Is your business prepared for a recession?
January 12, 2023
History indicates that with the tight labor market and persistent inflation, a recession by mid-2023 is inevitable, according to National Association of Home Builders (NAHB) Chief Economist Robert Dietz, Ph.D.
That’s the bad news. The good news? There are things you can do to protect yourself and your business. And BIAW and your local association can help!
Recession tips from a pro
Justin Brown is a partner of Larson Gross CPAs and Consultants, a public accounting firm with offices in Lynden, Burlington, Wenatchee and Yakima. Associate member and leader of the firm’s construction practice, Brown offers some tips for construction-related businesses to keep in mind heading into 2023.
Get lean and conserve cash
Now is the time to be fiscally conservative. Owners should ensure the company has built a war chest of cash reserves in preparation for any potential slowdowns, job delays, slow-paying customers, etc.
Brown suggests reducing distributions out of the company and refraining from buying any unnecessary equipment or vehicles. Also, take a look at your overhead to see if any costs can be reduced and or eliminated.
Take advantage of the Employee Retention Tax Credit (ERTC)
The ERTC is a federal tax credit created to assist businesses through the COVID-19 pandemic. Take a look back at your payroll and evaluate whether your business qualifies for this credit.
Business owners may be eligible to receive a credit of up to $5,000 per qualifying employee from 2020 and $7,000 per qualifying employee from the first three quarters of 2021 if they meet specific requirements. If your business qualifies, Brown recommends applying as soon as possible, as the IRS has considerable delays on payments for these credits.
Have adequate liquidity
Check with your bank and make sure your business has enough sources of liquidity by reviewing contracts and loan agreements. Brown advises looking at increasing and negotiating favorable terms on lines of credit and reviewing all long-term debt to ensure no large balloon payments or other significant cash outflows are due in the near future.
New ASC 842 standards for leases may impact your balance sheet. Brown suggests discussing these with your bank to see if you need to renegotiate terms in order to avoid covenant violations.
During tight times, you might need to take a close look at your workforce. Think about who you will keep on payroll during slow times and who you want to continue to move up in the company. Are there employees available from your competitors? Brown advises making sure your employees are on the same page regarding bonuses and performance reviews. Slowdowns and or margin tightening can be used as ways to keep your employees bought in.
Additionally, if work becomes slow, make sure labor isn’t a drain on your bottom line.
Recession help from BIAW and NAHB
Recession is a scary word for a business owner, no doubt. But tight times can also bring growth through new methods and opportunities. Being a member of your local home builders association, BIAW and NAHB gives you a unique advantage. Here are some things these memberships offer to take into consideration this year.
NAHB recently offered a few strategies businesses could implement during uncertain financial times. Maintaining transparency with the client was one. Keep an open line of communication with clients regarding finances and budget status. This will build trust and confidence in the builder-customer relationships. Having strong relationships with your customers is vital to surviving unstable times.
NAHB offers members a wealth of resources, expertise and educational opportunities, as well as frequent economic updates. Visit nahb.org to learn more.
Make sure your company is protected from potential legal fees by ensuring your contracts are up-to-date with the latest legal mandates and case law. An easy solution is to sign up for BIAW’s Contract Subscription Service, where you’ll receive templates for more than two dozen of the most common contracts and addenda specific to our state.
This service provides unlimited online access to download the documents you need, live and online training and easy-to-follow instructions with every document. For only $399 annually, this subscription could save you thousands of dollars in legal fees down the road. Sign up at BIAW.com/program/legal.
Expand your horizons
A slowdown could be the perfect time to explore new, unchartered business opportunities. If your business isn’t already a Certified Aging in Place Specialist (CAPS), now could be a great time to tap into this market. More than 1.3 million people in Washington are 65 and over, and 90 percent of them want to stay in their homes as long as possible. That translates into a large market of people needing to revitalize their home environments.
Help your business expand by earning a CAPS designation. BIAW offers CAPS classes that will equip you with the knowledge and tools to effectively market and sell services to the aging-in-place (AIP) market. Keep an eye on our upcoming classes at BIAW.com/classes or reach out to Education Manager Andy Arrants at email@example.com or (360) 352-7800 ext. 147 to learn more.
Lean on each other
Member-to-member collaboration is arguably one of the most significant values of your membership. Our association is full of a talented network of industry leaders. Becoming involved with your local association and using this network not only to brainstorm solutions but to do business with each other ensures that companies will maintain a steady flow of work and will strengthen the industry overall, even during a recession.
*Original article was written by Hannah Cassara, Content Specialist, and featured in the Nov./Dec. issue of Building Insight magazine.