I'm not much of a prognosticator, but I've heard a number of rumblings that make me wonder just how robust 2006 will be for remodelers.
The first came from a group of 20 remodelers from around the country who were discussing their local economies. The upshot was that enough leads were coming in, but these remodelers' markets seemed softer than they had been. It was enough to make them question what was going on with their potential clients' buying decisions. Several noted that high-priced homes were selling sluggishly and inventory was mounting. Were the well-to-do getting uneasy?
A few weeks later, at a local association meeting, remodelers were talking about job sizes dropping. Companies that had previously had minimum job size requirements were lowering their floors to smaller jobs.
But what really caught my attention was the McDonald Financial Group's latest survey of 400 affluent Americans (annual incomes over $150,000 and/or more than $500,000 investments other than their homes). For most remodelers, these consumers form the base of their prime buyers. In the third quarter of 2005, their confidence in the economy fell to a 30-month low.
Fifty-seven percent of those surveyed said that the economy is headed in the wrong direction. Just 15% — an all-time low — believed that the economy would improve over the next three months.
What might these opinions mean to you? Tie them in with reports that many of the hottest real estate markets around the country are cooling, and you have signals indicating that you should be conservative with your business planning for 2006. Consider three different plans: one for what might be normal growth for your company, one for a 10% to 15% drop-off in revenue, and the last for a 25% drop-off.
If either of the latter two materialize, here are some tips I've learned from past slowdowns:
- Watch your intake process like a hawk. Try to establish comfortable volume benchmarks for all of your projects, whether they are already sold or are still being designed or estimated. That will give you an early warning of any slowdown.
- React quickly. Typically, remodelers hesitate before reacting to a slump. Have a backup plan for cutting overhead and field staff. Don't eat up your backlog and put the entire company in danger.
- Prepare for your average job size to drop as your clientele get more conservative about spending. Remember: The smaller your average job size, the more intense your overhead pressures.
- Build up better reserves. The economy will make this difficult, but remember that cash in the company pipeline will get tighter as backlog (and deposits) get used up.
Keep marketing. Your efforts will yield less than normal, but it will be critical to keep your name in front of your community. Believe it or not, there are even a few pluses that can result from a downturn — if you're prepared to take advantage of them:
- By being able to hold on, you'll gain market share and be wonderfully positioned as the economy revives.
- You'll trim inefficiencies and fat in your company. Here's your opportunity to “free up the future” of any marginal employees.
You'll find it easier than it's been in a long time to hire good folks for building your company strengths. I hope I'm wrong about a slowdown. But it never hurts to prepare for the worst, even while hoping for the best. —Linda Case, CRA, is founder of Remodelers Advantage Inc. in Laurel, Md., a company providing business solutions through a network of experts and peers. 301.490.5620; firstname.lastname@example.org; www.remodelersadvantage.com.