Business Survival in 2023 by Tom Luby

Business Survival in 2023

by Tom Luby, owner of Profit Builders International

EVEN THE GREAT PROGNOSTICATOR PUNXSUTAWNEY PHIL WOULD BE AT A LOSS TO PREDICT AN EARLY “SPRING” FOR THE FENCE INDUSTRY. THE ECONOMIC FUTURE FOR FENCING, LIKE EVERYTHING ELSE, IS IMPOSSIBLE TO KNOW.

First the pandemic, a drastic plunge in the economy, inflation, and tremendous labor pressure, features of a potential recession (if we’re not already in one) add up to the realization that times are tough.

Like Phil, for about 25 years, I have been somewhat of a fence industry prognosticator in my own right and have felt fairly confident in my past predictions. Not this year. I have no idea what 2023 will hold. What do we do?

First, let’s look at what we know. From coast to coast over the last six months or more, my clients have reported a dramatic drop in residential sales calls. Commercial and industrial work seems to have rebounded from the dip we saw at the beginning of the pandemic, due to postponements, etc., but although 2023 looks fairly solid for larger industrial and commercial work, especially high security work, nothing is certain.

I have reports that in some market areas, competition has doubled or even tripled. I believe this is largely fueled by the flow of free stimulus money over the past few years. This is mainly focused on residential contractors as the bar to admission is much higher for industrial, commercial, and high security work.

New residential fence contractors beware: 2023 will not be easy pickings like the last few years have been. That free money work has all but dried up and is not coming back anytime soon.

A client recently told me one of his competitors is closing his doors. This is a good fence contractor in business for 30 years or so; he’s discouraged at the dysfunctional labor pool and extreme difficulty finding reliable workers. None of us like to hear news like that, and hopefully, it’s an isolated case, but we need to be realists and hope for the best but be prepared for the worst.

Naturally, higher interest rates have heavily impacted new home builders, a leading economic indicator; and the trickle-down effect will be felt greatly by residential fence contractors. This, combined with an unpredictable labor force, supply chain uncertainties, possible increased competition with fewer sales opportunities, could result in tougher times and tighter margins.

In my research for this article, almost without exception, fencing contractors and vendors I spoke with expect margins to tighten by 20 – 25% in 2023. I anticipate deals for the beginning of the year.

With that in mind, I feel that 2023’s FENCETECH in Oklahoma City may be one of the most important to attend in decades. Besides the usual great educational opportunities the AFA will provide in 2023, there will also be some great deals to be had on the show floor.

With my crystal ball to the future completely shattered, all we can do for now is focus on sound business practices such as risk management, overhead control and strong labor relations. In other words, keep focused, don’t take unnecessary chances and remember, if you take care of your best workers, they will take care of you in times of uncertainty.

According to the Associated Builders and Contractors (ABC), the construction backlog indicator survey showed that their average backlog declined to 8.8 months. Normally, the fencing industry lags the home builders and general contractors by several months or more, so expect this to hit us soon, if it hasn’t already.

The ABC group also reported that the torrid pace of inflation relaxed, as the Consumer Price Index (CPI) rose by just 0.4% compared to September levels and 7.7% compared to a year ago. It was the lowest annual growth rate seen since February. Core goods inflation declined by 0.4% while core services inflation rose by 0.5%.

The group’s report continues saying borrowing costs will likely increase during the coming months and materials prices set to remain elevated, industry momentum could easily downshift further in 2023, but it’s also conceivable that certain economists are overly pessimistic.

I feel the tightening margins will again force some vendors to cut some deals early in 2023, as the downturn will hurt the big boys even harder than the mom-and-pop fence contractor. The bigger the operation, the harder this downturn will hit.

According to the ABC, the near-term recession is not inevitable. Contractor survey data indicate that while backlog declined in October of 2022, it remains reasonably healthy. Moreover, the average contractor continues to expect sales, staffing, and margins to grow over the next six months. Time will tell whether this lingering optimism is justified, according to the report.

I disagree with the overly optimistic outlook from ABC; I am fairly certain that all will, in fact, decline. However, I hope they are correct and 2023 will end up brighter than it looks at the moment. If I had a fence contractors’ business, I would be very cautious. Over the next six months to a year, we will see who is correct.

Tom Luby has helped hundreds of contractors within the fence industry achieve success with maximum profitability and efficiency. With over 25 years of experience consulting in the fence industry, he developed the “Roadmap for Success”, a program that can help contractors succeed. The program is available on CD, along with the sales and marketing guide “The Close” by contacting him below:

Profit Builders International 3421 10th Lane West Palmetto, Florida 34221 www.profitbuilder.org tluby@profitbuilder.org 941-981-3677