How to deal with seasonality in construction

Most contractors deal with some ups and downs in their business throughout the year. This week, we’re sharing tips that will help you not only identify and prepare for those seasonal shifts, but actually leverage the downturns into opportunities for growth.

Topics we cover in this episode include:

• How to identify if and how seasonality is affecting your business
• How to address seasonality and turn it into an opportunity
• Why you need to be attentive to the ways seasonality affects your cash flow
• Strategies you can implement to navigate and even leverage seasonal patterns

LINKS

Join the conversation on our LinkedIn page: https://www.linkedin.com/company/CarpenterCPAs

FIND US ONLINE
Wade Carpenter, CPA, CGMA | CarpenterCPAs.com
Stephen Brown, Bonding Expert | SuretyAnswers.com
Amanda Darr | https://amandadarr.com

TRANSCRIPT

[00:00:00] Wade Carpenter: Welcome to the Contractor Success Forum. Today we are talking about dealing with seasonality and why you should be thinking about it right now and ways to deal with the cash flow rollercoaster.

I’m Wade Carpenter with Carpenter Company CPAs. Stephen Brown with McDaniel Whitley Bonding and Insurance could not be with us today, but I am privileged to have back with us Amanda Darr of Amanda Darr Designs. Amanda, again, thank you for jumping in to help us. How are you today?

[00:00:32] Amanda Darr: I am great, Wade. Thanks for having me again. Happy to fill in and talk about seasonality with you. Well, I know that we talked about this on the podcast before, and I was actually looking back at that episode. I think it was episode 20, and it actually came out on the same day that we’re recording this, but that was two years ago.

[00:00:49] Wade Carpenter: Really? Okay.

[00:00:50] Amanda Darr: It was kind of funny. Yeah. But I think it’s such an important topic, especially in construction, so I’m glad we’re revisiting it and I’m sure maybe we’ll have, a little bit of a different spin, maybe some new stories to talk about. So yeah, I’m excited to dive in. I guess maybe we just start with talking about what is seasonality?

[00:01:08] Wade Carpenter: Yeah, I think, here in the summer, for a lot of contractors, this is their heaviest time, and that’s probably some of the last things on their minds, is dealing with seasonality. But I think we’re gonna talk about, it’s probably the right time you need to start thinking about it. There’s obviously the cash flow issues and there’s, other things that you need to consider in the off seasons, those kind of peak times. Dealing with the unpredictability of cash.

Construction goes in cycles and some of ’em you can predict and some you can’t. And we’re gonna talk about that a little bit. But, with proper planning, it doesn’t have to wreck your cash flow. So that’s my thoughts for today.

[00:01:46] Amanda Darr: Okay. Yeah, that makes sense. I’m sure anyone in construction knows that seasonality is an issue, but it can probably feel during the summer that it’s not as big of an issue. And then in the off seasons it probably feels like it’s gonna never end.

How to identify if and how seasonality is affecting your business

[00:02:00] Amanda Darr: So what are some ways that contractors can identify if seasonality is affecting their business?

[00:02:05] Wade Carpenter: Well, obviously most people. If you’re in your industry, you probably recognize most of them already. It’s kind of obvious when your heaviest revenue times come in and other times when it’s not coming in. A lot of it in construction, if you do trades that work outside, obviously the weather can be a huge factor in that and that’s the most common one.

But I put together a list of things that– ’cause I started thinking about what really affects seasonality. And Jeff Foxworthy said, here’s your sign you might be a redneck, and here’s a sign you might have some seasonality issues. So if that’s okay. Let me just kind of run down that.

Obviously the seasonality and, this time of year most people don’t think about, it’s summer, but probably in the Midwest, lower Midwest, it’s very hot right now and a lot of people can’t be doing things like getting on top of a roof. It’s just too hot to do it. Obviously other times, in the winter there’s things you can’t do outside. If you’re in construction like concrete or asphalt, there’s times that it’s too cold to put down pavement. And so those are the classic things.

But, obviously, looking at the revenue, and that’s usually what I’m thinking about the revenue and the cash flow coming in. We have these boom times and I’ve kind of, when in working with some contractors with Profit First I’ve set up some guidelines that usually, like if one quarter is showing, say more than 40% of your revenue, that’s usually your boom time.

[00:03:39] Amanda Darr: Mm-hmm.

[00:03:40] Wade Carpenter: Or if one quarter drops below 15%, that’s probably your bust time. And again, some people never really even consider that. Just some other things, looking at expense patterns. Do you have more costs in certain period of time during the year, or one or the other?

I think about different client payment behaviors. And if your clients are, say, schools and, schools are out for the summer, I have a general contractor that does $150 million dealing with schools. And they kill themselves in the summer months to get these schools built when the kids are not there. And that’s around the client. And when they’re down and that kind of stuff. But I think about it from other standpoints, I think about like, when do your clients have money?

[00:04:31] Amanda Darr: Mm-hmm.

[00:04:32] Wade Carpenter: Classic example from my industry, CPAs, the smart marketers that know that a CPA is usually gonna have money right after tax season. So end of April, start of May, that’s when, if you’re trying to sell something to a CPA, I’m probably gonna get bombarded by salespeople calls now. But that’s the time to target a CPA. And if you think about when your clients have money, that’s another thought I’ve never really thought about.

[00:04:59] Amanda Darr: Yeah, that’s a really interesting one, and I bet that’s something that a lot of people haven’t considered because you can look at your own books and, and really study those, which I think is important. But yeah, thinking about the patterns of your clients, the people that you’re working with, that’s a really good strategy.

So I love that. Are there any more?

[00:05:17] Wade Carpenter: Oh yeah, I got a few of these. If you think about you know how often you’re quoting, how many calls you’re getting to do quotes or sales inquiries. If you have to staff up or, get, build up your inventory for certain periods of time. ’cause people are, needing certain things, you may have to think about that and it may have to happen actually before your peak times. So, that’s another thing.

From another standpoint, there may be peak times that have nothing to do with, the weather or your clients. It may have to do with finding the labor. And that’s another one I, as I started thinking about this, is are there times that you have to really struggle to either find extra bodies or just can’t find people?

And I’m gonna get into this one in a little bit. We talk about some of the natural economic seasons, those kind of things. But there’s I think a lot of contractors have told me they have to cut off during the first week of hunting season. They’ll stop. They have to shut down their operation for a week or two because all their guys go hunting in the northwest or something like that.

Just also thinking about do you have to hit your line of credit different times of year? That can be another sign. Do you have idle equipment or idle manpower that’s not being used? Those kind of things also say, this is, this is one of those bust times.

Obviously we have all kind of other things that could be around holidays. The classic in retail is Christmas, but I did once have an electrical lighting contractor that had a specialization around Christmas and he did Christmas lights. And he did a lot of that and he geared up for that.

Some other things, obviously some of this is gonna revolve around the economy and those kind of things, and there’s gonna be ups and downs. And there’s gonna be unpredictable weather. I mean, you know, you could have unseasonably, warm weather or some things with weather, like a tornado in the middle tornado alley, or a hurricane in Florida. That’s when some of these restoration companies or roofing companies make a killing.

If you also hear that maybe your clients are holding off on starting projects for one reason or another, maybe they don’t have the cashflow or something, that may be another sign. So, I guess my point is a lot of times there are things that we may not even think about that are affecting your ups and downs in your cash.

[00:07:44] Amanda Darr: Yeah. That’s so interesting because I think, even, I know when I think of seasonality, I, I do just think of the seasons for the most part. Obviously when it’s really extreme cold or hot but there’s so many other factors that could be unique to your specific business, what industries you work with, where you are in the world.

So it’s super important to track all of that, I would think for multiple reasons. But so having that awareness that you can plan ahead because for a lot of those things, that’s something you’re, you need to plan ahead for, to increase your labor or whatever it is. So I think that’s all really good stuff to think about.

How to prepare for the ups and downs of seasonality

[00:08:20] Amanda Darr: So I guess once you do that, once you take a look at your ebbs and flows and where those might be coming from, what’s the next step once you have that information, how do you actually prepare for that seasonality?

[00:08:31] Wade Carpenter: Yeah, I think there’s a, obviously we have the cash flow issues and we have, other issues that happen in the peak times, and it’s mainly preparing for the bus time somewhat. Especially on the cash flow strategies.

But you know, it’s just kinda like a bear hibernating. There’s a time to feast and fatten up and there time to take a nap and, and save your energy for the next go round. So does that makes sense? Can we maybe talk about the cash flow strategies next? Or

[00:09:00] Amanda Darr: Yeah, I think that’s a great idea. We, we love cash flow on the Contractor Success Forum so let’s dive into that.

[00:09:06] Wade Carpenter: Well obviously this is one major reason I want contractors to be thinking about it right now. If this is your peak season, it may be nice to go buy that truck and enjoy yourself for a little bit. But if the winter months might be really tough on you then really you should be preparing for that and you should put some money aside.

And that’s where this Profit First mentality that has kind of been ingrained in me over the last few years I’ve been working with Profit first is, you gotta prepare for it. Create a drip account, or a seasonality account, whatever you wanna call it, take a certain percentage of your revenue and stick it aside.

And it may actually, especially if you’re in the middle of your peak season or maybe you’re deep in debt and all that stuff. But, sometimes these low points in our life, that’s when we get in these, get deep in debt.

So, that’s where I say, start dripping something in there now, and you may not cover it all this year. You may not cover it all next year, but the idea is let’s look ahead and start preparing for it. It will get easier every year.

Some other things, obviously you could try to find alternative revenue streams if you can. The classic example is like the landscaping contractor in the north that does snowplow removal in the winter, those kind of things. But not all industries are really suited to that.

[00:10:29] Amanda Darr: Right.

[00:10:30] Wade Carpenter: So, that’s why, another point is let’s do some accurate forecasting and looking at what our overhead is and when it drops and what we’ve gotta cover.

You also may think about flexible staffing. Maybe you hire somebody, a mix of part-timers or people that, you know, the classic example of stay-at-home mom that may be able to do something more during your peak times and less during your bust times. Maybe they want, the kids are out for school and they want time with the kids, and that may be the time you don’t necessarily need them.

[00:11:06] Amanda Darr: Yeah. Somebody whose schedule lines up with those peak times, that would be perfect. That makes a lot of sense.

[00:11:12] Wade Carpenter: We talked about alternative revenue streams. You could obviously diversify the services you do.

[00:11:17] Amanda Darr: Mm-hmm.

[00:11:18] Wade Carpenter: I caution people about doing that because a lot of times people try to be everything to everybody and they end up being nothing to anybody.

[00:11:27] Amanda Darr: Right.

[00:11:27] Wade Carpenter: If that makes sense. And so, and that’s why they stay in this low profit margin area. Other things like, you could try to stimulate some demand by offering promotions or getting out there and doing some advertising.

We have some that actually, we say expand geographically. If it’s too warm to do a roof in Arizona right now, then maybe you send your crews to Michigan or I don’t know. Somewhere where you can use, I’ve seen contractors do that at times.

[00:11:58] Amanda Darr: Okay.

[00:11:59] Wade Carpenter: Tightening up on your accounts receivable, chasing down those customers that owe you. Negotiating terms with your suppliers to say, right now is our bust time, can you help us out? Can you talk to your bank and try to get a line of credit or extend your line of credit? One of the things I see these contractors doing is, they get into these pay by the day or pay by the week loans that are so expensive. And those are the things that we’re trying to avoid because that can wreck your–

Another thing I tell, especially the heavy equipment guys. Do you really need to buy that equipment? And obviously, you may think, well, hey, my payment is only this if I buy it. If I lease it, it’s gonna cost me more. But if all those winter months, you can’t use that equipment, it’s sitting idle and you still gotta cover those payments.

So maybe think about monthly leases that you can turn in and put that on the equipment supplier.

Does that make sense?

[00:12:53] Amanda Darr: That makes so much sense. Those are all really smart strategies and can really help you get through those down times, I think.

[00:12:58] Wade Carpenter: I just a couple more. I know we probably need to move on, but diversifying your client base. I mean like that contractor that does all this stuff during the summer when schools are out, a lot of times they’re doing not much of anything during the winter and they could be using those crews on other things.

So, again, this is, this is the time that, maybe you should be investing in marketing, those kind of things. So, I’ve got, I’ve got more of ’em, but I know we probably need to keep this short today.

[00:13:25] Amanda Darr: I think they’re great, but maybe we can do another episode or put out some more content elsewhere because I think those are really helpful.

Strategies to tackle the seasonal downturns

[00:13:33] Amanda Darr: Okay. So we talked about cashflow a lot. The other side of it, I think is strategizing to tackle those seasonal downturns. So do we have any strategies to share on that?

[00:13:43] Wade Carpenter: Well, some, sometimes it’s seasonal downturns and you know what to do to prepare for the next time. I think about, You know, I’m making my analogies, but you know, the life of the cicada that lives underground or grows underground and then all of a sudden they emerged. I mean, there’s a time where they are really active, but there’s a lot of time they’re preparing. They’re growing and all that stuff.

And your off peak season, yes, you wanna conserve your cash flow, you wanna make sure that you keep great people, because that’s always a tough thing to do. But this is a great time to work on your processes. If you don’t have, say your, your bidding process down or standardizing those kind of things. Standardizing change orders and those kind of processes in construction.

Again, thinking about your sales engine right now, I, this is probably where you could probably kick in and, start talking about doing a website and doing those kind of things or updating them. I don’t know, you wanna chime in on any of that? Social media or–?

[00:14:45] Amanda Darr: Yeah, no, I love that idea of taking the time, especially if you’ve set yourself up so you’re not panicking when those downturns come to take that time to level up your business. And part of that is certainly marketing. So can you take that time to do some serious branding work with with an expert, with a designer?

If you don’t have a website, get a website going. If you do, maybe take the time to update it. Does it still reflect your services? Do you have updated jobs on there, like examples of jobs that you’ve done? Maybe you’ve recently done some really amazing work, but you don’t have it out there for potential clients to see. Take that time to get that up there.

And yeah, social media, any of that kind of content, if you find yourself with extra time, that’s a great way to set yourself up for better client acquisition.

[00:15:32] Wade Carpenter: Okay. I also think this is the time to really dig in, know your numbers. After your peak season, you may have hired up, your overhead may have grown. Maybe the prices went up. That’s the time to review those numbers and make sure before you start bidding for the next year and you’re gearing up to do that, make sure you got ’em down and figuring out what it’s costing you.

Some industries are more driven on equipment and things like that, and when your cashflow is low, you don’t necessarily wanna spend any more money you don’t have to. But I think about the highway paving guys. Their equipment goes down and they’re out of work. And, if they don’t have the funds, they don’t, I mean, the off peak season is the time to be maintaining and repairing those systems so that you got them in peak shape and ready to go when it’s go time.

[00:16:18] Amanda Darr: Yeah.

[00:16:19] Wade Carpenter: I still think this is a great time to reflect on what you’re doing as far as not just your numbers, but you know, who’s your competition, what type of jobs you’re chasing. Are you chasing the right things?

A lot of times people think about that next great software and implementing software in the middle of the peak season when you’ve got a thousand jobs running, that’s a tough thing to do. But maybe when it’s slower, that’s the time to implement some of these changes in your organization.

So a lot of times people just, they’ll take it off and and we do need a period of rest, but we also need to take that time to prepare to move forward and, just like cicada, when they’re come out of the ground, they’re ready to go. So that’s probably a horrible analogy,

[00:17:08] Amanda Darr: No, I love that analogy. It’s, I, I think it’s, it got me pumped up. It’s like such a good visual of, taking that time to really go underground and taking that opportunity to really look at your business and make some major improvements and then come back ready for the next peak season to be better than ever. I think that’s amazing.

[00:17:27] Wade Carpenter: Yeah, like I said, there’s all kind of things we could also talk about here that you know, if you need to remodel your shop or whatever, organize things better so that they flow better. There’s all kind of things we could talk about here. Maybe it’s time to work on your marketing as you said, but maybe going out and finding great subs to work with.

Maybe it’s a time to maybe go partner with a new joint venture. Those kind of things are, are great things to do and. It’s easy to sit back when you, you got a little free time. You, you enjoy the free time, but–

[00:17:59] Amanda Darr: Course.

[00:18:00] Wade Carpenter: Use it wisely, is the point.

[00:18:03] Amanda Darr: Yeah, I think that’s such good advice, and if you need ideas for how you can do that, we have podcast episodes on almost all of those topics that you just mentioned, Wade. So you can go through our library and, and get some ideas for that, how to use that off time effectively, if you need that.

[00:18:19] Wade Carpenter: Yep. Well, I’ve got several more of these, but I think we’ve done enough for today.

[00:18:23] Amanda Darr: We can always share more in a future episode.

[00:18:25] Wade Carpenter: Okay. Well, like I said, just to kind of wrap this up. I think the point of today is, number one, obviously that cash flow can be killer in those low points of that roller coaster. And don’t wait. If it is your boom time, you know, that’s time to be putting that money away.

[00:18:45] Amanda Darr: Absolutely.

[00:18:45] Wade Carpenter: But also, in your slow times, think about what you’re doing and preparing for the next time.

[00:18:51] Amanda Darr: That’s all great stuff. I think it makes so much sense. Get to know what times are your boom times and your bust times if you’re not totally sure, and then prepare for those bust times so that you can actually use those to make positive changes in your business. I think that’s all really good.

[00:19:08] Wade Carpenter: Okay. Well thank you all for listening to the Contractor Success Forum. Check out the show notes at ContractorSuccessForum.Com or on the Carpenter CPAs YouTube channel for more information on this topic. Consider subscribing to this channel and hit the notification bell to follow us each week.

Thanks for listening, and we will look forward to seeing you on the next show.