An article published by McGraw hill back in October 2008 caught my eye the other week. The article entittled "Managing a Construction Firm in a Down Economy" written by author and industry consultant Matt Stevens seemed to perfectly encapsulate the steps contractors need to take to most effectively manage their businesses through the bottom end of the business cycle and to be prepared for the uptick. The key points from this article are especially valid now as we slog through what I hope is the bottom of this recession.

Matt's Key pieces of advice are as follows:

• Make sure where you are financially. The stress of a cash flow problem is not the singular reason to lay off core employees. Another important measure is gross profit per manhour. Since we are in a variable-cost businessm this makes economic sense.
• Keep core employees together - both field and office. This is your means of production. If you see a bleak outlook and a decision has to be made, most people I know cut back on their personal financial needs, including paying themselves last. This ensures that when the economy improves, they will be quick to catch the wave of growth again and thus profit. Contrast this to others who, once they have contracts in hand, will have to rehire or, even worse, find new employees. (All of whom will need training and will make a higher number of mistakes.)
• Collect your accounts receivable as much as you dare. Mature business people know that money is a company's life's blood and your legal and ethical attempts to collect it are forgivable. Your fair pursuit should be forgotten in the months to come. Any firm who might have an issue with this is an indication of something. As has been stated before, there are 10 rules of business. The first is to not run out of cash – and the rest don’t matter.
• Use your financial ability to pay as a strategic weapon. Some firms have the ability to pay in a timely fashion regardless of the economy. This is stellar financial management in action. However, in any economy, it should be considered that payment should be made differently. Not all of your project partners act the same toward to you. So treat them differently. Don’t pay them the same, especially the ones who are a drag on your business. Negotiating on the basis of your strength to pay is not a new idea.
• Build a high wall around current clients. Raise the bar of what they should expect from any new entrant. Some of this is just communicating all that you do for your clients. Some of this is adding a new benefit. Of course, the former is less expensive.
• Don't participate in the economic slowdown mentally. In any business, you have to believe your best days are ahead of you. Construction is no different. Conversely, not believing this makes it true. Remember, your employees and their families are looking extra hard for any signal of trouble.
• The number of qualified leads is the reason you will land a good project. Keep conservations going with people who are decision makers and have budgets, needs, wants, and treat you with respect. At some future date, they will have a deadline to meet for constructing a project. Keep yourself at the client's table. Talking does not cost you a dime.

The first line in the first point is what really grabbed my attention: "Make sure where you are financially." To me the rest of the items really fall from that one point. Before you can (or rather should) take any action you need to understand that action that you need to take. This makes your financial and operational IT systems especially critical. In a down economy status quo is not an option and action is needed but to be effective action must be well informed. Look at your standard reports and play around with your report generators to cut data in different ways. We all understand our businesses through our general day to day work and intuition but deeper understanding and catching trends requires some detailed analysis. In this economy the most powerful reports are going to be those that break you profit or variable cost down by customer, job, employee, equipment, division, geographic area etc. Using comparisons of this sort you should quickly be able to find the places where you can shift resources around, cut costs or take other remedial action.

As always, your software partner can be an immense help in all of this. If you do not know how to use the tools ask for a tutorial. Time spent with experienced people from your partner will not only help you better operate your IT systems but will also give you insight into metrics and reports being used by other clients that they work with. Your IT partner interacts will a large number of contractors and therefore sees a lot of unique and good ideas that can help you in your business.