Wednesday, August 14, 2019

Here's Your Ticket for the Next Housing Downhill Ride

With “Modular” construction now the latest buzzword at seminars around the world, investors are pouring millions and millions of dollars into startups, each shouting “We are the next big thing in affordable modular housing”.

The problem with all those millions flowing into unproven modular housing startups is something called a recession and all indicators we could be headed for one within the next 12-24 months.

While a flattening yield curve is typically something investors fear, President Trump earlier this month called on the Federal Reserve to cut rates in order to flatten the yield curve further and spark inflation – something needed to jump start a slowing economy.

Interest rates on mortgages recently dropped to under 4% as part of that flattening.

Preparing for a recession does not mean panicking about the possibility of it happening. It simply means that areas of your business that were not watched carefully before now must be put front and center with many given renewed efforts.

Protect Cash Flow. Like most of us, putting money aside for a rainy day (recession) is a lot easier said than done. You will have cash shortfalls. Your business’s very survival may depend on how you maneuver through those shortfalls. If you start with some cash in your bank account, it will be easier to focus on cash flow and you won’t stress about the shortfalls.

Review Inventory Management Practices. 43% of small business owners in the U.S. still use pen-and-paper or spreadsheets to track inventory or don’t track inventory at all. This manual mishandling of inventory and supplies opens up your operations to data entry errors, shipping mistakes, and just a lack of knowledge of what you do or do not have in stock. Sending someone to Lowe’s four times a day because you ran out of supplies will cost tens of thousands of dollars a year.

Focus on What You Do Best. Your business is probably known for building custom homes or commercial projects or some specialty modular product. When something is outside a company’s core competency it’s time to outsource in order to save time, money, and risk. If trucking has been brought in house recently or you started your own set crews or got into the excavation side of building and a recession looms, outsourcing could give you the flexibility to only pay for those services as needed which may not be often during a recession.

Develop and Implement Strategies to Win the Competition's Customers. When the next recession occurs and trust me, there will always be a ‘next’ housing recession, some of your competitors that aren’t prepared for it will find themselves closing their doors or going bankrupt. Having a strategy ready to go when you see the first signs of dwindling orders and contracts could very easily put your company in an enviable position in our industry. Better to prepare a strategy to acquire your competitors customers and never have to use it than not to have any at all.

Help Your Current Builders or Customers. Begin with transparency. If you are the modular factory, let your builders know what is happening within your company if a recession begins to emerge. Let them know you might be outsourcing some services, cutting back on special order materials, increasing lead times in order to keep the production line full when you acquire your competitors’ builders. Builders need to keep their current customers abreast of every delay before it actually affects the job. Warn them there is a shortage of set crews or trade people. Don’t be part of the surprise, be part of the solution.

Don't Stop Marketing. One of the first things to go during past recessions was the marketing department in many companies. But that wasn’t always a bad thing as some marketing departments were necessarily big to coordinate TV, newspaper, radio, magazines and billboards within your marketing area. Since the last recession, marketing has taken on an entirely new look. Delivering your company’s message to potential new home buyers means using the Internet and more importantly, your buyer’s cell phones. One really good person familiar with social media marketing can keep your name in front of thousands every day for pennies. Don’t stop marketing.

Gary Fleisher (the Modcoach) is a housing veteran, editor/writer of Modular Home Builder blog and industry speaker/consultant.

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