Strategies for Contractors to Survive a Tough Economy

Peter Schubilske, CPA, Auditing & Accounting Senior Manager   email
February 2010

Managing a business in a strong economy can be hard. Leading a business through an economic downturn is downright difficult, especially for contractors. Below are a few key strategies that can help even the strongest contractor survive the current economy.

Control Spending

Review all expenses budgeted for the year and scrutinize each and every cost. More specifically, analyze administrative and overhead costs that do not contribute to your bottom line. For instance, concentrate on insurance expenses. Meet with your agent to review your deductibles and coverage limits to ensure that you are not paying more for insurance than necessary. Shop around and solicit quotes from other insurance providers to compare costs. You may find that another carrier can provide the same insurance, at a reduced price.

Maximize Cash Flow

To maximize your cash flow, bill promptly and consistently front-end load your jobs. Also, consider offering a positive cash flow billing bonus program for project managers that have positive cash flow. An incentive program, such as this, will encourage your project managers to make cash flow a priority. Apart from billing, stay vigilant about your collections. Put pressure on your delinquent clients to pay, by making a personal phone call or visit. Clients often find it more difficult to say no in person or over the phone. Also, as a last resort, try offering clients with longer outstanding accounts a discount if they pay immediately.

Manage Your Subcontractors

Unfortunately, in this economy some of the best subcontractors will not survive the next year. If you are working with a subcontractor that fails, it will impact your bottom line. To limit your exposure to this risk:

• Be sure to run regular credit reports on your major subcontractors to monitor their financial well-being.
• Plan to contact each of your subcontractor's primary suppliers every month to verify that they are making regular payments for the supplies used on your jobs.
• Lastly, ensure that your estimators are soliciting quotes from at least three different subcontractors to guarantee that you are getting a fair price. Subcontractors are struggling as well, and their bids will reflect that with competitive pricing. However, buyer beware, as this may often mean that the subcontractor is desperate for cash and may just be one job away from closing its doors.

Contractors have specific threats that make surviving a down economy even more difficult. These strategies target just a few ways to manage those threats. If have any questions or would like more information, please contact Peter Schubilske.