Ending Housing Boom, Complacency & Planning
Updated: Aug 5, 2018
Its been increasing clear that the Housing/Construction boom is ending. It's also fairly clear that individuals tied to it as well as business owners alike remain complacent on taking the proper steps to prepare for the inevitable & likely imminent housing correction. Many choose to think they can REACT to vs ANTICIPATE changes in the economic cycle which is very hard to do. WHY? Because by then the damage has been done to revenues and profits and the business is reacting under duress vs strength which reduces options of how to deal with the change.
Some of the simple things we deploy as part of our Profit Management Services is understanding WHERE & HOW you profits are made. By doing so and having a model which can display the changes you plan on making to address an anticipated change in the economy you are better prepared. Below are some things we recommend for our housing/construction clients, but some are useful for any business in preparing for a change to slower growth.
Simple Things To Consider:
1) Change Revenue Mix: Some revenue streams can be less sensitive to changes in the economy, In Construction that maybe focusing more on renovations vs new construction.
2) Shorten Cash Cycle: By shortening the time you cycle cash you can increase it and avoid using too much working capital. Thus, allowing more flexibility when or if revenues fall. That may entail reducing inventory levels or shortening accounts receivable terms. Maybe setting up autopayments vs invoicing too with clients.
3) Outsource: By changing the mix of Fix Operating Expenses vs Variable Operating Expenses by outsourcing you can better reduce Profit Break Even points making profits LESS sensitive to reductions in revenue. Some equipment doesn't need to be purchased & can be leased preserving cash.
4) Risk Managment: As per prior article (https://www.charlotteconsultantservices.com/news-update/capital-investment-decisions) owners need to risk adjust their expected returns as they see higher economic risks. Project returns should be higher for riskier period of the economic cycle. Owners fail to create financial model/forecasts for new investments and thus create the #1 reason why established businesses fail: taking too much risk at the wrong part of cycle.
Contact us to see how we install the financial controls to monitor, measure and analyze profitability to anticipate changes in the economy. To gain from our insights please contact us or sign up for email updates via https://www.charlotteconsultantservices.com/news-update.
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