Recessions and economic downturns, as we saw in 2008-2009 during the Great Recession, can have an outsized impact across many industries, including construction, in terms of both the labor market and the number of projects pursued. And the alarm bells have been ringing for possible future slowdowns, as the Association of Equipment Manufacturers (AEM) notes in a recent article. The good news, however, is that although non-residential construction is expected to grow more slowly in 2020 than in the past several years, the industry is still poised for continued growth, with all project types expected to deliver 3 percent growth, versus 5 percent in the past couple of years.
What Can Be Done?
Despite the fact that project demand is often susceptible to the economy’s ups and downs, equipment managers and contractors alike have more control than they may think. To build a buffer against the impact of recessions and downturns, you can focus on several critical areas that provide preparation and peace of mind. Besides maintaining a reserve of cash and estimating working capital needs, some suggestions include:
- Know your costs – by knowing the true costs of the work you are doing, including equipment values, you can better equip your company to respond to market and demand shifts. EquipmentWatch understands this, and in addition to our Rental Rate Blue Book for reimbursement of equipment ownership and operating costs (O&O), we offer our Cost Recovery Guide to determine O&O costs for cost recovery.
- Consider selling idle assets and unused inventory – using residual costs as a guidepost, you can preserve the value of assets and free costs such as insurance premiums, while maintaining more liquidity. Understanding the residual values of your equipment can help guide this decision and optimize costs.
- Focus on strategy – take a closer look at where you stand in your market. According to a recent article in For Construction Pros, “nearly 50% of a board’s time is spent on financial results and matters of a historical nature, while just 25% is spent on organizational strategy. In reality, and to be most effective, boards should be spending at least 80% of their time on strategic topics.”
Although many signs point to the risk of recession being low in the next year, including the lack of overbuilding and limited increases of imbalances, if history is any guide, future slowdowns are a near certainty. However, the adage of “the best offense is a good defense” applies here, and there are many steps that you take to improve your standing in the market during good times, and difficult times.
To learn how EquipmentWatch provides objective, accurate, and unbiased current market values and residual values for every asset in your fleet, schedule a demo with us today! Learn more.
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Keith Tyson
Brand Marketing, EquipmentWatch
[email protected]