reserves, you'll ensure that your business has the resources it needs. So do your best to tuck money away during prosperous times so that you have a financial safety net when times are lean.

Reconsider Your Business Designation

A final step that you can take to prepare for a recession is to convert your business structure to an LLC, if it isn’t already. An LLC provides liability protection, which can be great in lean business times. Plus, this structure comes with tax benefits that can be a boon financially when business is slow. For quicker processing, try using an online formation service to make this transition.


If you’re uncertain about your business designation and the tax incentive are your deciding factor, consult with a tax professional, like those at Azalea City Tax and Accounting. They can help you to determine which structure is best for you and your business.

Make Preparations for Overall Stability

These economic times are tough for everybody, but especially for small construction firms. Fortunately, there are some strategies you can implement to help your business weather the lows. Take a good, hard look at your budget and make sure that you are staying on track. Invest in accounting and takeoff tools that will really keep you in check. And tuck away money whenever you have the chance. Stability is much better than the unpredictable ebb and flow that is small business ownership. With the right precautions, you'll be in a much better position when the next recession hits.