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Navigating a Potential Economic Downturn in the Construction Industry

It is time for the construction industry to prepare for the coming economic downturn by tightening its belt, focusing on “liquidity” versus profit. Read more.
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There is talk these days about issues related to supply chain, inflation, employment, etc., signaling a potential downturn in the construction industry. A safe practice at this time would be to realize the approaching downturn and prepare for it, considering its potential severity and duration. Jason Myers, national industry leader for the Construction & Real Estate Practice at FORVIS, sat down with Partner Kevin Hamernik, who specializes in restructuring and special situations, to discuss how to navigate the current and future economic state in the construction industry. Below is a quick summary of the topics covered in this 10-minute video. Watch the above video for the full details and insights on this topic!

This is a good time for businesses and contractors to become vigilant and reflect on their place or “niche” in the current market and to utilize their business partners for information and direction. Complex information is coming forth from banks and other sources pointing to a potential economic downturn—and lenders, especially banks, have significant access to intelligence related to what is happening in both the broad and small market spaces. 

Now is the time to be more intentional about planning and cash flow—not from a historical perspective, but from a forecasting and modeling one. Think “prospectively,” looking ahead to what may happen in the future; think “targets,” take action to tighten up spending, and keep in mind bank covenants. Consideration should be given to downsizing and cutting costs. If an acquisition or purchase needs to be made, it would be a good idea to accelerate the purchase. Also, recap the balance sheet if a debt maturity is imminent.

The last couple of years saw more speculation, eyeing new markets, and taking advantage of opportunities in a robust marketplace, but it is time to pull back and adopt a more conservative approach that focuses on core business principles. Some timely suggestions include aligning with strong business partners, limiting risks, reducing additional expenses, and reviewing maintenance and CapEX spending. It is time to turn from a top-line revenue growth viewpoint to a focus on dollars and profit margins. Time to focus on “liquidity” versus profit and the cash availability on your credit facilities even at the expense of some core profit.

For additional details, watch the video above and visit our Construction industry page today!


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