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Five Steps To Surviving The Market Downturn - Part One
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Author: Kevin Lister
Article: 
| Five Steps To Surviving The Market Downturn - Part One
by Kevin Lister You don't need me to tell you we are in the midst of a market downturn. This correction (which could last another year or two) has tightened credit availability as well as devalued residential and commercial properties. As a result, demand for construction-related projects has significantly slowed.
| | In order to survive this soft market, there are five steps I suggest you follow. They are straight-forward and will require some tough decision-making on your part. But, once implemented, they will help make your company much leaner and a great deal more competitive. Below are Steps One and Two. | 
| 1. Determine Breakeven
The first thing you need to do is determine your breakeven. To do this, you divide your overhead (indirect costs) by your gross profit margin (Sales less cost of goods sold equals gross profit; gross profit divided by sales equals gross profit margin). I suggest determining breakeven on a monthly basis since you monitor your financials on a monthly basis.
Once you have your monthly breakeven sales figure, you compare this number to your current monthly sales number. If your current monthly sales number is less than your breakeven number, you need to begin looking at ways to lower the breakeven so that it is in line with revenue. This can be done by increasing your gross margin as well as by lowering your overhead.
2. Lower Direct Costs
The next task is to lower your direct costs. Direct costs are all the costs that are directly related to the services you provide. These include materials, sub-contractors and your field employees. Lowering your direct costs will improve your gross margin, which will lower your breakeven.
- Materials: Speak with your suppliers to see if they will provide you with deeper discounts as well as share with you what products they sell that are similar in quality but more cost effective. Additionally, work with your field employees to cut down on material waste.
- Subcontractors: Like your suppliers, work with your subs on ways to lower the cost of their services without affecting service quality. They may be able to save you 5% to 10% on their next bid. You should also begin looking around to add additional subs to your sub list. Getting bids from two or three subcontractors on a project instead of just one will provide you with tighter bids, thus saving you money as well.
- Field Employees: Take a close look at your field labor costs. Your goal is to lower them, if possible. Perhaps you could move one to two full-time field employees to part-time status. Or, if required, begin thinking about the possibility of a small lay-off. I know this is a tough thing to do but keep in mind that in the end it will strengthen the company as well as provide better job security for your remaining employees.
In my next article in this two-part series, I will discuss steps three through five on helping you survive the market downturn.
I write for the Contractor Power Newsletter on a regular basis and am always looking for interesting and relevant topics. If you have a business-related question you would like me to answer in one of my upcoming articles, please feel free to contact me at info@paradigmstrategies.com. If you would like to read any of my previously written Contractor Power newsletter articles, you can view them at www.contractorpower.com.
About the Author
Kevin Lister, founder and president of Paradigm Strategies, the business advising firm to the trades, is a leader in the field of business performance improvement. He possesses nearly 20 years experience in business management and consulting, effectively operating his own ventures and assisting others with realizing business success.
With an entrepreneurial spirit and a business owner's point of view, Kevin brings hands-on expertise to helping building contractors, sub-contractors, and suppliers. Kevin has deep knowledge and understanding of the trades, based on fifteen years in the construction industry, a family history of owning trades businesses, and a genuine interest and enjoyment in helping blue collar enterprises.
Kevin possesses a Masters of Business Administration (MBA) from Olin Graduate School of Business at Babson College and a Bachelor of Science in marketing from Bentley College. He teaches management and marketing for the University of Phoenix Online.
Kevin is a member of several professional and business organizations, including the Institute of Management Consultants (IMC), the Associated Subcontractors of Massachusetts (ASM), the Builders' Association of Greater Boston (BAGB) and the Boston Chapter of the National Association of the Remodeling Industry (NARI).
Kevin has been awarded the Certified Remodeler Associate (CRA) designation from NARI. He has also been named to the board of directors of the Eastern Massachusetts Chapter of NARI. |
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