Many contractors in the U.S. are enjoying a long period of relatively strong demand for their services, but given recent signs that construction spending is slowing, contractors should take action now to “recession-proof” their operations in case of a downturn, management consulting firm FMI warned in its 2019 forecast for the engineering and construction sectors.
According to the forecast report, engineering and construction industry growth across both residential and non-residential projects is expected to continue at a rate of 3% in 2019, down slightly from a rate of 5% in 2017 and 2018. However, the report also stated that in 2019 and beyond, buyers are expected to be more cautious with their acquisition activity, both because of where the industry is in the current economic cycle, and because many buyers are still integrating the companies they acquired during the past few years.
To “recession-proof” their company, the report suggested that contractors take steps now, including making hard decisions they had been deferring, such as letting go of under performing employees or offices; and planning for their future working capital needs by maintaining a healthy balance sheet.
The report also advised contractors to focus on their core competences rather than chasing every project or client, while simultaneously developing solid relationships with clients who are likely to move forward with projects even in a recession. Finally, the report recommended that contractors be proactive in designing a business strategy, break down project costs to gain a better understanding of where and how they can improve their profit margins, and educate their employees about how to attract and retain business in a downturn.
“Through good preparation, companies can take the lessons they (or their predecessors) learned from the last recession and use them to avoid repeating any costly mistakes,” the report said.