There are several ways that any business owner should be looking to protect their business, and the potential for recession or similar economic downturn is a great example. Contracting businesses are no exception, and there are a number of things contractors can do to keep their businesses in ideal shape to protect against any recession or similar financial risks.
At Contractors School, we assist contractors around Utah with everything from starting their business to managing an existing entity, and financial wellness to protect against any potential recession risk is naturally an important concept for many of our clients. Here are some simple tips we regularly offer in this area.
One financial area that's vital no matter what, but could become especially important if a recession hits, is credit. You should be constantly monitoring your business' credit rating, including keeping an eye on any potential red flags or negative marks that may show up unexpectedly. These can include late payments from clients or other issues related to payment processing.
You should also be focused on responsible use of credit for your business, and should avoid overextending yourself. Even if the economy is booming, it's important to maintain good spending habits that don't put too much strain on your business' finances. If an economic downturn does come, having a high credit score and manageable credit will be even more important.
In many cases, financial issues during a recession don't come from unexpected events, but rather from poor communication or understanding between different parties. This could mean failing to communicate with clients about payment schedules or deadlines, for instance, leading to confusion or late payments that can strain your business.
In some cases, this can even lead to legal disputes or other issues that significantly impact your business' bottom line. To avoid this, make sure all communication is clear and concise, and keep records of these interactions for your own protection in case anything goes wrong.
Especially for contracting businesses that rely on regular payments from clients to maintain cash flow, it's vital to continually monitor and manage this area. You should have a detailed understanding of your accounts receivable and payable at all times, and should be ready to take action if there are any major issues here.
If needed, consider speaking to a financial advisor or consultant who can help you create a plan for maintaining cash flow even in difficult economic times. This may include setting up payment plans with clients or finding alternate sources of income during a recession.
When it comes to how you position your contracting business in times of recession risk, there may be no more valuable asset than reliable and repeat customers. Not only do these provide a steady stream of income even during tough financial times, but they also offer verifiable references and reviews that can help bolster your reputation and attract new business.
To best foster this kind of customer relationship, always prioritize excellent service and communication with clients. Make sure they know you're there for them and are willing to go the extra mile to ensure their satisfaction – this can pay huge dividends in the long run.
One great way to "recession-proof" your business is to give yourself some flexibility in processes and strategies. For instance, consider having multiple suppliers or subcontractors you can turn to in a pinch if your usual options become too expensive during tough times.
You should also be prepared to potentially scale back on certain projects or services in order to save money during a recession. This may mean shifting focus to more profitable areas of your business or finding ways to cut costs without sacrificing quality.
Even if your business is currently doing well and you don't think a recession is imminent, it's still important to maintain strong marketing efforts. This includes both traditional and digital methods, such as creating engaging content or utilizing social media platforms.
Having a solid marketing strategy in place will not only keep your business top-of-mind for potential clients in any economic climate, but it also shows that you are proactive and prepared for any potential downturns.
Protecting your contracting business during a recession or any financial risks requires consistent effort and attention to detail. By following these tips and being proactive in managing your finances, communication, customer relationships and processes, you can help ensure the long-term success of your business.
At Contractors School, we are always here to help Utah contractors with any questions they may have about protecting their business and preparing for potential financial challenges. Contact us today to learn more about our services and how we can assist you in achieving your contracting goals.