BUSINESS ARTICLES
In 2021, Construction is about Navigating Uncertainty
When it comes to construction, is 2021 looking good, bad or somewhere in between?
That depends on how you look at it.
The Bad News
First, the bad. Nationally, nonresidential construction is the weakest it has been in more than a decade. Commercial real-estate has been hit particularly hard—as you might expect, given that many businesses are working remote, retailers are going out of business, and hotels are struggling to get customers in the door. The market will, at some point, bounce back. But, with the uncertainty of vaccine distribution and consumers’ willingness to spend money, it’s hard to say when the recovery will happen and what form it will take.
Meanwhile, construction businesses that are building are encountering several challenges. Hiring sub-contractors has gotten more competitive, and it’s only going to heat up. As the pandemic gets under control, the pent-up demand of stalled projects will flood the labor market, which means that hiring enough workers for any project could be a challenge. In addition to a competitive labor market, businesses are facing increased competition in the bidding process—suppressing profit margins—and increased pressure to improve their energy use.
Based on those last couple paragraphs, you might get the impression that things are looking pretty bleak for construction in 2021. But that’s not the whole story. In fact, there are plenty of reasons for optimism.
The Good News
For one, industrial construction is booming in Chicagoland—so much so, that developers set a record for new space under construction in Q4 of 2020. Much of the development is due to skyrocketing e-commerce demand amid the pandemic, which has pushed many companies to rebuild their supply chain infrastructure. Who says that no good news came out of last year?
A few more reasons to look forward to the rest of 2021: With the Biden administration’s “Build Back Better” initiative, infrastructure and public-utility projects could potentially have a sharp rebound. Also, real estate experts are expecting to see office expansions in tertiary markets with lower population densities, such as suburbs throughout the Chicago area.
Back to our question: Is the outlook good or bad? The truth lands, as it often does, somewhere in the middle.
“For construction, the key word this year is uncertainty,” says Leo Misdom, a principal shareholder at Dugan & Lopatka. “There’s going to be growth in some areas and decline in others—and the situation is going to shift throughout the year.
“If you’re in the construction industry, you should be bracing for this uncertainty by planning ahead, investing in short-term and long-term strategies, and focusing on cash. The businesses that come out on top will be the ones that prepare for change and adapt quickly.”
How You Can Succeed in 2021
How can you navigate this year’s uncertainty? Here are some tips from the financial experts at Dugan & Lopatka:
- Plan for the near-term and long-term future. Financial forecasts and projections, cash flow modeling, and tax planning will be crucial to help prepare your construction business for the year ahead.
- Focus on cashflow. Some sectors of the construction industry have largely avoided the worst economic impacts of COVID-19. However, construction is often the last industry to feel the pain of an economic shift, so don’t assume there won’t be a downturn. Managing your cash carefully will ensure you’re ready for any surprises.
- Look at current tax provisions. While new legislation could bring new tax provisions, you shouldn’t overlook the current provisions that can help you plan for 2021.
- Don’t miss out on potential tax breaks. More construction companies are becoming eligible for the federal research and development (R&D) tax credit, but many don’t know it. Possible activities that could be eligible include:
- Developing new, improved or more reliable products, processes or techniques
- Upgrading designs for LEED or energy-efficient projects
- Developing unique methods and processes
- Experimenting with new building materials
- Developing or improving construction equipment
- Any project that requires an extra level of testing or certification upon completion
- Focus on green. With sustainability initiatives and potential new tax incentives on the horizon, the companies that support green building standards and sustainable efforts are positioned to thrive.
Make Finance Your 2021 Priority
In 2021 (and any year, really) success in the construction industry is largely contingent on how you manage your finances. The businesses that come out on top will be the ones that prepare for the future and quickly adapt to change. Of course, in an industry as complicated as yours, that’s easier said than done.
The best thing you can do for your business in 2021 is to partner with a financial expert who specializes in construction. At Dugan & Lopatka, our team has decades of experience in the construction industry, throughout the Chicagoland area. We understand the challenges you face, and we also know how to help you prepare for an uncertain future and navigate times of change.
2021 is going to be a challenging year for construction. But, by planning ahead and focusing on what matters, we can make it a good one.
To learn what the financial experts of Dugan & Lopatka can do for you, contact our team today.
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