Come What May, Be Recession Ready
Scaling back during a recession is not as much fun as growing is
For months the drumbeat of a pending recession has become louder and louder. More and more pundits are on board with the notion that the nation’s economy is headed for a downturn.
I’ve been through enough recessions to know better than to try and make a prediction of my own, but I do know this: In good times and bad, the next recession is coming, and we do not know when or to what extent the economy will slow when it arrives.
For the roofing industry, recessions haven’t been all bad. During the Great Recession, homebuilding ground to a halt. This did have a significant impact on roofing manufacturers, but most roofing contractors make their living primarily from retrofit roofing, which slowed but kept going, powered by storm work.
Another outcome of the Great Recession was the emergence of commercial roofing maintenance as an enterprise of its own, residing inside commercial roofing companies whose business slowed during the downturn. Taking a dedicated approach to running a maintenance department as a separate business filled a need for commercial building owners, and introduced an important and profitable segment of many commercial roofing contractors’ businesses.
Going through a recession may not be all silver linings, but my anecdotal survey shows that as many roofing contractors go bust in the good times as in the bad. When the sales are rolling in, operations tend to suffer. “Just get it done” is seldom a formula for safe, efficient, and profitable business.
When times are tough, poor business practices fall by the wayside and belts are tightened. At the beginning, some competitors may crash their pricing as they attempt to keep the ball rolling. But they never last. This can have a “cleansing effect” on some competitive markets.
Scaling back your operation is not as much fun as growing it, but recessions are like a river that goes dry during a drought. All that “stuff” that has been on the bottom starts to show up, making it easy to see what needs to change.
So why not run your operation through a recession test? Do it now when you have the resources to handle it. Get your legal and accounting professionals on board to assist. What would your balance sheet look like if your billings were to slip by 30 percent over the course of a year? What if you added to that a 25 percent reduction in gross margins? These may be extreme examples; make up your own “what-if?” scenario. What are some of the things you would need to change or eliminate from your operations to make up for this revenue shortfall?
You may then wish to consider which of these changes you can make now to improve your operations. Unless you’re operating at 100 percent efficiency, my bet is you’ll find ways to boost profits. And if not, you’ll at least you come up with a written list of things to be ready for when the next recession does arrive.