Be cautiously optimistic about 2019
William F. Donahue
The consensus is the economic outlook still tilts towards positive, with indications the economic recovery jumpstarted 2009 will continue through 2019. Still, the electrical industry could suffer collateral damage.
Tariffs and countermeasures have caused widespread anxiety and pain. The first tariffs pushed up the cost of home construction. The implication is electrical distributors are likely to continue receiving more orders to support current projects, but it may jeopardize future projects.
It would be a head-in-the-sand mentality for electrical contractors not to brace for a bit of a tremor by the time 2020 rolls around. Some steps to take:
1. Know if your markets are heading for a soft or hard landing. A soft landing would mean building in the residential market will be slowing but not completely stopping. The hard landing would be more like builders not building a single home for 12 months or longer.
2. Beware of linear budgets and make sure you are not in denial. Expenses rise as you're busier, but they will not fall as quickly as you slow down. The biggest expense in any of our budgets is payroll. Don't hold on to people too long when you don't have the work for them.
3. Stay on top of aging receivables. If your customer payments stall, chances are the slowdown domino effect is beginning. Be aggressive in collecting payments.
4. Revisit capital expenditure plans. Be realistic on what can be put off. You may get a better deal in the slowdown.
5. Eliminate unprofitable business segments. Take a look at your customer list to determine who to focus on aligning with during a slowdown and who to stay away from.
6. Use competitive pricing to manage your backlog. This is not the time to try to make a few extra bucks on projects further down the road when you may need the work. Manage your backlog and bidding process as today's pricing for labor and material may not be the same in 12 months.
7. Avoid committing to long-term expenses. Lock in revenue. Make your money now by thinking short term. Focus on today's projects and profitability. Take the long-term look when deals are more pliable.
8. Go counter-cyclical. Know the cycles of your niche industries or contractor customers. For example, if your biggest customer focuses on facility maintenance when new construction slows, then start working with them now.
9. Evaluate your vendors for financial strength. Review your customers to evaluate who pays you quickest and who is set up with the best structure to endure a slowdown.
10. Cross-train people to prepare for workforce reduction. Make sure you train your staff to not only do their job but the job of the person beside them.
11. Be optimistic; remember this is all temporary. Riches can be made in recessions, if you understand how to navigate the peaks and valleys of the economy.
William F. Donahue is president of electrical distributor Crown Supply Co., Inc, with locations in Milford, Webster and Providence, R.I.
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