As October hits, the leaves change colors, kids get excited for Halloween, adults prepare for the impending holiday season, and contractors prepare for the inevitable. After all, winter is coming, and it’s woefully depressing in more ways than one.
Between weather changes and shorter daylight hours, October marks a familiar feeling for contractors. Bracing for winter means something different when you have to prepare for the lean season.
Fortunately, construction cash flow seasonality creates predictable cycles that you can prepare for and counter.
With proper oversight and planning, you can avoid the traditional March desperation to lessen the financial, mental, and emotional impact. There is more than one opportunity to offset the financial strain and lessen the related anxiety and stressors, if you know where to look.
Learn how to take charge of your cash flow so that you can enjoy the holiday season and not just survive, but thrive when March rolls around again.
The Impact of Seasonality on Construction Companies
While many industries cheer the change of seasons, contractors struggle more with the fluctuations that come with the winter months.
- Fewer daylight hours translate to shorter work days, which alter project timelines.
- Not as many clients want to have projects running through the holidays and colder months. Who wants their home torn up when they’re trying to host holiday parties?
- Workers like to take time off to spend with their families, meaning teams may be short-staffed.
It’s no secret that these issues disrupt cash flow every year. This construction cash flow seasonality creates predictable annual depression and anxiety cycles that are specific to construction.
- October hits, and the panic sets in as contractors start calculating how to survive the winter months.
- Winter arrives with limited cash flow and project uncertainty to trigger several issues for contractors, including isolation and depression.
- When spring finally arrives, contractors are so desperate that they will take on any available work regardless of profitability.
The impact on mental health cannot be understated, as the stress of financial strain can be up to twenty times more impactful than the shift in income.
In short, the strain of cash flow deficits impacts mental health more than anything else during the winter months. It’s like the contractor’s equivalent of Seasonal Affective Disorder (SAD).
Contractors must consider their financial tools as essential for mental health as much as their business management.
Strategies for Surviving Construction Cash Flow Seasonality
Preserving your cash flow and mental health throughout the year might feel impossible. However, with the right tactics and some realistic changes, you could survive and even thrive.
Develop a Seasonal Cash Flow Plan to Reduce Winter Depression
The undeniable truth is that systematic preparation prevents seasonal anxiety. Addressing the inevitable decline in cash flow during the winter months by planning ahead and building a reserve can reduce the psychological impact.
- Understand the winter trend. You need to understand when cash flow goes down, when it hits the lowest point, and how much you need to bridge the gap.
- Track past seasons to determine what your lean season looks like and maintain the records over time to identify long-term trends.
- Create separate categories to account for all expense types and all revenue sources specific to the winter months.
- Establish a checklist to tackle unexpected challenges proactively to preserve profits.
Embracing software that features a real-time costs database allows for seasonal planning. You get a clear picture of how much you need to set aside to ease the strain during winter.
Preparing what essentially serves as a snowy day fund provides a cushion to support your business through the winter months. When you have backup funding, there’s not as much financial stress, and you can avoid sliding into panic or survival mode.
Diversify Services to Create New Revenue Streams
You will inevitably be limited on work opportunities during the winter months, especially if your bread and butter is outdoor and exterior projects. It might mean making some changes to your business model to accommodate the slower months.
Be creative and think outside the box to pick up new revenue streams during the winter.
- Rent out equipment.
- Offer renovation and energy-saving consultations.
- Create winter maintenance packages that keep your crew indoors.
- Provide weather and winter-proofing services.
- Consider holiday decorating, like hanging lights on homes and local businesses.
- Add a plow and salt spreader to offer private snow removal services.
Try to use tools and equipment you already possess, and don’t forget to consider the networking benefits of diversification. There is no harm in letting people know what else you offer.
Be Shrewd About Winter Work Pricing
Winter projects are bound to take longer, so you need to factor that into your estimates.
Setting a different standard, like a winter work pricing package, is good for business. It can provide a cushion that preserves your profits when faced with weather delays and overruns.
Additionally, you may require more equipment during the winter months to accommodate the weather and shorter workdays.
For example, you might need to factor in additional lighting or snow removal costs. Even if you’re working indoors for a remodel, you can’t get into the home if the sidewalk isn’t cleared. Your team can’t finish hanging drywall or installing fixtures if they can’t see.
Pro Tip: Tracking additional costs related to events that occur solely or more often during the lean months is useful. Creating a special category to account for these expenditures will afford you a clearer picture as you consider setting winter prices.
Dedicate Down Time to Marketing Efforts
Just because the days grow shorter and you can’t spend as much time working on projects doesn’t mean you can’t grow your business.
Modern marketing can be done at any time of day from anywhere. You could handle marketing and lead generation from the comfort of your home. Getting your name out there and positioning your company in the right place for spring can be fruitful.
Additionally, seeking reviews from satisfied clients to bolster your ratings can help clients looking to make decisions in time for the busy season. You can’t afford to argue the power of reviews when 92% of people consider online reviews before reaching out to a company.
Marketing efforts might not feel like an immediate investment. However, dedicating the time during your slow season can build enough social capital that you can lay off during the busy months.
Pro Tip: If you expand your business offerings to include new services during the winter months, be sure to take advantage for marketing purposes. Featuring your brand on trucks and equipment enhances name recognition in your community.
Systematic Financial Tracking Creates Confident Seasonal Business Management
You need to establish a functional financial tracking system to successfully plan for the lean winter months without stressing yourself more than necessary. It’s probably the most important strategy on this list.
It’s common to look for trends over the entire year, but that doesn’t work as well for contractors. The construction industry has established seasons that offer two extremes in terms of cash flow.
Contractors can get a better picture of the busy and lean months by systematically breaking down the year into segments. Consider data from March through September as one segment and create a separate segment for October through February.
By applying any overages from the first segment to filling in gaps in the winter segment, you can make more informed projections. Informed estimates set your business up for success.
You can do much of this manually, but it will take time and effort. If you aren’t comfortable identifying patterns and trends, it can become cumbersome.
Tools like Contractor Foreman automate parts of the process and streamline everything so you spend more time focusing on solutions. For example, access to change order reporting provides key data to help you make informed decisions to protect profits through the winter.
Common Winter Cash Flow Pitfalls and How To Overcome Them
Contractors can easily get caught up in a system that feels like it works, until it doesn’t. Being aware of common pitfalls makes it easier to avoid them.
Don’t worry if you manage to get stuck in one of these scenarios because you’ll learn how to dig your way out.
Failure to Establish a Reserve
It’s tempting to spend during your busy season. When money is flowing in, you can justify a little splurge here or there.
Perhaps you’d like to invest in some new equipment to replace an older machine. While the upgrade might seem like it makes business sense, it doesn’t if you can’t make it through the winter.
Determine how much cash you need in reserve to survive the lean months before investing in even the most logical upgrades. Shiny new equipment won’t do you much good if your company can’t sustain itself long enough to use it.
Remember, you plan a cushion on every project to cover the unexpected without stressing your team or your clients. Why wouldn’t you do the same to ensure you get through the winter months without stressing yourself?
Be Proactive, Not Reactive
If planning ahead feels like a theme here, that’s because it is. You set yourself up for success whenever you take the time to strategize and tackle an issue before it becomes a problem.
Waiting for things to happen, like the inevitable winter slump, you have to find a way to make up ground. The worst part is that any unexpected changes or catastrophes could leave you too far in the red to recover.
Reacting to whatever may come during the winter months is the surest way to wreck your company.
Review past years to see how much you typically needed in reserve, and be sure to account for a little extra cushion wherever possible. You never know, maybe there will be enough left over to invest in that upgrade you wanted when March comes around.
Not Reviewing and Refining Your Numbers Each Year
Forecasting cash flow seasonality is not a one-and-done thing. You need to keep refining your numbers each year to stay on top of trends.
Perhaps this winter looks to be an especially brutal one, or you know that materials will be more costly because of some political or industry upheaval.
Be sure to add notes to highlight unique events or unusual activity that can explain anomalies. It might be useful to invest in software that allows you to separate unusual months or winters that would skew your data.
Establishing a system that is fluid enough to accommodate these changes will help you develop more accurate estimates for what you need to keep in reserve.
Avoid the Winter Blues with Better Cash Flow Management
Winter is historically difficult for many people. Even with the holidays, it’s darker and colder than we would like.
Contractors have it the roughest because it affects cash flow and leads to financial strain that impacts mental health. It’s not easy to be cheery during the holidays when you wonder how you’re going to keep your company afloat until spring
With proper planning and a strategic approach to cash flow, you don’t have to fall victim to the winter doldrums. Take charge of your cash flow and your mental health by setting your company up for success.
Determining trends in winter cash flow issues allows you to create an appropriate reserve during the busy months. You can also offer additional services in your community during the winter months to bolster cash flow.
You have everything you need to adapt to the lean winter months. However, adequate financial tools can serve as protection against seasonal mental health struggles by giving you better control over your cash flow.
Contractor Foreman reduces the reliance on manual tracking formats by providing access to extensive, useful reporting tools. You can access the information you need in one place and easily segment data to accommodate your planning needs.
Start your free trial today to explore the reporting options and see how easy winter forecasting can be.
