Construction Execs Rank 40 Strategies for Weathering Recessions

By Kevin Bright

Speculation about a recession is running high, with some calling for construction contractors to start preparing for a slump that could begin any day and last well into 2023. But what should companies do if they want to heed this advice?

Newly published academic research offers a roadmap by highlighting some of the most effective strategies for preparing for and coping with an economic crunch, based on nationwide research that elicited responses from 61 construction financial officers, CPAs and sureties based in the United States.

The lead author of the research,“U.S. Construction Industry Managerial Strategies for Economic Recession and Recovery: A Delphi Study,” Manideep Tummalapudi, is an assistant professor of construction management at California State University, Fresno.

Tummalapudi and his coauthors investigated construction economic and financial experts with an average of 25 years of experience to rank a total of 40 potential strategies. Having experienced economic downturns before, these industry veterans were well-positioned to judge the effectiveness of different approaches to preparing for or coping with economic volatility.

Finding Consensus

The research was conducted in phases beginning in 2019. In reaching out to construction final experts, CPAs and sureties all over the United States, Tummalapudi’s goal was to produce “a roadmap of economic, managerial and financial strategies that can be implemented by construction companies to improve their financial health during different economic cycles.”

Initially, the researchers worked with the construction experts to identify more than 65 strategies that had helped them successfully navigate previous recessions. These fell into six basic categories:

1. organizational and project management;

2. direct-cost;

3. overhead;

4. financial;

5. preconstruction and marketing; and

6. efficiency.

The same experts used a 100-point scale to rate these recession strategies. They achieved consensus on 41 and classified as either “highly effective” (nine strategies) or “moderately effective” (32 strategies). For a strategy to count as highly effective, at least 80% needed to give it a score of 80 or higher. In addition, the experts could flesh out numerical ratings by submitting written remarks.

Highly Effective Strategies

The nine strategy descriptions that received that “highly effective” ranking fell into three categories: organizational and project management, overhead and financial. In the first of those three categories, the strategies rated as highly effective were: “Use previous successful planning to design a sound business financial plan focused on cash flow and operational efficiency” (mean score: 85.7) and “The company should always be looking for sound, more efficient, more profitable practices and strategies” (86.9). In the overhead category, the two strategies earning the highest designation were: “Prior to and during the recession, build a company culture to reassure employees they are valued despite cuts” (90) and “If there are sacrifices to be made (i.e., pay, bonuses, staffing, etc.) during a recession, the owners of the company should participate to the full extent that they ask their employees to participate” (88.7).

Cash Reigns Supreme

The financial category had the largest number of highly effective strategies—a total of five. They included the following.

1. “Establish strong cash reserves prior to the economic downturn. Retain profit in the company during good times; it helps the firm survive during downturn times. Retain capital to support the business during a downturn.” (93.4)

2. “Focus on cash flow.” (93.4)

3. “During the recession, maintain a healthy balance sheet with strong liquidity, sufficient equity, strong working capital and manageable debt load.” (93.8)

4. “During the recession, focus on profits, not volume. Know your breakeven point continually and generate bottom-line profit.” (90.9)

5. “Have a bank line of credit established and do what is necessary to maintain it in good standing with the bank.” (89)

The CPAs, financial officers and sureties were nearly unanimous on the importance of retaining profits during good times to cover salaries and other operational costs when the economy tanks. Other advice included maintaining access to a bank line of credit and limiting indebtedness: “A balance sheet with limited debt, ability to restructure loans and a strong cash position allows for greater

Continued on page 28

With

2023 BOARD OF DIRECTORS OFFICERS

Carlos Velasco | Chair

Acousti Engineering Company of FL

Julie Holmes | Chair-Elect

JK2 Scenic

Thomas Wert | Vice Chair

Dean Mead Attorneys at Law

Juan Garcia | Vice Chair

PCL Construction Services, Inc.

Roy L. Burkett | Vice Chair

S. I. Goldman Company, Inc.

Chris Evans | Immediate Past Chair Brasfield & Gorrie, LLC

2023 BOARD ADVISORS

Ray Bastin, CPA | Treasurer Withum

Michael C. Sasso | General Counsel

Sasso and Sasso, P.A.

2023 DIRECTORS

Jason Albu

Albu & Associates, Inc.

Charles Bracco

Modern Plumbing Industries, Inc.

Kevin Bradford

Charles Perry Partners, Inc.

Roxana Hernandez

Turner Construction

C. L. Janeski

Tri-City Electrical Contractors, Inc.

Michael Jordan

Universal Forming, Inc.

John Kurtz

Gilbane Building Company

Earl Lomas

Terry’s Electric, Inc.

Willis Milner

Balfour Beatty

Debbie Rodriguez

Competitive Edge Partners & Consulting, LLC

David Schultz

CEMEX

Scott Scruby

Sunbelt Rentals

Jonathan Sheppeard

Austin Commercial, LP

John Smalley

Hensel Phelps

Chad Tinetti

Tavistock Development Company

Oskar Torres

Towers Construction Company

Derrick M. Valkenburg

Shutts & Bowen, LLP

Matthew Walton

MiGre Engineers, LLC

PRESIDENT & CEO

Michele Daugherty ceo@abccentralflorida.org