Use Sound Business Management to Stay Strong Until Recovery Strikes

To keep things going until the recovery, construction business owners need to cut costs, collect what they can and manage the balance sheet.

I asked one of the regional bankers I know, "Are you lending money?" and the answer was "yes." I also asked, "Are you looking for new business?" and the answer was "Yes." And last, I asked, "Are you lending into the construction/real estate industry?" and the answer was "maybe."

It appears the banking industry is still in business, because if they don't loan money, they don't make any money. Who they loan it to and under what circumstances is the question. What I am hearing confirms what we have been saying the last couple of months. If you have a banking relationship stick with it. If you don't have a sound business plan, put one together. If you can't demonstrate an ability to go with the flow while remaining right side up, you need to think it through so you can make a reasonable presentation.

Is the end to the downturn in sight?
The latest data regarding housing is that the current low interest rates will help soak up the existing inventory of unsold properties. Buyers and sellers are finally realizing that values have come down. They will sell at a lower price than intended, but also get a great buy on the other end. Moving from one house to another in the same price range may be a push at this point in terms of how much house you get for your money.

If the interest rates do help eliminate the excess units on the market, it may mean housing bottoms out around mid-year. Not bad considering what they were saying three months ago. Of course, commercial construction will fall off once current work is completed, but hopefully the stimulus and infrastructure work will kick in to keep the work flowing.

If all these things come to pass, this downturn may come to an end sooner than we think. Even so, you have to manage a conservative operation until new work starts coming in.

Another business owner stated that every CEO or COO is taking a look at everything to reduce costs, increase efficiency or generate new business. This thinking may be good because it causes owners to become really "lean," which will carry over to future operations.

In other words, those of you who keep it going will be better off in the long run because you found ways to make more with less. When you think about it, the U.S. economy always comes out stronger after these recessions, so why should this time be any different?

Steps to stay ahead
To keep things going until the recovery, business owners need to cut costs, collect what they can and manage the balance sheet. Following are ways to accomplish this goal:

  • Get all the billing done as soon as possible.
  • Get all the paperwork processed to allow payment for your services.
  • After you bill it, collect it. Get someone to chase your receivables.
  • Don't miss any lien filing dates.
  • Avoid adding debt to the balance sheet. Rent it or lease it, but right now, renting is probably better.
  • If you rent it, use it. After you rent it, return it as soon as possible.
  • Go after those "loyalty points." If vendors want your business going forward, ask for help now.
  • Keep creditors informed. If you need extended terms, ask for them.
  • We have mentioned this before, but get rid of under-utilized equipment (unless you are upside down on the loan).
  • Manage your work to reduce the work schedule.
  • Get your 2008 books closed in January 2009. You may have tax refunds coming.

There is no magic bullet to get us through these tough times. Hard work, a game plan, a focused management team and good old American ingenuity will win out. Work it and get the help you need to get over the hump until more work becomes available. Most of you have been through this before and are still around. This time will be no different.

Garry Bartecki is the managing member of GB Financial Services LLP and VP Finance for the Associated Equipment Distributors. He can be reached at (708) 347-9109 or [email protected].

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