A trades business owner roadmap for these challenging times
04 May 2023
The trades and construction sector has been booming over the past three years, with activity at record highs. But unfortunately, nothing last forever, and fast forward to 2023 we are seeing a mixed market that will have clear winners and losers.
The residential market has taken a hit with consumer confidence dented by rising interest rates and inflation. Renovating a home is becoming increasingly harder and businesses are seeing their pipeline decreasing, which is now their number one challenge. The Otago residential building sector is predicted to decrease from $1.7 billion in 2022 to $1.1b in 2026.
The construction sector is a different story, driven by a number of significant capital projects over the next ten years. The biggest challenge for them is the ability to attract and retain skilled trades staff and protecting margins with increasing costs.
With tougher economic times and increasing uncertainty for many, we have provided our top tips to navigate your trades business in these challenging times.
Cash is king
Cash flow is the lifeblood of any business, and it’s the number one reason businesses fail. Focus hard on building up reserves so you can weather the storm (xx months is a good target). Hold off buying that new Ranger and look at selling under-utilised assets. You need to make sure you are collecting payments on time, managing your expenses carefully, and keeping an eye on your bottom line.
Know where your profit comes from today and into the future
Review both your services and customer segments to identify which ones create the best margins, and which ones have a positive outlook. Reduce or remove lower margin offerings and consider diversifying into new revenue streams.
Get all over your numbers
Set a capacity-based budget that outlines scenarios based on the resources you have. Consider what a poor, average and strong performance looks like. For each scenario identify your key levers and understand the key trigger points to make change and act decisively.
Develop key performance indicators (KPIs) that will allow you to track your progress. For example, gross profit %, net profit %, productive hours, and so on.
Regularly monitor your performance
Once you’ve set your KPIs and you know what good performance looks like, you need to regularly monitor it. On a weekly basis review your productivity, workflow, and pipeline. Each month review your financial performance against your budget and cashflow levels.
Have a clear view on your pipeline
Have a clear view on your workflow and future pipeline. Set KPIs on what the ideal and minimum levels look like. Keep your pipeline up to date and monitor it weekly. As soon as it drops below your ideal levels, get out there hunting for work.
Look for efficiencies
There is a nothing like a downturn in the economy to force you to look for inefficiencies in your business. Review your structure, systems, and processes to look for gaps and opportunities to remove inefficiencies and save money.
If you are not already embracing technology, you are going to be left behind. Not only is technology saving time and money, but it’s also providing rich data and information that allows you to successfully manage your projects and make decisions about your business.
Build your social capital
Your people are still your number one priority. Unemployment remains low and the labour market is tight. Make sure your trades staff are being paid appropriately and according to the market, build a values-based culture, work hard on your communication, lead by example, and provide development and career opportunities.
Get support in your corner
Get business support and have a team of people in your corner that you can trust and will have your back in the good times and bad. Seek advice early and stay in touch with your industry groups and associations.
Have a plan and stick to it
Develop a clear plan that pulls in all your analysis and provides a roadmap from where you are today, to where you want to be in 3 or 5 years-time.
Keep a clear head and remain focused on the long-term. Business goes in cycles, and the top businesses keep focused on their long-term goals.
To hear from our industry experts on trades and construction business practices learned from working with hundreds of trades businesses around the country, join us on on Wednesday, May 18 in Dunedin.