What’s After COVID-19 for California Construction and Remodeling Businesses?
For those in the construction and remodeling business, it is hard to know what is next and when for the construction industry. While in many areas where new construction was booming, things have ground to a halt. On the other hand, many municipalities are funding paving and infrastructure projects now, while fewer cars are on the roads and precautions can still be taken to protect workers.
What will happen when the COVID-19 pandemic calms down? That depends in part on how long social distancing and isolation lasts, and the shape of the economic recovery afterward.
The Refinancing Scramble and Construction and Remodeling Businesses
When the Federal Reserve lowered interest rates to zero, homeowners scrambled to refinance faster than shoppers scrambling for toilet paper at Costco. The result was two-fold. First, interest rates that had dropped shot back up again, by a full percentage point.
But few people think such mortgage rates will last, and so for those with the means to do so, new construction may make a comeback. That could be good news if the recovery from this recession follows more of a “V” shaped pattern. (more on this in a moment)
The other thing the refinancing boom did was fill homeowners’ pockets with cash. While some will rely on that cash for survival during this time, for those who are able to keep working, that money could be reinvested in remodeling and home improvements, especially if the crisis is shorter-lived than some think.
Of course, much of this is dependent on the shape of the recovery both in the United States and worldwide.
Recession Recovery Shapes
There are a few possible shapes a recovery could take, and since this recession is nearly unprecedented in our recent history, it is hard to predict how it could go. This shape will directly affect nearly every business, but especially the construction industry.
The first is a “V” shape, which would be ideal. This would mean that customer confidence and buying would return to normal rather rapidly. The market will hit its lowest point, and then accelerate rapidly to a “new normal.” While many economists were at first optimistic about this shape of recovery, the longer the pandemic continues, the more doubts they have about this outcome.
The second would be a “W” shaped outcome, similar to what the economy experienced in the 1980s. The economy would recover, contract, and recover again, taking some time and a couple ups and downs to return to the new normal. For the construction industry, this might mean a rocky ride, but one that would likely be reasonably manageable.
The final possibility is the worst-case scenario, an “L” shaped recovery. This would mean things would plateau at a low level for an extended period of time before a very slow recovery, one many economists describe as a “Nike swoosh” shape. While not likely with the world banks and governments putting many measures in place to mitigate the economic impact of the current crisis, it could happen.
If you are struggling, you may want to look at COVID-19 relief, and what options are right for you.
Selling California Construction and Remodeling Businesses
The primary word to describe construction and remodeling businesses at the moment is uncertainty. Does that mean you can’t or shouldn’t sell your business right now? The answer to that question is a complex one and very individual depending on your situation. However, there are some things you can do even now.
- Start with a business valuation. Before you make any decisions about the future of your company, it helps to know where you are right now. This means knowing what your equipment and other assets are worth, and what your business might be worth both now and during a more normal market.
- Get your finances in order. If you are going to sell your business, even at a future date, you will want to have up to date profit and loss statements, cash flow sheets and projections, and other financial statements. To accurately value your business, you will need both business and personal tax returns for at least three years. If you don’t have all of these things up to date, you’ll want to get them that way.
- Take a breath. It is hard to make good decisions during times of extreme pressure or hardship. Take a moment to consider why you started your business in the first place, how you see your role going forward, and what you really need to successfully exit your business. If nothing else, now may be a great time to develop your exit or succession strategy. A certified business broker can help.
There’s no such thing as a crystal ball when it comes to the current crisis, and just as we could not imagine a month ago where we would be now, there is no way to imagine what things will look like on the other side of this crisis.
If you have questions, need a certified business valuation or even equipment appraisal for construction and remodeling businesses, or you think you might be ready to sell, we are here for you at Rogerson Business Services. Feel free to contact us today. Take care of yourself and stay safe.