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As we kick off 2023, the challenges facing construction companies keep coming. High inflation, combined with continued supply-chain disruptions, labour shortages and the continued threat of a recession are all top of mind for everyone in the industry.

Can anything be done to help mitigate the impact of the different challenges?  The following are some tips that might help keep your business in the black this year:

1. Plan for inflation when bidding on new projects. The 15% profit margin you budget for on a six month job likely won’t materialize if the project takes 12 or more months.  Adjust your pricing when bidding or quoting on jobs that will not be completed in the next six months to factor in inflation.
2. Carefully review your fixed costs and capital expenditures.  Are there fixed costs that can be changed to variable? Do you still need all that office space? Can equipment be leased instead of purchased? Any steps that reduce your monthly expenditures will help improve the bottom line.
3. Improve operational efficiencies and leverage technology.  Now may be the ideal time to introduce financial tools that can help you improve your productivity and profitability.  Real-time solutions that connect the ever-changing realities of the job site with the office can help managers keep jobs profitable.  IT solutions can also help analyze your past projects to allow for better and quicker predictions on future jobs.
4. Focus on relationships.  In a market suffering from supply and labour shortages, the relationships you build with a wide selection of suppliers and other contractors may provide you with a strong competitive advantage and leads for future employees.
5. Look to diversify your business so that you are not dependent on a few customers or one area of the construction market.  If home renovations have been your bread & butter the past few years you may not be able to count on it going forward as homeowners deal with higher mortgage and HELOC interest rates.
6. Put your business through regular stress tests. This means looking at your working capital – accounts receivable and current assets, minus current payables – and making sure that you have the money to pay your bills. Aside from government and payroll, these obligations include repayment of loans and other trade payables.
7. Make sure you have contingent funding like a line of credit in place. There is no cost to having one in place and it’s easier to get one before you hit financial difficulty. Most businesses will experience temporary cash challenges. If a customer doesn’t pay for whatever reason, do you have enough cash to meet the payroll anyway? Don’t be dependent on that one payment.
8. Recessions are preceded by signals, notably slowdowns in sales.  You need to have a solid understanding of what’s taking place in your own business and in the construction industry in general. Look for trends, make adjustments when necessary and plan ahead.
9. Don’t rely just on annual financial statements to run your business. You need to have current information and be planning for the future based on what is happening now.

To successfully weather the challenges to come: It is important to be proactive and not reactive. Stay ahead of the game and you’re more likely to emerge a winner. Find business advisors who will give you sound, holistic business advice. As we say at GGFL: ‘See the opportunity behind your numbers.’

This article was first published in the Ottawa Construction Association’s monthly magazine.