by Daniel Kittell | Accounting News, Construction, Industry - Construction, News, Newsletter
Understanding how economic trends influence construction can provide valuable insights for businesses and professionals in the field. For instance, high interest rates and slower economic growth will put increasing pressure on construction and manufacturing this year. Here’s a comprehensive look at how the current economic landscape is likely to impact construction in 2024.
Inflation and Interest Rates
The economy is still experiencing inflation pressures from energy prices, wages, and consumer spending, which impacts project financing.
Additionally, with interest rates playing a pivotal role in construction financing, the Federal Reserve’s actions this year regarding cutting interest rates hold significant sway. Lower interest rates will stimulate borrowing for construction projects, reducing overall borrowing costs for businesses and clients. This creates incentives for investment in construction ventures, particularly in the residential sector.
Supply Chain
Late last year, construction companies were still facing supply chain issues, but construction firms can expect supply chain improvements as the year progresses, which will help reduce delays in construction projects. The pandemic changed communication methods between the construction industry and suppliers, with construction firms adopting communication technologies to streamline material ordering workflows. With access to more complete and speedy information, construction firms are empowered to keep projects on track.
Labor Market
The construction job sector experienced growth last year. However, construction job openings have decreased recently, even though wages have increased by 4.9%. This highlights the importance of competitive pay and innovative training programs to attract and retain employees.
Recession Worries
Higher employment and higher wages create more spending power and add to the supply and demand issues perpetuating a potential recession. With interest rates stalling and contributing to a decrease in project financing power, an economic recession is still top of mind for businesses. While signs at the moment are pointing to a soft landing, the construction industry should still be preparing for economic shifts.
Shifting Geopolitical Landscape
The Israel-Hamas conflict heightens concerns about the possibility of broader tensions in the Middle East, which could potentially impact energy and other raw material prices. U.S. sanctions on Iran might exacerbate these issues, while ongoing tensions between the U.S. and China could contribute to inflationary pressures.
by Stephen Reed | Accounting News, Business Growth, News
After weathering the storm of the Covid-19 pandemic for the past two years, small businesses are facing yet another significant challenge: rising inflation. While small business owners can take solace in the fact that they’re not facing this challenge alone, it can be difficult to come up with a game plan to hedge against inflation. Below we’ll go over some top tips to help you do just that.
What’s Driving Inflation?
Inflation is a sustained increase in the price of goods and services, and it weakens the purchasing power of currency. In the US, demand surged once the economy re-opened post-pandemic lockdowns, and Americans were eager to spend money they had saved, including government stimulus checks. At the same time, we started to experience supply chain issues as a result of Covid-era policies. This put pressure on the supply-and-demand flow, with supply falling exceedingly short of demand. Rising oil prices, which lead to rising gas prices, are also to blame.
Media coverage on inflation tends to center the consumers, but the challenges posed to small businesses can be even greater, including:
- A loss of money due to rising supply costs
- A slowdown of incoming invoice payments as clients struggle with their own financial hardships
- More hurdles to access funds as financial institutions often tighten borrowing requirements for the duration of higher inflation
These challenges force the small business owner to either absorb higher costs or raise prices for the consumer. However, there are inflation protection measures that can help to alleviate this dilemma.
Use Automation to Increase Productivity
If it’s possible to automate certain daily tasks, do it. Tasks that make the most sense to automate include those that are repeatable and don’t take a lot of brainpower to complete, including:
- Email
- Contracts
- Purchase orders
- Invoices
- Inventory
- Shipping
- Sales and marketing
Automation cuts down on errors, simplifies processes, and enhances customer service. There is a plethora of apps available to help you, from implementing basic bookkeeping to boosting client care, ramping up marketing, and more. You may be using some of these apps already, but be sure you’re taking full advantage of the features they offer.
Cut Expenses
Reduce costs wherever you can. Cancel any services, subscriptions, and products your company isn’t using. Also consider looking into alternate materials, products, or ingredients that may be less expensive and will help ultimately save money. Something else to think about: Is transitioning to a hybrid remote/in-office model that would give you the opportunity to downsize your office a possibility for your business?
Tackle Debt
If you have any residual funds from the Covid-era stimulus packages, now is the time to use those to pay down high-interest debt, especially as interest rates are expected to keep rising. You may not be able to wipe out your debt completely, but try to cut down at least the principal amount. Decreasing how much you pay through lowering interest rates can aid in protecting against inflation.
Additionally, don’t discount trying to renegotiate loans or lines of credit with your lender in order to lower interest rates. Doing so will allow you to save money, which you can put into savings reserves.
Lower Your Supply Chain Risk
Your business is going to be susceptible to supply chain disruptions. To further protect against inflation, lower your supply chain risk by:
- Organizing backup supply chain options
- Exploring domestic substitutes for overseas suppliers
- Storing stockpiles of essential supplies for the least possible storage costs
Raise Prices Strategically
Even if you’re automating processes and cutting expenses, sometimes price increases can’t be avoided during periods of high inflation. Always keep a pulse on what the competition is doing, and be careful not to raise prices too quickly. Pricing yourself above the market without a strategic approach could lose customers.
by Daniel Kittell | Accounting News, Construction, Industry - Construction, News, Uncategorized
Last year 35% of contractors reported turning down work due to skilled labor shortages. Couple this with a lack of resources due to supply chain issues and an industry that doesn’t seem to be slowing down, despite a short stall at the beginning of the pandemic, and construction firms are finding themselves in a position of putting the focus on running a more efficient business. Ultimately, this focus can help determine ways to save money or ways to reinvest in either hiring or retention and training. Read on for some strategies that will ultimately help you save time and money.
Provide Consistency
Consistency across the span of a project builds client trust and customer satisfaction, and building the importance of consistency into staff training can produce cost-effective results.
- Be sure your employees work by your company’s mission and core values. They should serve as touchstones throughout the duration of the project, whether anticipating customer expectations or meeting any unforeseen circumstances, including a shortage of staff.
- Hold on to returning customers by training employees to be responsive, helpful, and consistent with their answers.
- Employees who have the most interaction with customers should be trained in a way that provides consistency in addressing any questions and issues throughout the project. They should be proactive, empathetic to concerns, and solutions-oriented.
Prioritize Communication
As a business owner, if you feel that you lack the communication skills necessary to see a project through to the end, consider outsourcing a service to answer incoming calls. This can save time, and you can focus your energy on more pressing matters. Also think about establishing a company website as a means of interacting with current and potential clients. Use extensions like live chat, interest forms for gathering contact information, and online sales and specials to hook new customers and drive sales.
Invest in Software for Efficiency
Technology in the construction industry has the power to save time, improve workflow, attract skilled labor, and provide optimal customer service. Because efficiency in customer scheduling has proven to be a challenge for many construction firms, consider investing in software that focuses on customer and project management. Technology that can provide efficiency and capture project details can have a positive overall effect on your business.
Construction firms in today’s economy are faced with widespread labor shortage and supply chain issues, as well as skilled workers aging out of the workforce. This all culminates in an industry-wide lack of resources that is only growing. For an industry that is no stranger to labor turnover, focusing on consistency, time investment, and customer attention is paramount, and will allow you to run a more efficient operation and save money in the long run.
