By Gary S. Goldman,
Gary S. Goldman & Associates, LLC
We’re living in a time of uncertainty, which is amplified by the global struggle with coronavirus–a novel pathogen that even the world’s top medical researchers do not fully understand. A recent Wells Fargo Economic Report was titled “COVID-19 to Hammer Construction Industry,” and outlined the effects of the virus on construction spending and projects.
The report states: “While many projects appear to be moving forward, several hard-hit areas have already suspended all construction or are beginning to close down sites. Whether or not projects can continue depends on if state or local authorities deem construction ‘essential’ when ordering the closure of all ‘non-essential’ businesses.”
The Wells Fargo Economic Report continued: “To be sure, construction should fare better than other industries like hospitality and retail trade. Many infrastructure, hospital and residential projects are considered essential and should continue even in the areas with severe outbreaks. Construction workers already follow strict safety precautions which include protective gear. Many projects are primarily outdoors and social distancing rules can more easily be installed.”
This leads me to my thoughts on how the coronavirus will affect the paving and pavement maintenance markets?
The situation calls for us to be proactive–you cannot wait it out and assume life will come back to normal. You have to plan for the new normal and establish a current baseline. Everyday life has changed so that standing two yards apart and wearing a face mask is becoming the new normal. The mindset and buying habits of current and future customers have also changed.
Now more than ever it is important to have a business and financial plan. Business plans are living documents that should be reevaluated and adjusted to current economic and social conditions. Definitely put together an estimating budget. It doesn’t hurt to create a financial and business plan with different scenarios to provide the guardrails for moving forward in different situations. For example, if you put a division or segment of your business on hold due to COVID-19, what will re-starting that operation at a later date look like?
It makes sense also, to engage in some cost side management. What areas do you need to make tough decisions on to cut costs and operate lean? The idea is to stay financially healthy until you can return to normal operations.
When it feels like so much is out of control, it can be difficult to even grasp what makes good business sense, but operating from a plan early on can have a long-term beneficial impact.
Communication is crucial during this time of uncertainty. Keep employees in the loop through email, texts, and face-to-face meetings where possible. The same goes for customers–current, past, and even prospective customers. And, of course, don’t forget vendors/suppliers, attorneys, and your financial team, especially your bank.
Keep them all informed.
During this tough time, it is also critical that your business should be building liquidity or cash reserves. This includes cash, lines of credit, and unpledged assets that can be used as collateral on new loans.
Your annual budget is your key to survival. It can help you calculate accurate project estimates, allow you to allocate overhead, determine labor burden, provide equipment costs, and help you determine profit margins. Your budget is your pricing model.
One thing that’s certain, competition will be fierce this year. Contractors will be looking for sales at any cost. You need to use an accurate pricing model when bidding.
Most states are in “lockdown” with only essential businesses remaining in operation. Pavement business owners need to interpret the “shelter in place” language so that they are part of the essential workforce. Too many pavement business owners are interpreting those orders too narrowly and shutting down operations at a time when they don’t need to be shut down. Until someone tells you otherwise, if your state or county’s “stay at home” mandate considers construction as an essential business, then you should consider pavement as part of that language.
It is admirable to play by the rules; however, you also need to keep your business afloat and there are ways to do it safely.
Clearly, those that prepare a plan in response to this coronavirus pandemic crisis will weather the storm much better than those that do not. If you have a plan and an understanding where you are financially, you can adjust to market conditions and thrive.
It will take some time to get things back to normal, so create a plan you can work with. Every contractor should have a COVID-19 plan. Step-by-step instructions on how to create one will be part of our next series of webinars.
Readers will be able to go to our website, garysgoldman.com, where we are putting together a platform that offers subscriptions to podcasts, videos, and training sessions. We will have “free” information on the site and we will have a lot of introductory information available on YouTube.