Is Your Roofing Company Prepared for a Recession?
Avoid complacency resulting from good economic times to prep for the worst.
I’ve been a consultant for contractors for over 40 years. While for the younger readers this qualifies me for being an old goat, the reality is I’ve seen and endured quite a few economic downturns. Right or wrong, I think we may be entering the beginning of an economic slowdown. Frequently, the stock market is an early warning of a decline and it has taken a hit the last few months. Wage inflation has started. The national debt is rising. The government shutdown is slowing spinning. The world economy is not as strong as in the past. And most importantly, it has been 10 years since the last economic slowdown and recessions tend to be cyclical. In reality, recession or not, you should run your business efficiently and be prepared for a slowdown.
We see many of our customers getting sloppy. There’s no question good times and high volume can create high profits. But focusing on the top and bottom line without keeping a close watch on costs can create a precarious business situation. Smart business people should run their business like there is a disaster around the corner. Business in itself is risky and failure to pay attention to details can be fatal. We see too many trips to supply house, chaotic workforce management, poor collection practices and many other questionable business practices. So here are some things to watch out for:
When is the last time you checked prices from your supplier? We are not encouraging you to beat people up on price but their pricing strategy is not all that different than yours. If you are trying to get your foot in a new customer’s door, you probably are going to sharpen your pencil to get that work. Growth has raised the amount of material many individual contractors buy each year; have you asked for annual pricing based on your volume? Don’t get complacent.
Material handling and supply house visits.
Are you practicing archaic material handling practices or slipped back into old habits? No matter how you spin it, it costs $50 to $100 to visit a supply house. We find businesses who are doing it daily when in many cases Uber could bring a miscellaneous piece of material for a fraction of the cost. Every contractor is facing a skilled craft shortage. Yet many a foreman will run and pick up material or ice for the coolers. Just because you always did something a certain way doesn’t mean it is the most efficient. Other contractors have stopped having material review meetings to order supplies in the advance because they feel they are too busy. Don’t get complacent.
Poor financial controls.
I spoke with a long-term customer yesterday whose 19-year tenure office manager is out sick. He had to step in do financial work and he found thousands of dollars in theft. He simply has been making money, busy and knew she would take care of things. Have monthly financial meetings. Get copies of all checks. Review credit card bills personally. If possible, have two people involved where one balances the checkbook as a safety valve. Buy employee theft insurance or have bookkeepers bonded. Have monthly financial meetings each and every month. Review an accrual profit and loss, balance sheet, receivables, completed jobs, large jobs in progress and backlog. Don’t get complacent.
Outdated Insurance Coverage.
Today the world is a complicated place. Are you insured for a ransomware attack? Do you have an adequate umbrella to cover your net worth? Is your cyber security up to date with the latest and best? Are you insured for sexual harassment or other personnel infractions? Have a competent independent agent review your coverage. Buy from a savvy agent, not just a sales guy or buddy. Don’t get complacent.
Job costing and type of work review.
Too many contractors fail to get a handle on where they are making and losing money. High volume and profits can hide the losers. It’s not unusual for us to find contractors who lose money on 30 percent of their work but don’t know it as they are only focusing on the bottom line. When a recession hits, jobs that hurt your pride will now destroy your cash flow and maybe your business. At least once a year track job costs by type of work, estimator, project manager, foreman, etc. Know your strengths and weaknesses. Don’t try to be everything to everybody. And remember, in a slowdown, new construction will be the hardest hit. Don’t get complacent.
In summary, if owning and running a business was easy, everyone would do it. The easier it is to be in business because of economic booms, the easier it is for people to fall apart when things slowdown. If I asked you, what were your sales and gross margin on repairs, metal, commercial, steep, etc., can you quickly tell me approximate numbers or do you have to look it up? Don’t get complacent.