Riding the waves: strategies for navigating business cycles under recession .

Every business goes through cycles. Even the residential real estate market--which some pundits once dubbed "recession-proof"--is on the decline nationwide. As those in the construction industry know, the ups and downs of the construction industry are often more pronounced than in other sectors of the economy.

How does a construction company deal with the inevitable ebbs and flows of the business? Unfortunately, there is no cookie-cutter solution. Each business is different, so you need a strategy that's right for your firm and considers its particular strengths and weaknesses. Here are a few ideas to consider.

Take a Long-Term View

Business owners often make the mistake of simply reacting to short-term events rather than focusing on strategies to enhance their long-term prospects. When times are good, it's easy to get immersed in project work and ignore "softer" aspects of your business such as marketing and cost-cutting measures. When times are bad, on the other hand, it's tempting to slash spending on "discretionary" activities, like marketing and training, even though these cutbacks may negatively impact future performance.

There are several strategies that can help you avoid managing for the short term. But the truth of the matter is that these strategies include many best practices that should be executed all the time, regardless of whether the industry is in an up or down cycle. Here are some things for you to consider:

* Make financial planning a year-round activity. If necessary, designate a principal or other management person to manage the process.

* Ensure that clients are being billed for all appropriate expenses.

* Review profitability by client, department and project size.

* Rather than wait for an economic downturn to lay off poor performers. continually evaluate your staff to be sure your team is operating at peak efficiency and productivity. Let poor performers go and invest more time and money in training your best people.

* Design compensation programs that reward contributions to long-term value, not just short-term performance. To do this, you might increase vesting periods for performance-based compensation or tie bonuses not only to firm earnings but also to non-financial factors that affect long-term value.

* Continually look for opportunities to reduce operating and overhead expenses by cutting costs, combining administrative functions, or outsourcing certain activities. Negotiate lower rates from your existing suppliers or shop for new ones.

* Develop a budget for the firm and for each project to better manage costs, time, and client expectations. Review that budget monthly and compare to actual performance.

* Evaluate your marketing program and focus your spending on activities that produce the best results.

* Diversify your practice as much as possible within your existing expertise--by geography, industry sector, public vs. private sector jobs, or project size, to name a few areas of possible diversification so that a stronger sector can support a weaker sector during a downturn.

* Identify and develop expertise in niche areas that are more immune to economic downturns.

This type of planning will help you maximize your profitability during the good times and make it easier to ride out the bad times. If you're able to hold on to your best people and continue investing in training and marketing during a down cycle, you'll have a big advantage over the competition when the inevitable up cycle emerges.

Be Active and Proactive

Although solid financial management is a year-round activity, certain strategies may be more appropriate depending on whether business is booming or languishing. Additional strategies to consider when times are good include:

* Increase your contract amounts where possible, including change order work. Clients will be more likely to accept an increase when the economy is strong.

* Increase your line of credit. Lenders are more likely to extend credit when business is booming. Even if you don't need it now, a higher line of credit may come in handy down the road.

* Continuously recruit good talent to either fill open positions or to replace poorer performers.

On the other hand, there are also strategies to consider that can help you get through the inevitable down cycles:

* Adjust manpower projections in order to determine how many employees you really need.

* Conduct a risk management review to be sure that your insurance coverage is appropriate for your business and that you're not overpaying.

* If your lease is up for renewal soon, try to negotiate for lower rent better terms, or other concessions. Review payments for common area charges and other rent add-ons to be sure they're being calculated correctly.

* Refinance your loans to determine if lower interest rates can be obtained.

* Sublet excess office space.

* Make the most of information technology to improve your staff's productivity and efficiency.

These are just a few of the techniques available to soften the impact of business cycles. By stepping back from your daily management activities and taking a strategic look at your business, you can help stay competitive and financially strong both in good times and bad.