The Five Early Warning Signals that Tell You that Your World is About to Turn Upside Down!
How to Develop Your Crystal Ball and Read the Future of Your Marketplace

Things are going good and everybody is spending money. Construction spending is at an all time high. Some contractors are making more money than ever. Some are even patting themselves on the back and gloating on what great business people they are. The truth is, you should have some concern about how long this will last and how to survive the next downturn.

As a seasoned veteran of this business, I’ve seen my share of economic downturns. They have a tendency to creep up on you when you least expect it (actually they really don’t, you know its coming, you’ve just chosen not to accept it until it’s too late). I’ve been through my fair share of downturns and I seen many an unsuspecting contractor go belly-up. They’re some things I’ve learned and I hope you will take the time to read this article and incorporate them into your overall business strategies.

First of all, what goes up must come down. That is not only a basic law of physics but one that works in business as well. The economy constantly changes. Many forces, inside and outside, are attempting to pull it in two different directions at once. All it takes is for the balance to shift in one direction and the economy heads that way. If you understand some of the things that make up the difference, you can reasonably position your business to take advantage or “ride the storm”.

Secondly, not all downturns affect all businesses’ the same way. Some businesses’ that made money on the top of the cycle barely survive the bottom. Some businesses’ made lots of money at the bottom and coast over the top. I sincerely believe that an astute contractor can position his business to make money on both ends of the cycle if he can read the future of the cycle.

So here are my five early warning signals that will tell you when the next economic downturn is about to take place. Not all have to be in play at the same time to affect your business, certainly a number of them together will. From my own experience as a contractor, I’ve found them extremely accurate and helpful.

Interest Rates

Watch interest rates closely. When they’ve bottomed out and the Fed decides to raise them to curb inflation, you’ll see a change in your market. When interests rates start to rise and there is no indication that it is temporary, the last minute hedgers will jump before the rates go to high. You’ll see a quick flush of activity for your services but it will die out as quick as it came into being. After that, you better have some strategic plan in place to find new work. High interest rates will certainly put a damper on this robust economy.

Spending Habits

Let’s face it. When things are going good who wants to think about the bad and the ugly times. Truth is, at some time reality checks in. People spend more at the top of the cycle then at any other part. Over confidence kicks in and people foolishly believe the good times will last forever. However, reality has its ways of putting things in their proper perspective.

When people spend more money than usual, it usually means that they’re not saving. Spending is an emotional impulse not a logical process. It also means that they’re spending beyond their means and someone is holding the paper on the spending spree. That means high credit card debt and more than they can handle in bank loans (someone had to fork over the money for that major remodeling, new home, car, boat, or whatever it was that they bought). At some point they realize that they’ve overextended themselves and now they’ve got to deal with it. Usually it’s a combination of number one and three. At any rate, spending ceases and this contributes to the downturn and your left out in the cold. This requires a new marketing approach or even worse, lowering your prices to get the work (this is another article so keep coming back to watch for it).

A Change in Your Environment

This one always spells disaster. All it takes is one major factory closing, political change, downsizing, or layoffs and you’ve got a major problem on your hands. Towns and cities and have been virtually turned into ghost towns. Spending stops overnight, banks are calling in loans, government spending screeches to a halt, big business tightens its belt and the little people suffer. I’ve personally seen this one wreck havoc on the local economy. It’s well worth your time to keep your awareness up. Read between the lines, there is always some kind of a hint that it’s coming. I can’t tell you what it is or how it will affect your business, but it’s a major player in putting a damper on the party.

Slow Payments

This is where good practical business skills really pay off. If you’re on top of your game, you’re reviewing your account receivables on a daily basis (if you’re not you must also like to play Russian roulette with your business). When payments to you start to creep past the normal pay times you would expect -- that means money is getting tight. When 30 days becomes 33 days and 33 days becomes 38 days and 38 days becomes 48 days and so forth, the party is coming to an end. Watch the aging of your receivables. It’s a great indicator that people are starting to experience money problems. Use this indicator in conjunction with number five.

Up-front Money Requirements

When your vendors start requiring you to pay more up front that means that they’re already entangled in the downturn. People or businesses’ that they’re doing business with are starting to feel the pinch. Be careful and beware because no one cares about your money problems, only their own. Time to batten the hatches and prepare yourself to ride out the storm.

Don’t Forget Fact Number Two

As I said earlier, people are making money and losing money on both ends of the economic cycle. The smart have sold to the idleheaded at the top of the cycle and are now ready to enjoy the fruits of their labor as the cycle bottoms out. You know the old saying, buy low and sell high. It’s a fundamental rule of success. If you can position yourself properly as the cycle turns down, you can survive.

Now is the time to take control of your business. Why not, times are good and the money is rolling in. Check your costs. Review your overhead. Analyze your staffing. Have you allowed everything to become bloated? I strongly suggest that you review yourself and your business right now. Don’t wait until the economy has started to slide down hill. It’s too late then and it’s such a major setback that it’s almost impossible to prevent yourself from getting trampled by the cycle (you’ll actually feel like Indiana Jones when that large boulder wass chasing him down the tunnel in the Temple of the Doomed).

Remember the true measure of wealth and success in both your personal and business life is cash. The credit card debt, mortgages’, bank loans and inadequate savings account only means that you’re a victim of the cycle.

Take charge of your future!

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All articles are the property of Henry Goudreau and HG & Associates, Inc. If you would like Henry's articles for your magazine or newsletter or, would like Henry to write for your publication, please contact Henry at:

HG & Associates, Inc.
389 Interstate Blvd
Sarasota, FL 34240
941 377 1254