Whether a recession arrives or not, business coach Daniel Fitzpatrick shares some top tips to help you make it through in better shape than ever before
I am no economist, but I’ve been around long enough to recognise that we may be heading into difficult times. Between supply shortages, rising inflation, increasing interest rates and an unstable housing market, people are feeling the squeeze.
So, how do you protect your business and come through this in good shape?
Here are seven focus points to work into your business plan now:
1. Downturns weed out the crop
I was talking with a seasoned tradie about this the other day. His strategy: “Don’t waste a good recession”
Sure, it’s harder to get work when times are slow. However, everyone is in the same boat.
Your competitors who are doing a poor job, pricing too cheap, taking the quick buck and burning their reputation? These types of competitors will disappear and we are already seeing early signs of this. Ultimately, that will leave more room for you.
Top tradies always have work. In any industry, the best is always in demand, regardless of what the market is doing.
Now is the perfect chance for you to get better, more efficient, leaner and more resilient. Systemise your operations. Sharpen yourself up for the next phase.
When things bounce back, you’ll be ready to dominate and have less competition.
2. Those who are slow to react are the worst hit
This one is important: you must be proactive with decision-making.
Watch the numbers closely. Look for the early signs, so you’re not surprised.
Don’t rely on your backlog of work. Make sure you are doing all you can to keep the work flowing in.
If your efforts aren’t reflected in workflow and you need to cut overheads and possibly staff, as painful as it is, do it early! Not after you haemorrhage a heap of cash first.
Identify options ahead of time. Have a Plan B for all scenarios, such as a higher overdraft facility or cash buffer in the bank.
3. Some of your customers will go broke
Have you ever been stung by a large, bad debt? Most tradies have. That’s in the good times. It’s likely to happen much more in a downturn.
I often see tradies rely too much on one or two big clients. It’s risky. As a rule of thumb, your biggest client ideally wouldn’t be more than 30% - 40% of your business.
If your biggest client disappeared, would you still be ok? We’ve all seen bigger companies fold and little guys get hurt.
Don’t let it happen to you! Make sure you aren’t carrying late payers and have solid terms of trade.
4. Never stop marketing
Why should you market if you have more work than you can handle? In a downturn, things can change quickly.
Whatever happens, it’s not a good idea to rely on only one stream to feed you jobs.
What if your biggest customer sees their work dry up? Or goes broke and you have to deal with the receiver, who doesn’t want to pay you? This can happen (and does).
If word of mouth is the only way you get leads, you need to build a larger number of sources.
In slow times, you can also diversify into other types of jobs you can make money on, as well as specialising in what you are really good at. Do both and spread your risk!
5. Cut the fat
I mean, this is something you should be doing at least once a year anyway.
I have recently taken all my clients through this. A smaller client of mine saved $17,000 from just a few tweaks. Not bad for a few hours of work.
Remember, cash is king and you want as much of it available as you can. Reduce overheads and work on becoming more efficient.
Reduce debt as much as possible. In a recession, banks tighten up lending and overdrafts. Be aware of interest rate trends and your ability to pay back current debt.
6. Under-pricing leads to problems later
On some jobs, to keep the work, you might have to sharpen your pencil. Be. Very. Careful!
Don’t make the mistake of assuming if you have steady work, all will be okay. You must know at exactly what point the job is not worth doing.
In hard times, lots of tradies will do anything to get (or keep) the work. They are the ones that get into trouble first.
Know your margins. Quote too cheap and you will feel it down the line with tight cashflow and higher debt. That’s not sustainable.
There are better ways to win work and keep your margins strong, even when things are quiet; even when competitors are under-cutting you.
7. The strongest asset in your business is you
Have you noticed that some people always seem to get ahead, no matter how big the obstacles are?
In sport, the best teams don't always have the best players, but they consistently win anyway. The difference is superior coaching, strategy and mindset.
It is the same in business. A business is always a reflection of its owner.
So, what are you doing to prepare mentally going into this new season?
Who is your mentor, someone you can talk with on those hard days? What books are you reading? What new strategies are you working on to improve?
The more you grow, the better your business will perform.
One of the things that I love doing with clients is celebrating their successes or looking back with them and comparing where they are now to where they started.
You can’t control the environment, the economy, or that crazy client who is not happy no matter what you do.
But how you react will have the biggest effect on the outcome. Now is the time to get prepared and get the tools to deal with whatever happens next.
Let’s sum up!
We can’t stop a recession, but we can prepare wisely.
Carving out time for strategic thinking is key, as is searching for opportunities.
Trying to do this on your own won’t work. Build stronger connections within your network, with your staff, customers, suppliers and bank. You are going to need them.
At times you won’t have all the answers, that’s normal. So make sure you also have a mentor (someone who understands business) to talk to regularly and work through the issues.
If you already have a mentor, great! If you need one, then it’s time we had a chat.
Trades business coach Daniel Fitzpatrick has been helping tradies increase profits and win back their weekends since 2010.
Want some personalised help to figure out what to do next? Book a free strategy chat with Next Level Tradie director Daniel Fitzpatrick here: nextleveltradie.co.nz/nextstep