The coronavirus has created economic challenges for all small businesses. Subcontractors are no exception.
State shutdown rules, local economic conditions, type of work performed, etc. are all factors that contribute to the situation. I was a contractor business consultant during the 1980 gas and 18% interest rates slow down, the ‘89-‘90 savings and loan crunch and the 2008 recession. The following advice still holds true regardless of your current economic situation.
Leadership: It’s important to practice good leadership. Even if you are anxious about the situation, be calm and have a plan you communicate throughout the company. People are looking for leadership, not a doomsday message. When watching World War II movies, you don’t see officers charging Omaha Beach yelling, “Come on so we can all die.” You are the leader of your business family.
Cash is king: It’s important to make cash projections and determine how long before you run out of money. If need be, postpone loan payments and reach out to your suppliers to see if you can extend terms.
Cut early, not later: If you are losing money, don’t wait until all the money is gone to start making overhead cuts. It’s more important to maintain profits. In every recession I’ve been part of, people waited too late to make cuts. Consider backward delegation. If you have people in overhead that used to work in the field, put them temporarily back into the field. It’s better to save the company and keep some workers’ jobs than to go out of business and everyone loses their job.
Don’t look for the government to save you: There is an old joke about the two greatest lies being “I will still respect you in the morning” and “I’m from the government, I’m here to help you.” Many government programs are put in place to help you, but saving yourself makes more sense. If there is help from the government, that is just icing on the cake.
Don’t make panic price cuts: The number one reason contractors fail in tough times is that they randomly cut their price, thereby creating a mathematical equation that is impossible to reach. For example, suppose your gross profit is 30% and you cut your price 10%, you move your break-even point by 50%. Suppose you did $2 million in sales at 30% gross profit to break-even, which equals $600,000 in overhead. If your average job size was $10,000, your gross profit per job is $3,000. It would take 200 jobs to break-even ($600,000 overhead divided by $3,000 equals 200 jobs). If you cut your price 10%, your gross profit becomes 20%. Now you need 300 jobs or a 50% increase in sales to break-even ($600,000 divided by $2,000 equals 300 jobs). It’s crazy to think you are going to bid your way out of a slowdown. You are simply creating mathematical suicide.
Micromanage the heck out of jobs: If you have fewer jobs, this means you have more management for each job. Plan and push the heck out of the jobs you have. As managers, figure out how to do it cheaper. Plan, plan and do more planning. Cut down on morning start-up time, handle material more efficiently, keep daily production scores. Remember, one of two things will happen in slow times. Employees will either become more efficient to keep their job or drag their job out to make it last. Remember, money is made in the field, not in the office.
Be financially creative: If you have extra trucks and vehicles, ask your insurance agent if you can reduce the insurance while they are parked. See if banks will help you out with existing loans. If your state allows, consider rotating overhead personnel through unemployment. What special thing do you have that you can use to leverage sales? During the 1990s, I had a customer who had four great seats for the Boston Celtics. If you gave him a job, you got to use the tickets. Have college-age or teenage kids you support? Get them to work and help you. Pull together as a family.
Be careful of flaunting wealth and lifestyle. Honest to God, I know of a contractor in 1990 who cut all the staff’s pay and the next day drove to work in a new Ferrari. His comment was that he bought it with his inheritance and it was his money. Really? Needless to say, the business was closed in a few months.
Tough times call for strong leadership. Take action and influence those around you. The good news is that existing businesses prosper when coming out of a recession. Make sure you stay in business to take advantage of the upswing. Call me, I would be happy to chat about your business situation.
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