As market conditions soften, communication from remodelers who need business has dramatically increased at our organization. Unfortunately, too many of these remodelers weren't prepared for the downturn, so they're now caught between poor cash flow and the need for a dramatic increase in marketing. While there are strategies that can quickly be implemented once the slow market arrives, some — such as cutting salaries or moving to a home office — can be painful.

Ernie Hofmann, president of high-end remodeling company Hofmann Design Build, in Summit, N.J., lived through a similar downturn in 1993–1994. It was “a grueling experience,” he says. “They were very hard times. I was working way too many hours, making no money, and ready to get out of the business.”

Thanks to the input of savvy consultants and peers, Hofmann made it through with the business intact. This time, he vows he'll be prepared. “I keep my eye on an array of information to give me advance warning of a market slowdown,” Hofmann says. His primary source of insight is the real estate market. “Remodeling is closely tied to existing-home sales,” he says. “In our market, there are twice as many homes on the market as there were a year ago and they're taking up to six months to sell, when they used to go in a bidding war within a week. This is a major sign that things are going to change in the near future.” Hofmann also subscribes to local real estate publications, and The Wall Street Journal real estate section.

“High unemployment is another factor,” he says. “If there is an exodus of high-paying jobs from your market area, there will be fewer affluent people to pay for the type of remodeling you're used to doing.” And, he adds, “listen to other people in the business. I talk to remodelers, suppliers, subs. At one particular time, I was very busy but learned that a major competitor had laid off 50% of its staff — a huge sign that the market was dropping.”

Once you get a whiff that the business climate is changing, act immediately:

  • Be open with employees about the upcoming changes.
  • Create a buffer in the form of backlog.
  • Ramp up your marketing efforts.
  • Be prepared to handle smaller jobs and more of them.
  • Make sure customer service is top-notch to differentiate your company.
  • “The companies that come out on top will be nimble and ready to adjust when they see the market changing,” Hofmann says.

    Victoria Downing is president of Remodelers Advantage in Laurel, Md.; 301.490.5620. Her new book, 101 Power Tips: Great Business Ideas from America's Top Remodeling Companies, is available this month.