The construction industry began 2020 on a relatively high note until the pandemic hit. According to IBIS World, industry revenue is expected to decline by 6.3 percent due to COVID-19. Some projects scheduled in 2020 will likely be delayed into 2021, when economic activity is anticipated to stabilize.
2020 forced the construction industry to reset and revisit efficiencies, planning, and much more. The year ahead is only expected to accelerate these changes. This article discusses 21 things the construction industry should focus on in 2021 and items that will be impacted in the coming year.
The previous year brought many challenges to the construction industry, which should remain at the front of management minds moving into 2021. Some examples of these challenges include:
- Project Delays & Cancellations: Numerous construction industry customers were forced to delay or cancel their plans in 2020. Construction companies should have a plan regarding future delays and address how they will be handled. If a large number of delayed projects intend to start up around the same time, it could lead to additional headaches.
2. Material & Equipment Costs: Prices for material and equipment have seen large fluctuations over the previous year related to the pandemic. Management and estimators must remain up to date on current prices for these items, along with expected future changes. With the large number of delays on projects, the costs used to estimate the project now may not be the actual costs when the project begins.
3. Difficulty Obtaining Permits: Due to COVID-19 restrictions for site visits, a majority of people working from home, and the overall government slowdown, many companies are seeing increased difficulty in obtaining permits. Companies should focus on staying out in front and not waiting for the last minute to obtain permits.
4. Modularization & Prefabrication: This is the process in which a building is constructed off-site, under controlled plant conditions. Structures are produced in modules or components that are transported and put together on-site once complete. This method may allow projects to be completed faster, safer, and more cost-effective than their site-built alternatives.
5. Advanced Construction Material: Consider moving to more advanced construction material such as durable or high-strength concrete, geosynthetics, geotextiles, fire-resistant timber, and self-healing materials. Making a move to these more advanced materials may improve the quality of your product and differentiate your company from others in the industry.
6. Expanded Specialization: If time is available, research specializations like those the company currently works in. If barriers are low, there may be potential for growth into new specializations that can benefit your company.
7. Integrated Technology: Consider making a move to a fully integrated technology system where all aspects of your company are linked together. Many companies focus their technology investment into smaller isolated areas. Rather than doing this, management should consider a fully integrated system update.
8. Internal Processes: As many construction industry companies find themselves less busy, it may be an excellent time to improve and adequately document all internal processes. This is a task generally left on the back burner when a company is thriving. If time is available, this is a project that can finally get tackled.
9. Paperless: With the shift to more people working from home, now may be the time to consider moving away from maintaining paper files and moving to keep documents digitally where they can be accessed remotely. If a proper system is put into place, maintaining documents digitally can help speed up digging through paper job files when looking for a record.
10. Alliances: An alliance can be formed with another business, in which both may benefit from the expertise the other offers. These alliances may be used to gain market share, improve efficiencies, pool resources for large projects, establish economies of scale, or gain access to complementary resources.
11. In-House Training:Develop in-house programs to improve new hire training and ongoing education for current employees. With the ever-changing landscape we are currently living in, the staff should be educated and trained on the changes to the industry.
12. Talent Acquisition: Due to high unemployment and those looking for jobs, it is not always easy to find the right people for your workforce. Consider making the switch to hiring through an external talent acquisition company to make the hiring process less of a headache. With the larger pool of people applying through these acquisition companies, it may be easier for them to find people who possess the required skills and are a better fit for your company.
13. Future Workforce: Create a plan for what your future workforce may look like and set-up programs to help meet these future goals. For example, work with students at local schools to get them excited about your industry and let them know your business is an option for their future.
These difficult times have taken a toll on some construction industry businesses. Some owners are considering selling their business or consolidating. Others have seen immense growth. We recommend you have a plan in place for the future.
14. Succession Planning: Considering roughly $68 trillion is set to be passed down from Baby Boomers to their beneficiaries over the next 10 years, it is clear that succession planning must be assessed sooner rather than later. Planning should be done to determine the best succession opportunities available. This includes deciding whether to sell to an external party, pass the business to a relative, or a member of management. Be aware and prepared for all the financial and tax impacts these options provide.
15. Management Training: If the succession plan is to have employees within the company move into leadership roles, management-related training should be provided to these employees to ensure they are prepared when it is their time to step-in.
16. Management Retention: The management members are the employees who know the most about how your business operates. Ensure the compensation and benefits received by these members are competitive for the industry.
17. Mergers & Acquisitions: As the industry changes, the focus should be on how things are expected to look out of the downturn. With the likelihood of changes to occur in the supply chain and the industry, it may be time to consider potential mergers and acquisitions with competitors or even suppliers if the fit is right
The COVID-19 pandemic caused many nuisances for businesses in the construction industry; however, federal and state governments provided opportunities to receive assistance. Items to note as it pertains to assistance opportunities include:
18. Relief Opportunities: It is crucial to stay up to date on all federal and state government opportunities for potential assistance. Although specific assistance programs may end, there is the likelihood of new options available as businesses continue to face hardship due to the pandemic.
19. Payroll Deferments: If your company took advantage of any payroll deferment options made available (i.e., deferring payments, COVID sick/leave credits), be aware of the requirements for the choices you have used. Maintain a schedule of when these items need to be paid or when forms are required to be submitted.
20. Revenue Recognition:As the revenue recognition standard was delayed because of COVID, not all companies adopted the standard in 2020. Management should have a full understanding of the new standard requirements and should be able to document the five-step approach used to recognize revenue and how it applies to each of their performance obligations.
21. Leases: The new leases standard was delayed further due to COVID, with a new implementation date for years ending December 31, 2022. Although it is another year away now, management should have conversations with the users of the financial statements about how this new lease standard will affect them.
With an ever-changing economic environment, we find businesses need much more from their CPA than just traditional tax compliance services. Smith Schafer professionals can help. Our Construction & Real Estate Group is committed to serving over 800 Minnesota construction and real estate entities. From large construction companies to specialty contractors, we have the experience to bring you innovative solutions and support your business through the current challenges.