453: Construction Industry Insights For 2022

This Podcast Is Episode Number 453, And It's About Construction Industry Insights For 2022 There is a natural ebb and flow in the business cycle, which in regular times operates, somewhat predictable.   In normal times, contractors who pay close attention to their Five Key Performance Indicators financial reports and stay aware of the macro global economy and the microlocal economy can plan and earn an expected profit after paying themselves a reasonable salary.   The past two years have been anything but ordinary, and frankly, we are having a tough time with the economic forecasts models we follow, including our internal ones.   Something similar occurred from 1976 to 1980, and suddenly in early 1981, the national and global economy began to turn around, and there was a severe shortage of contractors and qualified construction workers.  

During the remainder of that expansion and boom cycle, many construction company owners made substantially high profits, and the wise ones who thought ahead invested their windfall profits in real estate, stocks, and other investment vehicles.

The good news is the Universe is always in balance, and we could be nearing the beginning of a period of massive expansion, the likes of which we had not witnessed since the end of World War II when the housing boom was explosive for the next 20 years.

Pent-Up Demand For Construction Projects

1. Deferred maintenance. Due to the lack of cash flow, many commercial property owners have been putting off sealing parking lots, painting, renovating, and other general maintenance projects. 

2. Drive the neighborhoods in your cities and towns all across the USA, Alaska, and Hawaii and see for yourself how many houses have weathered "Blue Tarps" covering portions of the roofs which are leaking and need repair. If the homeowner has trouble putting food on the table, then a new roof is not a high priority.

3. In the evening hours, drive the residential neighborhoods in your target market and notice how many cars are parked in the driveways and surrounding areas. This indicates that many people rent out rooms to help make their mortgage payments.

4. Visit the home improvement stores and observe the shift from nine months ago when there were lots of lost and frustrated homeowners roaming the aisles searching for materials and tools for do-it-yourself projects, and now there is an increasing number of contractors and handymen.

When you have a clearly defined and documented Business Strategy, you will know what steps to take and when. Just like when you took a test in school in your favorite subject, it was fast and easy! When you know the answers, the questions will not bother you!

When the economy is expanding, demand for construction rapidly and almost overnight outstrips supply because many contractors gave up and left the industry.

Well-intentioned yet unseasoned contractors seize the opportunity to rapidly grow their businesses by haphazardly bidding and winning projects without considering calculating their company Expansion Path Isoquants, infrastructure, logistical support, working capital requirements, Job Costs, or Key Performance Indicators (KPI).

The Inevitable Chaos - Caused by too much work and not enough labor, material, other costs, and subcontractors (LMOS) leads to the contractor becoming a pipe through which money flows with increasing velocity and not in a fun way.

This is the leading cause for large contractors going bankrupt. The construction company starts small; the owner is a visionary who understands the "Tangible" side of the business. They know how to bid, sell, produce and manage the company as it grows to roughly $5,000,000 in annual sales without having a clearly defined Business Process Management System or Strategy.

When they take their business to the next level, not having a strategy or, as I refer to it, the "Intangible" side of the management equation, they often end up going bankrupt, several times in most cases, before hiring us or someone else to help them put together a strategy that includes the "3 P's" Processes, Procedures, and Policies. It has been said, "The same law that binds the ignorant frees the wise."

A new mindset leads to a new result. Prepare by being proactive - invest time and money getting your Business Process Management systems in place using The 80/20 Rule to grab a nice big thick slice of Market Share Pie and laugh all the way to the bank.

Final thoughts 

I sincerely understand and empathize with the challenges that all construction owners, workers, and support staff have faced for the past several years. The good news is that everything will change for the better. Hang on through this invisible global threat and be patient. 

Also, if you're new to our website or blog, you can check out our new Contractor Success MAP Toolkit - it's more than 15 pages of Marketing, Accounting, and Production tips, checklists, and best practices that you can use year-round for your construction business success. Free download here.

About The Author:

Sharie DeHart, QPA is the co-founder of Business Consulting And Accounting in Lynnwood, Washington. She is the leading expert in managing outsourced construction bookkeeping and accounting services companies and cash management accounting for small construction companies across the USA. She encourages Contractors and Construction Company Owners to stay current on their tax obligations and offers insights on how to manage the remaining cash flow to operate and grow their construction company sales and profits so they can put more money in the bank. Call 1-800-361-1770 or sharie@fasteasyaccounting.com