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Contractors interviewed by The News for this story felt there are many things that can be done when facing the possibility of uncertain economic times. Their mood is more optimistic than pessimistic — and they gave their reasons for a healthy outlook. If a business is doing well and has a solid plan, they assert, there is no reason to radically change course now.
“We should be doing the same thing we are supposed to be doing every day — running our companies in the most efficient way possible,” said Bill Jones of Raven Mechanical, LP, Houston, TX. “We should stay as focused as possible yet not hesitate to make any changes that might be required.”
MANAGING CASH FLOWGarry Floeter of CHC Mechanical, Cookeville, TN, said that staying focused on one objective at a time is very important — especially when it comes to getting paid.
“Focus on your collections and accounts receivables,” he suggested. “My father was on the verge of bankruptcy when he closed his doors because he could not, or would not, collect the money owed him.
“When he quit he had enough money on the books that if collected, could have paid his bills and showed a nice profit. When things slow down, so does the cash flow. We want to know, up front, everything about the customer, where the money is coming from and when.”
Jones concurs. “Know where your money is coming from,” he said. “Stay active and current with your receivables and payables. Don’t spend your time on unprofitable clients.”
“Become as financially strong as possible by controlling costs during boom times and watching receivables closely, especially when work slows,” said Gerald Risse of Risse Mechanical, Rio Linda, CA.
DIVERSIFYSome contractors choose to spread their experience into different areas during slow times by taking on new challenges.
“We’d like to take on more special projects,” said Mark Larson of Marlin Mechanical Corp., Phoenix, AZ. “These include donated jobs like Habitat for Humanity and working on women’s shelters.”
“We look to do more value engineering and design/build work,” said William Aitken of Primary Multicraft, Beltsville, MD.
Depending on the usual types of work may not always be the right decision, especially if the areas serviced by contractors are geographically diversified. Risse said it is important to understand the economies and construction cycles of various geographic regions before going out to explore new projects.
“You should develop the capability to do a variety of projects and increase the scope of work you can provide to your customers,” he stated. “This will allow you to do more work for your good customers.”
Several contractors agreed that one area to look for different types of work was right under their own roofs.
“We will prefab different assemblies that we use a lot of,” said Larson.
“We will do more in-house work, like duct, pipe insulation, and controls work,” said Aitken.
MARKETING AND ADVERTISINGNot all advertising or marketing campaigns produce the desired results. In slow economic times, it is even more critical that targeted marketing plans bring in new leads and high closing rates.
“We recently completed a thorough lead tracking and sold job summary,” said Carl Schneider of Custom-Aire Inc., Philadelphia, PA. “We concluded that our Yellow Pages advertising, which is very expensive, only provided leads when we didn’t need them; and our closing rate was very low.
“Since we sell to the higher-end user — i.e., 14 SEER average — we decided to try something different. We took our Yellow Page advertising money and purchased a direct marketing program to target our clientele. We are still busy in the winter.”
“When things slow down, work is harder to find,” said Floeter. “This is when our marketing needs to be the strongest. Slowdowns quickly separate the men from the boys. As a manager, I have to be keep a closer eye on sales activity and marketing.”
Risse said that marketing is everyone’s responsibility. “Spread the marketing load throughout your organization,” he said. “Assign a certain customer to each Project Manager and have them or individual departments set volume goals.”
One contractor noted that he found it best to anticipate a slowdown and act, not react. David Selvey of Selvey-Payne Heating & Cooling, Lafayette, IN, said, “We try to increase advertising in advance of the slowdown if we are aware it is coming.
“We offer special discounts before the slowdown hits. We usually know the slowdown is coming before our potential customers do. This way we control the time we offer the discounts, and our customers don’t hold out for slowdowns.
“We generally do not offer specials during a slowdown, but we do advertise product and name. If we advertise reduced pricing due to work slowdowns, the public will come to expect lower prices in our off-season and would hold off purchasing equipment until they can get a better price — which would be detrimental to our business.”
ADJUSTING STAFF LEVELSContractors may be put in a very uncomfortable position during slow times. The question can become, what to do with their loyal staff, who have helped build and support the business? One contractor tries to prioritize.
“I will reduce my office staff before reducing the number of field technicians,” said Aitken.
Another contractor said that slow times are often a blessing in disguise. “We’ll lay off the more mediocre worker and catch up on training for other workers,” said Larson. “But certain workers may have their work week shortened to 32 hours.
“If the workload has decreased in one position, we may consolidate two similar job positions into one.”
“On a positive note, one good thing that happens during slowdowns is that you can clean up your personnel,” said Floeter. “During good times we are tolerant of human resources.
“Likewise, good talent sometimes becomes available to those who have the business. And people tend to be more appreciative of their jobs when other companies are laying off people.”
Floeter also said that human resources may have to be adjusted to reflect a lower cost of operation.
“We have a tendency to overstaff during good times,” he said. “I have found that the ratio of billable people to non-billable varies with the type of work. A service operation may have a 1 to 1 ratio while a construction-only company will have as high as 10 to 1.
“Within our company, 10% to 12% of our total business is service, and we have a total ratio of 5 to 1 billable to non-billable.
“With things getting more competitive, the margins we used to enjoy have eroded. Consequently we have had to adjust commission and compensations accordingly.”
Selvey said, “We try to keep our people diversified, such as service techs doing installations during slow times.
“If a slowdown means you won’t have enough work to keep people busy, don’t destroy your business financially to avoid paying an increase in unemployment taxes. The unemployment tax is cheaper than paying someone to do nothing.”
STRENGTHENING CUSTOMER AND EMPLOYEE TIESBob Kinning of Expert Mechanical Services, Inc., Englewood, CO, said it is important to focus on the customers during slow times. “Rather than trying to compete with ‘bottom feeders’ and cut my price, I am trying to develop or enhance my relationships with my customers,” he said. “I feel that developing strong relationships with the customer and nurturing them will make it easier to maintain our workload through tough times.
“My experience over the years is that people like to work with people they like and trust. Price does enter into it, but the good customers don’t look only at price. In my area, I am trying to get the General Contractors and Subcontractors on the same page and back to working for and with people they can trust and respect.”
Just as important as customer relations is employee relations, according to some contractors.
“We seek input from all employees on what type of in-house work we should do, what incentives they would like, etc.,” said Aitken.
Selvey said, “Encourage people to think of the company as their own. This must be done in the good times in order for it to carry over to the tough times. If people really feel they are building something they can be proud of, they will usually ride out rough times.”
Publication date: 01/14/2002