Five Tips for Small Contractors to Expand in 2024
Experts say that 2024 will be a down year. Here’s how to counter the construction slowdown in 2024!
Economic Snapshot of 2023
In 2023, the Federal Reserve implemented the most aggressive monetary tightening policy since 1981 while attempting to slow down growth, and inflation continued to rise. The tightening resulted in the slowdown of the ease of construction financing and construction starts. Concerns surrounding an economic recession loomed throughout the year.
As we enter the last month of the first quarter of 2024, industry tension remains high about the potential impact of economic weakness and inflation on consumer confidence. Within the construction industry, although there is a 7% increase in gross value added and a 6% increase in nominal gross output at the onset of 2023, it is essential to acknowledge that the increase in revenue is more likely due to inflation rather than volume.
Rising material and labor costs and a soft residential finance market require additional service from contractors with a lower risk tolerance. Enhanced risk management capabilities are critical for the stability of smaller contractors. Having weathered the 2008 economic recession and the 2021 global pandemic, here is how to divert a slowdown.
1. Manage Finances Wisely
Ensuring sufficient cash flow is crucial for bolstering a company's risk resilience. Diligently manage emergency funds to cover operational and administrative expenses in a business slowdown. Prioritize projects with the potential for short-term financial closeout. Fund recovery is a good idea.
Deploy digital financial tools to manage finances and cash flow projections and help keep adequate track of accounts, payables, and receivables. This approach aids in avoiding late payment penalties, strategically organizing debt collection priorities, and replenishing working capital.
2. Target Projects with Specific Expertise
Identifying target projects where the construction company and key team members have specific expertise will help small contractors stand out. Prepare to compete with large contractors on smaller projects and lead with the firm's value proposition, values, and client benefits.
Leverage the portfolio of successful projects, retool marketing collateral advantages effectively, and include market differentiators in the business plan. Hone in on efficient delivery by providing precise services to optimize financial goals further.
This approach reduces risks associated with new workforce certifications, unknown project safety challenges, and management of fixed costs such as suppliers, subcontractors, and other partners due to taking on new clients on massive complex projects or brand-new subsector project types.
3. Pay Attention to Workforce Policies
Small contractors often manage project requirements without the benefit of a full-time compliance team. Adapting to changes in workforce reporting, market conditions, and policies is crucial. As the construction industry continues to experience a labor shortage, confirm workforce hiring requirements.
Post-pandemic workforce policies are trending towards employee-centered compliance options. To address this challenge, contractors should focus on reducing ENR, ensuring a safe work environment, increasing investments in skills training, cross-training, and implementing more flexible employee benefits strategies.
Additionally, making efforts to promote diversity, equity, and inclusion in hiring practices influences the success of a project.
4. Retain Skilled Workers
Skilled workers play a vital role in all aspects of construction companies due to their heightened efficiency and problem-solving prowess. However, the industry faces the constant challenge of losing valuable talent. To retain top talent within small contractors on your team, it's imperative to prioritize monetary needs, professional development, and authority.
Team members needing to meet corporate standards might find new opportunities outside the organization. According to Maslow's Hierarchy of Needs Theory, managers should address team members' physiological, safety, social, esteem, and self-actualization needs.
This holistic approach encompasses not only potential wage increases and enhancing the work culture, but also environment improvements, safety, professional development training, additional vacation time or personal time off, fostering a culture of excellence, diversity, and inclusion, and bolstering employees' sense of belonging through team-building exercises.
5. Strengthen Cost Controls
Cost management is critical in the construction industry, given its intricate nature and potential for monetizing unforeseen challenges. Successfully estimating project costs and expenses requires extensive experience and a thorough understanding of the factors influencing costs.
With construction being subject to fluctuations in material prices, labor availability, and regulatory requirements, meticulous project budgeting becomes essential for financial prudence and project success. Lean into accurate inflation schedules, flattening material procurement costs and logistics, strengthening construction contingencies, and accurately conveying change orders to clients.
With a comprehensive grasp of cost drivers, companies can develop budgets that serve as financial guides and enable adaptable responses to unexpected hurdles throughout construction projects.
Is your company ready to meet the challenges of 2024? At SRGE, our team has the tools to help your company grow.
Other posts from SRGE you might like
