How to Survive & Thrive during a Recession

Greg Wilkes (00:00):

The construction industry can be a tough business to crack from cash flow problems, struggling to find skilled labour and not making enough money for your efforts, leaves many business owners feeling frustrated and burnt out. But when you get the business strategy right, it’s an industry that can be highly satisfying and financially rewarding. I’m here to give you the resources to be able to create a construction business that gives you more time, more freedom, and more money. This is the Develop your Construction Business podcast and I’m your host, Greg Wilkes.

Greg Wilkes (00:37):

Welcome back everyone. The subject of today’s podcast, I think is really quite appropriate because it’s on a lot of people’s minds at the minute. We hear it in the news all the time, a lot of scare mongering, and it’s about the word recession, the big R. This is often a big fear in construction because I’ve been through recessions, my dad’s been through recessions, and it can be worrying. I remember a recession my dad was in, I think it was the eighties, it was the first time he was ever out of work. He was a brick layer and he’d always been busy, always worked every day of his life. Then all of a sudden, a recession hit, he’d run out of work. I remember my mum was delivering catalogs and we used to go out and help her deliver these catalogs and post them in the street. At the time we were young kids, we thought it was quite fun. But actually when I think back, that must have been a really stressful time for my dad and my mum. They really had to tighten their purse strings with what was potentially happening in the economic environment. The recession in the eighties was a really bad one, and it affected a lot of people. Growing up, I was always worried about the word recession. I think it really stemmed from my dad having to go through that one. He’d been through it and he always used to say, “Yeah, you’ve never been through a proper son <laugh> so you don’t know!” I’m in my forties now, been working for 20 odd years and I’ve been through recessions. What I’ve come to realise is that you can ride out a recession. If you run your business the right way, you can get through a recession and actually thrive through a recession. Not everyone runs out of work. Not everyone loses money in recession. In fact, some people can make a lot of money in recessions if they’re positioned in the right way. I really wanted to talk about this today because obviously in the news, it’s there all the time. We’ve had a lot going on at the moment. The war in Ukraine, energy prices going through the roof, trying to get off the back of coming out of Covid-19. That’s affected people. We’ve had Brexit here in the UK. There’s been an accumulation of events at the moment that really have left people worried over the last few years on what is the economic climate going to do? What’s the construction industry going to be like? Obviously, as we said in the papers, it’s all doom and gloom. They’re predicting a recession to come and things are going to tighten up.

 

Greg Wilkes (03:11):

The question is, how are you going to react to this in your construction business? I’ve got a few tips today that I wanted to run through. The subject being, how can you not only survive, but how can you thrive during an economic recession? Let’s just talk about some of those things. I think the first thing I want to talk about is your mindset.

 

Greg Wilkes (03:34):

First of all (and this is probably the biggest subject to talk about) because there’s, as we say, there’s a lot of scaremongering and fear out there, but different people react differently to this news. Some people don’t watch the news at all because they don’t want to hear negative things, and others do watch it all the time. They’re obsessed by it, and they react accordingly. They react out of fear and they make decisions based on fear, whereas others make decisions based on abundance and prospering. I do think there’s a big difference in that. I think mindset plays a huge role in it. To think about why you should have a positive mindset through this recession is that in construction, you are probably in one of the best industries at the moment in the UK. Okay, we know there’s price volatility, if fuel prices and energy costs are going up, then that means materials are going to go up, of course. We’re affected by that. But we’re in a bit of a unique situation here, because there is a massive, massive trade shortage in the UK. You can’t find decent builders or decent trades. If you’ve got a company out there and you’ve got a few employees and you’ve got a good reputation, then you are going to be sought after. There is massive demand. People can’t afford to move, so they’re doing up their homes, people still need work done. There’s a massive backlog of work that was postponed during Covid that now is getting underway because people need to move on and get things moving. There is a huge amount of work out there. In fact, I speak to a lot of builders and a lot of construction people as you know; everyone’s busy that I know of. I’m sure if you ask around and you pop down the pub or ask your friends, everyone’s busy. Everyone’s absolutely stacked. That is a really good sign. That’s really positive. It shows we’re in a slightly different position in construction at the moment to back in the eighties. It might be different to when my dad was was running out of work. That’s the first thing I’d say, is be positive about what’s potentially coming. If there’s such a shortage of builders (which there is) it means your prices can still stay strong and you can stick to your prices because you’re not up against so many other builders out there. So that’s the first thing. Think about your mindset, and are you going to be a person who’s completely in fear and acts in survival mode? If you’re going to be like that, you’re probably like that in all areas of your life and you’re not going to thrive. It’s really going to hold you back. If mindset’s a problem, you need to address that and think about, how can you be more positive? How can you focus on the right things? The things I think you really do need to focus on at the moment are, how can you grow your business? How can you improve your business? How can you be more efficient in your business? These are the things you really want to be thinking about in times like these.

 

Greg Wilkes (06:32):

There’s a bible story that I think really applies in these times. You probably heard of it, Joseph and the Technicoloured Dreamcoat, the play in London. Joseph, he was promoted to second in command in Egypt in the Bible times. One of the things he was tasked with doing was; the Pharaoh had a dream and Pharaoh was told in a dream that there was going to be a famine, there was going to be a period of seven years of plenty and then seven years of famine. Joseph was tasked with managing this whole process, getting Egypt through this famine that was going come. What’s interesting is that recession, sometimes they go in cycles too. I don’t know if it is 7 year cycles, but I think it’s about 10 years, recessions generally. But we are going through a bit of a cycle now where we’ve had times of boom and now we are coming into a period potentially where things are going to tighten up, but they haven’t tightened up just yet. There’s still a lot of work out there, there’s still a lot of money to be made. So thinking about what Joseph did in bible times is when things were going good, when money was coming in, he started accumulating grain provisions and he made sure the store houses were were full of grain while times were good. He stored up the grain and everyone else wasn’t paying attention and they didn’t bother (all the other nations), but Joseph did. Then when the famine hit, when Egypt’s recession hit, they were well prepared for it. They had plenty of grain in the store houses, plenty of reserves, and they were able to easily ride out the recession. In fact, they didn’t just ride out this famine recession, they really accumulated Pharaoh’s wealth because people started selling their lands back to Joseph in order to get some of the grain provisions. It just shows you, doesn’t it? That’s a bible story there, but it has a lot to relate to our day that <laugh> money can be made in difficult times, but it takes planning and you’ve got to be shrewd about it.

 

Greg Wilkes (08:33):

Now we are in the same boat. Things are going well at the moment, there’s a lot of work out there, a lot of money to be made. But are you planning for potentially times tightening up and can you put some in reserve? If you’re making money, have you got a little buffer behind you? Or are you spending everything? I would really look at things, look at your bank account, look at your profit and loss and if there’s a nice buffer there in your business, be shrewd about it. Don’t go out there spending it all, but put some aside at the moment because we don’t quite know what’s going to happen in the next year or two. Put something aside so that if things do tighten up a little bit, you’ve got a little bit of a buffer to ride you through it.

 

Greg Wilkes (09:19):

There’s a few other things I wanted to address today, really four things that we want to talk about. One is how we need to focus on our lead generation during times of a recession so that we can thrive. The second thing we want to look at is how you can be more efficient in your business. Thirdly, we want to talk about how you deal with your guys and girls that might be working for you, the payroll, things like that. We’re going to have a brief chat about that. The fourth thing we’re talking about is debt. Let’s run through some of those things and see if we can help you with that.

 

Greg Wilkes (09:53):

The first thing I briefly want to discuss is Lead Flow. Now, in times of a potential recession and economic uncertainty, you may get people / there is gonna be people out there that hold back. As we said, fuel prices are going sky high, energy costs. That’s going to affect different people in different ways. That’s going to affect homeowners, that’s going to affect commercial companies and materials are going to go up because of this. If your are a company that relies on one or two or a handful of contacts that you’ve been working on year after year and you don’t actually do much marketing at all, because you’ve never had to, then now’s probably the time to start thinking about diversifying and expanding your lead generation. What we don’t want to do is become so reliant and have all our eggs in one basket because if a significant amount of our turnover comes from one company or a few companies or just a small handful of companies, or a handful of clients, we are putting our eggs in all in one basket. It only takes one or two of them to decide to hold back a little bit or pull the plug on some ventures and that could massively affect your turnover if you’ve been so reliant on them. We don’t want to be reliant on people, we don’t want to do that. I would think about your lead generation at the moment and making sure that you’ve got plenty of leads coming in from a wide variety of sources. Even if times are good at this minute and you’ve got more than you can handle, now’s the time to start going out there to the market and getting more contacts. Go out there, go and get yourself more architects that you can go and tender for. Go and find yourself new main contractors that you can go and price for. Make sure that you are diversifying so you can price for more and more clients. There’s a multitude of ways of doing that. You can do outreach on LinkedIn or I’ve got training events that show you exactly what you can do for your lead generation. I won’t go into it in this podcast, but the point is point number one, make sure that you are doing something to diversify, don’t just sit back on your laurels and rely on the current work that you’ve got coming in. You want to make sure you’re well booked up. I am recording this podcast in August of 2022. If you are not booked up into January next year at the moment, if you’ve not got those six months in advance, you really need to concentrate on getting past January. We know what winter’s like, especially in recessions and in construction. That’s the time it pinches. Get January booked out, try and get February booked out once you get past the winter months, then you’re going to be flying in the summer. That’s the first thing, improve your lead generation.

 

Greg Wilkes (12:43):

The second thing we need to look at is talking about finance and debt, thinking about being shrewd on what sort of debt you take on at this stage. Now, at the moment it’s very cheap to borrow money. The Bank of England has just raised interest rates a little bit, but generally speaking it is so cheap to borrow, we’ve never seen it so cheap (Well, we have seen it cheaper, but if you look to a period of approx 20 years or so, we are really at the bottom of what it costs to borrow money). Because of that, potentially we’re encouraged to go and borrow more. We’ve got things going on like ‘bounce back loans’ that have now finished and ‘c bill loans’ that have potentially stopped and people are now trying to pay them back. Nevertheless, it’s still cheap to go out to the market and borrow money. But we want to be careful of that. As we said with the story of Joseph, when we know that there’s potentially a recession impending, that’s not the time to go and blow a load of money and invest in things. This might be the time when you hold back and don’t take on unnecessary debt. Maybe now’s not the time to go out and buy that new truck. Maybe now’s not the time to go out and spend thousands and thousands on a new plant or go and get a swanky new office. You want to think about, could you get on with what you’ve got at the moment and save that money to see what happens over the next year or so, to see if you can ride out what’s potentially coming? That’s one thing I’d say, think about not taking on unnecessary debt at this point.

 

Greg Wilkes (14:23):

The third point we’ll look at, is your efficiencies in business. We always want to be doing this, always want to be looking at how can you become more efficient as a company. But maybe even more so if things tighten up, how can you really be efficient and accumulate as much as you can? You don’t want to be giving away unnecessary profit. There’s 2 ways to look at this. The first thing I’ll be looking at, is the cost of your goods sold. Can you be more efficient in the way you deliver your products or buy for your products? Cost of goods sold are normally two costs that go into becoming more efficient. It’s your subcontractors, or labour that it costs you to deliver a product, whatever that product is for you; a loft, conversion, extension, new boiler, etc. The second thing you need to look at, is the cost of materials. They are the two things that go into it, labour and materials. Can you be more efficient in what you’re doing with that? Some ways you can be more efficient is looking at some of the labour costs that you’re giving out on price. Can prices be squeezed a little bit? Are you paying really high rates for your subcontractors? Can rates be looked at and be squeezed? Maybe not at the moment, because they’re in such high demand, that might not be an area that you can get any room to wiggle on. Where you probably can is your material costs and it’s very easy when we are busy, it’s so easy to just go out there and buy whatever’s needed and not worry about the cost of it. “I’ll just pop down the road to Travis Perkins and buy that timber because it’s nice and easy, it’s right near me.” But you might be paying through the nose for materials just because you haven’t got time to shop around. Think about how you could be more efficient in your materials, go out there. We used to set a rule in business that if anything cost more than 500 pounds, we would always go out and get three prices. If it was less than 500 pounds, sometimes the efficiencies of the savings weren’t worth looking at, so we would go out and buy it. If it was over that amount, we’d go out to the market and get some costs. What is it going to cost us? We really want to be doing that now, especially because a lot of the suppliers have been putting their prices up. They’ve been creeping them up month on month over the last year or so. There’s been massive volatility in price increases. Go out to the market and check your material costs again. Especially if they are big ticket items, because you can make huge, huge savings on that. I was talking to one of my clients the other day about this, and he’s actually thinking about bringing a buyer into his business to help him buy efficiently. He’s doing about two and a half million a year in turnover. We worked it out that he’s probably spending just under (in round figures) around 40% on materials at two and a half million a year, which is a big amount he’s spending if you work that out. He’s spending about a million pounds a year on materials. If he can bring a buyer in to help him buy a bit shrewder, if he can just save 5% on material costs, then he’s going save himself 50,000 pounds a year on materials, which is easily going pay for that buyer and he’s easily going to save 5% if he’s buying in a shrewd way (probably a lot more than that!). You might not be doing that scale, you might be doing more than that, that’s fine. But think about how you can buy shewder and what that means for your profits. That’s certainly one thing I’d say. The other thing I’d be doing too, is going back to your terms with your suppliers. We used to do this annually, maybe you might want even do this a bit more than that, e.g every six months. Go back to your Travis Perkins and Jewsons or whoever it is that you are using that you’ve got on account, and check your rates. Ask for an update on where your rates are at at the moment. What we used to do, we used to get one of our admin team to put all this in a table, on an Excel spreadsheet, and we would try and compare line for line items. It’s not always easy to do because some products are marked differently, but if you spend a few hours on it, you can get a nice comparison and you can have a quick look at that and think, “Right, there you go, Travis is the cheapest on timber. Wicks is the cheapest on cement”, etc, or selco, or whoever it is you’re using. Think about that too. Go back to your suppliers, ask them to send you your rates. Say you’re re-looking at things. It might get them to sharpen their pencils a little bit also and think, “We’ve been a bit lax here and we’ve been charging this firm too much.” There might be some savings there. That covers point number two. Look at your efficiencies with your materials and potentially labour. The second efficiency you want to be thinking about too is your overheads. Again, this is so easy to creep, especially when times are good, it’s really easy to get that subscription for that company. Let’s pay for that advertising at the moment for yell.com (for example) Let’s get that new office, let’s get that new truck. Overheads can really, really creep up. It’s amazing, especially as you start growing as a business and there’s plenty of cash and your flush with cash, and it can be easy for the overheads to creep up as well. Have a look at that. Next time you get your profit and loss report, get your accountant to send you a breakdown of what your overheads are, your fixed overheads every month. Can you get new subscriptions for certain things? Can you beat down prices on what you’re paying for your fuel etc? I’m sure you can make efficiencies there if you spend a bit of time having a look at that. So that’s point number three.

 

Greg Wilkes (20:11):

Point number one was improve your Lead Generation, point number two was don’t take on unnecessary debt and point number three was improve your efficiencies in the way you are running.

 

Greg Wilkes (20:24):

Point number four is thinking about being shrewder in the way you compensate your team at the moment. As we said, construction is absolutely manic at the moment. Everyone is busy. One of the worries around that is if you’ve got a team around you, you’ve got trades people that work for you, sometimes they can demand more money. They are feeling the pinch of inflation at the moment. This might be the time they come to you and ask for a pay rise, which is fair enough, if they feel they’re deserving of that. But as the business owner, you need to think of what impact that’s going to have on you and your business going forward because you are obviously there, you want to keep your employees happy, but you are there to protect the business. That’s your main role and you need to make sure that, one person doesn’t bring it down for everybody else. You need to be careful when thinking about wage increases at this time. If the potential recession is looming, we don’t want to be increasing costs too much unnecessarily. If you’ve got margins there and you feel you can do that and you want to compensate your people, if they’re working well and you can afford wage increases, that’s fine. I would just think twice about it, especially at the moment. The other thing you’ve got to think too is / one of the worries is, “well, if I don’t increase their wages, they’re going to shoot off and go to another company.” That’s a valid concern, but maybe less so with the way things are at the moment. It’s probably going to be quite rare for people to jump ship at the minute when there’s such economic uncertainty around at this time. If the shoe was on the other foot, would you really want to be trying to find a new job at this point? Maybe not. Maybe you’d think, “Well I’m better off where I am. I’ve been employed there for so many years and I’ve had consistent work for so many years. Do I really want to be jumping ship at the moment?” Don’t be quick to raise wages because you think you’re going to lose people, because often there are ways of keeping them. What are those ways? How do you keep people if they want a wage increase and you can’t afford to do it at this time? There’s other ways of compensating individuals. For some people, they want time, so is there bonuses you could do? Example: If they get a certain amount of tasks done or, or finish a project, can you let them go early on a Friday, so they can go and enjoy themselves? That could be something quite good. Can you be a little bit more flexible with your timings? Maybe you can do bonuses when jobs are finished, example: every time you finish a job and it’s done on time, we’ll pay a bonus rather than actually increasing the daily rate. You can do things like if a customer leaves a five star review and the employees worked on that, you give them a bonus for that instead. There’s lots of ways of compensating individuals without having to think about raising day rates all the time, as that can be one of the most expensive ways of doing it. Think about that, can you be more efficient when your team want pay rises?

 

Greg Wilkes (23:50):

We’ve covered a few things here in the podcast today. We’ve looked at thinking about your mindset, how that plays a really important role in how to survive and thrive a recession. Mindset’s number one. We’ve talked about your Lead Generation. Make sure you go out there and improve your Lead Generation. Don’t rest on your laurels, don’t rely on the current work that you’ve got. We’ve talked about making sure you’re not taking on unnecessary debt in your business at this time. This might be just the time just to save at the moment an, not go out and spend a lot and get unnecessary debt to buy new things. We talked about how you could be more efficient with your overheads and materials. Then we also spoke about how to deal with wage increases. Is there other ways that you can compensate your staff. So quite a lot in this podcast! I’m absolutely confident that you can thrive during an economic downturn, especially at the moment with the way construction is. You want to be absolutely convinced that whatever happens in the next six months or year ahead, if you keep focusing on your business to improve it, to grow it, to be more efficient, you can certainly not just survive, but thrive this economic recession that might be coming or might not be coming <laugh> I hope that helps little bit.

 

Greg Wilkes (25:10):

If you’d like to work with me to fast track your construction business growth, then reach out on www.developcoaching.co.uk.