While the sun was shining, business was booming. The calls never stopped, and jobs were plenty. But now that cold weather is sweeping in, most people are preparing to hunker down for the winter, and your backlog isn’t as strong as it was just a few months ago. While the slow season for most contractors falls during the cold winter months, each trade will have its unique slow season.
Learning how to navigate these economic valleys can be challenging, especially when you’re fresh off a peak. Whether it’s because of unexpected economic problems, project cancellations, or the fickle force of winter, how should you handle all the downtime of your slow season?
We went to the experts to get to the bottom of the slow season conundrum. We spoke with Tonya Shulte, Cofounder and Construction Accounting Specialist, at The Profit Constructors; Shane Vork, President of Vork Brothers Painting, and Kirk J. McCormick, Esq., Chair, Construction Law Group at Ruberto, Israel & Weiner, P.C.
I would say one thing is don’t panic, And don’t go out and start marketing and trying to get work that is not really the core function of your business.
Owner, The Profit Constructors
They all agreed on one thing: Don’t panic. Don’t start taking random jobs in a reactionary frenzy. Instead, you must stay calm and focus on your core business. This is especially important for smaller subcontractors to keep in mind.
Many small to midsized subcontractors make the mistake of taking on any opportunity, regardless of their area of expertise.
This will only lead to a further downward spiral of panic as you’re now on the hook to complete a job you’re not equipped to handle. When business is slow, it’s not the time to bite off more than you can chew. While it may be tempting to take on extra work during downtime, it is important to only accept projects within your skill set. Don’t make life any harder than it already is.
Shulte: “When you’re very small, and you’re wearing all these different hats, you have to sometimes take a step back and step out of working in the business and search to understand how do I work on the business so that when something happens, I’m not blindsided.”
However, just because you’re not hitting a job site doesn’t mean that your only option is to sit still for months at a time. As you’ll learn, there’s plenty to be done during your slow season to improve your business in meaningful ways.
McCormick: “The ones who really have it together do a good job of using their slow time to work on internal processes.”
Whether it’s revising contract forms, adjusting claims procedures, or organizing operations, any efforts made toward improving internal processes are surefire ways to set yourself up for success once things pick back up. To stress this point, McCormick exclaimed that many clients wait to improve processes until it’s too late:
McCormick: “A lot of times they have to call me because there’s a claim that needs help being resolved… they wish that they had done a better job of putting in some internal controls as far as sending out the right notice letters, making sure you follow-up, making sure you’re familiar with the contract documents.”
Things to improve when business is slow:
- Improve processes: change order, bidding process, estimating, job costing, and job tracking
- Try to negotiate for more favorable rates with suppliers
- Re-evaluate pricing strategies
- Consider working with an accountant or financial advisor to organize finances
- Review your approach to estimating, plug any gaps you find, and use that to develop strict project budgets going forward
The slow season is a prime opportunity to find ways to make your business better so that when your next big season comes around, you’ll be prepared to reach your full potential. But finding ways to improve your business is easier said than done. So, where should you start? This journey must start with looking inward and evaluating what you do well and what you don’t.
Reflect, review, and improve
When we can dial in certain parts of our business, we’re just that much better than the other paint companies.
Owner, Vork Brothers Painting
Your slow season is an invaluable time to reflect on completed projects. This is especially important for seasonal contractors who have just finished their busy season. McCormick makes a poignant note on this line of thought,
McCormick: “I hope that every project went exactly the way you wanted it to, but chances are it probably didn’t. And so that would be a good time to do an internal debrief, gather your project personnel, and start a running list of lessons learned. Things we could do better. Things we did very well that we like to continue to do, etc.”
While it’s ideal for all projects to go smoothly, it’s likely that there were some challenges. Use this time to learn from those challenges to create a better plan for your next run-in with this type of job or situation. The idea here is to ensure that you’re always continuing to improve and build on the experience that you’re gaining as a company.
Start by analyzing previous bids and tracking their success rate. Then, use what you find to improve your bidding process. In addition, fall and winter are great times to review your company’s finances and determine which projects were most profitable so your sales team can prioritize accordingly in preparation for the new fiscal year.
To really make the most of this, you must have comprehensive job costing software in place that can provide the historical data that you need to understand the performance of past jobs. Try to find a tool that offer real-time job cost accounting that will allow you to easily spot trends over time.
Have the right tools in place
Don’t be afraid to spend a little bit of money to get your house in order because it’ll pay for itself over the long term many, many times.
Kirk J. McCormickk
Chair, Construction Law Group at Ruberto, Israel & Weiner, P.C.
Just as important as not panicking is having the right tools in place. One vital aspect of preparing for slowdowns is having the right tools and technology in place. This is particularly true for small businesses, where every decision can have a significant impact. During slow periods, it can be difficult to stay afloat and make strategic decisions that will benefit the company in the long run.
Shane emphasized the importance of incorporating a construction management system:
Vork: “Having all of your financial information in some sort of a system that you can pull down reports and start to really track those trends is crucial.”
Tracking financial data by job and over time can provide valuable insights and help businesses make informed decisions rather than relying on emotion.
As Shane points out, many businesses, particularly in the painting industry, may not see the need for such processes until they reach a certain size. He acknowledges the value of looking to other industries for inspiration and learning from their processes and use of technology.
This highlights the importance of being open to new ideas and continually seeking ways to improve operations. Having these processes and systems in place not only helps during slow periods but also prepares businesses for any potential economic downturns. As Tonya explains,
Shulte: “When you have those right tools in place, you’re ready for the slow season, you’re ready for recession, you’re ready for all of these things.”
This proactive approach to business management is key to long-term success and growth. In addition to utilizing the right tools and technology, it’s essential for business owners to take a step back and work on the big picture of their business. By understanding how to strategically plan and analyze data, you can avoid making rash decisions based on emotion. On this note,
Shane shares a personal example:
Be proactive, not reactive
An ounce of prevention is worth a pound of cure.
Kirk J. McCormickk
Chair, Construction Law Group at Ruberto, Israel & Weiner, P.C.
One of the things stressed by the experts was that you don’t wait for the slow season to hit to start making process improvements.
At the helm of a successful painting company, Shane Vork understands the importance of preparation. He took the time to eloquently speak on the need to prepare for your slow season so that it doesn’t sneak up on you:
Vork: “… it’s important to understand that the slow time is coming up… So, I think creating a list of slow-season items that you wanna accomplish would be a good, helpful way to start.”
You’d be wise to heed Vork’s advice. It’s important to plan ahead for slow periods by creating a list of tasks to prioritize during your busy time of year. This will prevent impulsively reacting to ideas and instead refocus your efforts on the tasks that matter most. To do this, create a list of slow-season items. When business does slow, you’ll be prepared to jump into action instead of wondering what to do next.
The best way to get started with this is via a running list while you’re in the thick of your busy season. Essentially, you’ll create an “I wish I had time to do this” list. Add things to this list throughout the year and address them when you hit the slow season.
Don’t go into your slow season blind. Brace yourself and stand ready with action items you want to tackle while you have the downtime to do it.
How do you even know you’re in a slow season?
For us, it’s about identifying trends.
Owner, Vork Brothers Painting
Seasonality in a strictly financial sense refers to predictable and recurring changes in data that occur at the same time every year. This can include increases or decreases in revenue following seasonal patterns. Think turkey sales in November or beer sales the day before the Super Bowl.
However, identifying your own business trends in the specialty trades can be a bit tricky. Thankfully, Shane spoke to his process of getting this figured out.
Vork: “We have a trend of when we collect our most money and when we don’t, but also when our high points in revenue are and our low points. So, historically, the first quarter is always our slowest period of time. So we know that. We can plan for it. And if it’s not a slow first quarter, then we just don’t do the things that we would do during the slow period of time.”
Shane took time to speak about the importance of backlog reports in this process:
Vork: “The big thing we put into place is a backlog report… It’s a visual that our controller put together, and it shows exactly what our goal for a month is of what we wanna produce and where we’re currently at. So if it lines up, we’re sitting good, but if it doesn’t, there’s an opportunity, and we could have a slow month or two.”
At the end of the day, it comes down to understanding your numbers and leaning on them to make better decisions. Let data, instead of feelings, guide your business. As Tonya put it:
Shulte: “…because the more you know about your own company, the better off you’re gonna be able to handle any of these issues.”
What KPIs should you track?
You can produce a lot and not make anything.
Owner, Vork Brothers Painting
Your numbers are the key to figuring out your slow season, but with so many metrics to keep track of, it can be overwhelming to figure out where to start. Thankfully, all three experts we spoke to highlighted the most crucial key performance indicators (KPIs) to focus on. Tonya kicks off this discussion with a vital one:
Shulte: “Revenue. That’s the easiest thing to look back and see over time to indicate seasonality. At what point, typically every year or every season, does that revenue dip?”
It’s important for smaller subcontractors to consistently market themselves, even when you’re busy with current projects. As Shane alluded previously, keep track of incoming work to ensure a steady flow of revenue and to prevent becoming solely dependent on current projects.
Profit margin, specifically gross profit margin, is an invaluable metric for your business to hone in on. You should constantly be striving to improve this number.
Vork: “…you can produce a lot and not make anything. So you wanna make sure that you’re job costing and that your jobs are profitable.”
Measuring job success through profit margins is a reliable way to assess the efficiency of your operations, sales process, and ability to control costs. Shane also noted a few other metrics that he keeps a close eye on:
- Profit margin
- Average job size
- Jobs per week
- Sales ratio
Sales ratio, also known as bid-hit-ratio, tracks the number of jobs won compared to the number of bids you’ve sent out. Evaluating your win rate provides valuable insights: you can better identify successful projects, weak points in your bids, pricing errors, and overall inefficiencies in your bidding process.
What if you don’t have a slow season?
…find ways to buy back your time…
Owner, The Profit Constructors
What if your business doesn’t have a slow season? This may not necessarily be a negative thing, but it can make it difficult to find time to work on improving processes, setting goals, and other important tasks. As a business owner or leader, how do you make time for these tasks without a slow season to prioritize them?
Shulte: “…find ways to buy back your own time… And when you buy back that time by outsourcing some small pieces, then you have that time to step back and start working on the business as well.”
As a business owner, it’s important to consider the value of your time while leading the company. If you find yourself doing tasks that don’t align with your role, consider outsourcing or hiring part-time help. Small businesses can benefit from outsourcing administrative tasks, while larger businesses can consider hiring an outsourced financial expert or CFO. Find ways to prioritize your work and take on the things that you can help with the most.
Managing cash flow
Many small contracting businesses overlook the importance of cash flow when they’re starting out. But if you don’t focus on it early on in your business, you’ll find yourself bidding low, accepting unfavorable job terms, or relying on cash flow from previous jobs to keep a steady income. While this may work for some, it can lead to bigger problems in the long run, making cash flow management a complex and essential aspect of running a successful contracting business.
This is why Tonya likes to encourage her clients to use an envelope-style cash management system. A system that works through a simple principle: for every dollar that comes in, you’re funneling it out into separate envelopes. But she takes this system to the next level.
Shulte: “We prefer the method of using actual separate bank accounts for those envelopes because it just keeps it very, very simple, for everyone to see.”
For Tonya, it’s all about separating cash and using it strategically. For every dollar that comes in, funnel it into separate envelopes (in this case, bank accounts) for better organization.
Carefully allocate funds for things like payroll and taxes. Tonya also suggests creating your own internal line of credit. Essentially, this works as an internal savings account that serves as a contingency fund. This account will serve as a pivotal lifeline if and when business does slow down.
Shulte: “When you pay yourself back to this internal line of credit, you pay yourself back with interest. So it might hurt a little bit to pull some money out of that savings, But it’s a really great way to just have money set aside for those downtimes.”
However, there is no silver bullet for better cash flow management. It requires a synergetic system between all of your processes.
Vork: “So a lot of times, we’re working with GCs, and their payment terms are, you know, kind of against us. So how do we collect money to make sure invoicing is correct and develop a relationship with their admin people… there’s just so many different things that can help you.
This starts with securing profitable jobs. Targeting profitable jobs that you are equipped to execute well is the only starting point. There’s an opportunity cost of taking the wrong job, especially as you’re trying to grow. Taking the wrong job has greater consequences earlier on in your business’s growth journey.”
From there, getting paid on time should be your top priority. Stay diligent and strong with your follow-up process. As Shane put it, “The squeaky wheel gets the grease.”
Don’t get discouraged if you haven’t mastered all aspects of business finance. You don’t have to handle everything alone: seek help from trained financial professionals who specialize in construction businesses.
In addition, our complete guide on construction accounting will get you up to speed on all the most important concepts and strategies to grow a financially stable business.
When the slow season hits, don’t fret. You’ve worked hard all year, putting countless hours into your craft, putting in good work project after project. Now that business is slow, it’s your time to review, reflect, and improve. Know when your slow season is coming, and go in with a plan.
Don’t panic and start taking random jobs; instead, take the time to look inward at what you did well and where you can stand to improve. From there, lean on expert advice and leverage the power of digital tools that can give you the insight you need to build your business with confidence.
Build your business with confidence
Don’t let your slow season catch you off guard. Take action now and start implementing strategies and tools, like Knowify, to improve your processes, track KPIs, and manage cash flow for long-term financial growth.
Don’t wait until it’s too late–invest in your business today and schedule a demo to join contractors just like you who have taken their slow season as an opportunity for growth and improvement.