FMI: Recession-proof Your Construction Business Prior to Another Economic Downturn

First FMI Quarterly of 2019 provides key insights on how firms can plan and invest today's peak profits to prosper through the inevitable economic downturn

Operating profit margins of nonresidential construction firms analyzed by FMI grew at 17.3% CAGR between 2013 and 2017. Margins nearly doubled in the period. Profits invested in people, technologies, equipment and other assets should improve the contractor's long-term competitive position.
Operating profit margins of nonresidential construction firms analyzed by FMI grew at 17.3% CAGR between 2013 and 2017. Margins nearly doubled in the period. Profits invested in people, technologies, equipment and other assets should improve the contractor's long-term competitive position.
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Construction spending growth is slowing, and there’s a lot of turbulence going on in the general economy. In 2016, only 8% of contractors listed economic slowdown as a risk; today that statistic has jumped up to 58%.

FMI thinks the engineering and construction (E&C) industry is at or near the top of the cycle. Knowing this, it’s time for E&C firms to start thinking about how to operate their businesses profitably when (not if) the recession hits.

Not intended to be a foreboding prediction of the next recession, this edition of FMI Quarterly is intended to challenge contractors to take a shrewd, introspective account of the efficacy of their current business practices. Ask yourself:

  • Are your current results symptomatic of operational excellence or just a good market?
  • As your business has grown, have you added the right infrastructure and people required to run a larger operation?
  • Have your margins grown as a result of operational innovation, or are they simply rising with the flood tide?

The first FMI Quarterly” issue for 2019 dives into how contractors can recession-proof their businesses. In this Quarterly edition (co-sponsored by Zurich), authors highlight key insights on how firms can plan and prepare for an inevitable economic downturn. Some insights include:

  • During this broad expansionary cycle for U.S. engineering and construction (E&C) markets, operating profit margins of nonresidential construction firms analyzed by FMI grew at 17.3% CAGR (24.7% for general contractors, 5.9% for specialty trade contractors and 15.3% for heavy/civil contractors) between 2013 and 2017.
  • In aggregate, operating profit margins have nearly doubled over the last four years.
  • Looking ahead to 2019, FMI forecasts a 3% increase in spending levels over 2018.
  • Nearly 50% of a board’s time is spent on financial results and matters of a historical nature, while just 25% is spent on organizational strategy. In reality, and to be most effective, boards should be spending at least 80% of their time on strategic topics.

(read the entire FMI Quarterly issue...)

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