CONSTRUCTION JOURNAL

What to do in a recession

With the UK economy wavering, there may be difficult times ahead for construction firms. We asked some experienced RICS members to offer their insight on what can be done to get through

Author:

  • Elliot Patsanza FRICS
  • Gill Breen MRICS

27 September 2023

Economic forecasts for the UK continue to vacillate between weak signs of growth and a probable recession. Even as monthly reports indicate the country's economy is still growing slightly, others put the chances of recession next year at 60%.

In the light of this outlook, Construction Journal asked two RICS members about their experience in previous recessions, their recommendations for avoiding the worst and how to emerge stronger on the other side.

Maintaining cash flow is critical

The industry accounted for 11% of UK companies filing for administration in the first six months of this year. In this context, maintaining good cash flow is the number-one priority.

UK-based multidisciplinary consultancy Ridge was established in 1946. Since opening it has survived seven recessions, and, as partner Elliot Patsanza explains: 'With the economy slowing, businesses ought to double down on cash collection and reducing debtor days to a minimum to improve their cash-flow positions. A laser focus on cash-flow levels and keeping them positive becomes critical.

'In the 2008 recession, construction and consultancy firms adapted multifaceted strategies to remain cash-positive. These included invoice factoring or debt factoring – a type of invoice financing that means cash can be released quickly from the sales ledger on an ongoing basis to improve cash flow – and negotiating improved, faster payment terms.

'Leasing plant in lieu of purchasing also proved a popular and effective means to minimise outflow. These strategies remain relevant, effective and applicable in the current economic situation.'

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Diversification can distinguish your offering

There may be a temptation to pare your services down to focus operations on the most profitable sectors. However, finding ways to separate your business from the rest of the field may prove more beneficial.

Gill Breen, senior director at consultancy Currie and Brown, notes: 'During times of recession, providing value for money becomes even more important. Clients and developers are under greater pressure to prove that projects are viable, while banks and funders place even greater scrutiny on investment appraisals.

'Construction professionals need to rise to this challenge and match increased scrutiny with creative, optimised designs. Collaboration is key. Project and design teams need to work together to explore and test options to bring forward the best. It's about value engineering and risk management.'

Patsanza echoes these sentiments, stating: 'Firms that operate in diversified market sectors and provide varied services have proven to have a higher likelihood of surviving an economic downturn, as they avoid putting all their eggs in one basket.

'For instance, some of the traditional large housebuilders have already diversified and started building in the private rented sector (PRS). They have reallocated their resources from traditional new builds, where sales have slowed due to high interest rates.

'Despite the current economic uncertainty, demand for the PRS and affordable and social housing has continued to soar. Other firms have sought to work in multiple world regions such as the Middle East and North America, as they have different economic construction cycles from the UK.'

Ridge partner Phil Baker chimes in: 'During the last recession and thereafter, we have remained financially sound with a strong balance sheet and a good pipeline of work across all public and private sectors.

'Increasing our expertise across a wide range of disciplines and sectors also meant we have never become reliant on any one of these individually. In the same way, we managed our workload with clients to ensure an equitable spread.'

Breen adds: 'Linked to this, it is important for businesses and individuals alike to maintain a growth mindset and be resilient. At an organisational level, this might mean focusing on services that meets clients' shifting needs. Due diligence and fund monitoring tend to be in high demand during economic downturns, and this is certainly something we're seeing at Currie & Brown.'

Professional development complements business objectives

At an individual level, Breen advises professionals 'to think about aligning their personal development with their organisation's business aspirations. During the last recession, almost every business was thinking about how it could embrace innovation to become more efficient.'

She continues: 'I saw that improving my knowledge of building information modelling was a way of future-proofing myself and the business, so I worked on this and joined an internal steering group on the technology.

'With digital technologies and artificial intelligence evolving at such a rapid pace, improving your knowledge and capabilities in this area will always be a worthwhile effort.'

Patsanza believes it is important that businesses also promote this forward-thinking attitude, noting: 'Firms that value their workforce's well-being will not only attract but also retain the best of an ever-scarce resource across the construction sector.

'The pressure should not just be on the individual to make themselves an attractive proposition as an employee; the business they work for also plays a role.

'Upskilling the workforce to adapt to changing ways of working will prove to be an effective way to weather the economic turbulence. Companies should roll out robust digital training strategies to increase their staff's technological quotient (TQ).

'TQ represents our ability to assimilate or adapt to changes in technology by successfully developing and employing strategies to include it in our work and life. A high TQ consists of the right attitude, capabilities and decision-making strategies to leverage technology productively.'

'During the last recession, almost every business was thinking about how it could embrace innovation to become more efficient.'

Reflect, remain calm and keep working

As part of his research for this topic, Patsanza also spoke to Danny Stephens, a chartered quantity surveyor who has worked through two recessions and now heads the commercial management consultancy Stephens Consulting Limited.

Stephens had this to say: 'There is no magic formula for weathering a recession. I advise people always reflect on the service they are providing and analyse their own performance honestly.

'Keep improving, acknowledge your shortcomings and learn from them. Put all this into practice and you will be lucky enough not just to weather a recession but come through the other side stronger.'

Breen's final piece of advice for anyone experiencing an economic downturn for the first time in their career is one of calm. 'Don't panic,' she says. 'Instead, stay calm and focus on what you can influence: your attitude, mindset and the quality of your work. These are what will make you indispensable – to colleagues and clients alike.'

Elliot Patsanza FRICS is a partner at Ridge & Partners LLP  

Contact Elliot: Email

 

Gill Breen MRICS is a senior director at Currie & Brown

Contact Gill: Email

Elliot Patsanza FRICS

Elliot Patsanza FRICS

Gill Breen MRICS

Gill Breen MRICS

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