Prepare Your Construction Business for an Economic Slowdown
The upcoming winter season may not be the only reason you’re seeing a decline in new construction projects. Economists are predicting a nation-wide economic downturn in the new year. Just last month, Federal Reserve Chairman Jerome Powell announced the Fed was dropping U.S. borrowing rates by another quarter of a percent, from 1.75% down to 1.50%. Although he has stated on the record that this change is not an indicator of an economic downturn, economists believe it is insurance against one happening in the future. Construction businesses should take this time to prepare themselves and their businesses to operate under leaner measures so they can outpace their competition in the new year.
The construction industry has seen substantial growth in the past few years, but that trend has started to shift. The year started out strong; initial reports estimated growth into 2020. But as the trade negotiation uncertainties escalated, those estimates reversed. Manufacturers of building components will pass the costs of tariffs onto the builders, making it difficult for them to operate as effectively as they were during the construction boom. The recently-released 2020 Dodge Construction Outlook predicts the industry will see a 4% decline in the new year.
2020 Preparation Checklist
Contractors should push hard through this uncertain time and focus their attention on tasks that will propel them forward. Below is a checklist that can help contractors prepare themselves for leaner times so they can keep their businesses at the top of their games.
- Update Licenses and Permits
Having up-to-date licenses and proper permits builds credibility with customers and ensures you can get started on important projects as quickly as possible.
- Review Insurance Coverage
Insurance options change regularly, and the slow season is the perfect time to do a bit of comparison shopping.
- Stay Current on Hiring
Although unemployment is low, skilled labor continues to be in short supply. Be on the lookout for good workers now so you have qualified workers when you need them.
- Prioritize Safety
Review the Occupational Safety and Health Administration’s (OSHA’s) requirements to ensure you’re performing adequate safety training, both on- and off-site.
- Consider New Technologies
Job sites can now more easily be outfitted with new software to help with timekeeping, project management, and scheduling. Building information modeling (BIM), which is a relatively new technology that helps bridge the gap between an engineer’s vision and a contractor’s execution, can help reduce wasted time and resources. Research new software to see if you’re in need of an upgrade.
- Take Advantage of Lower Borrowing Rates
Borrowing rates are likely to decrease along with the lower Federal reserve rate, so consider renegotiating your loans.
- Reassess Equipment Needs
The Tax Cuts and Jobs Act made it easier to purchase new equipment, which can be helpful as advancements in robotics, virtual reality, and green technology become more popular. Capital expenditures are eligible for 100% bonus depreciation for the next few years, so take advantage while you can.
- Adjust Your Budget
The budget you created at the beginning of 2019 may not serve you well as you go into 2020. View your business through the new economic lens to see if you need to adjust your expectations.
Although many economists predict we are headed toward a recession, there is no way to know if and when it will occur. Regardless of what next year brings, you can use this time to tighten up your operations. Use this checklist as a jumping off point but expand in areas you know need improvement. If you have questions about the information outlined above or need assistance with an audit, tax or financial reporting issue, Barnes Dennig can help. For additional information call us at 513-241-8313 or click here to contact us. We look forward to speaking with you soon.