Managing Cash And Crews: Surviving A Recession In The Construction Industry With Scott Peper | Ep. 263

COGE 263 | Recession

 

Building a resilient construction business is not about surviving the storm, it’s about managing cash and crews to thrive through any challenge, even a recession. In this episode, Scott Peper joins us to discover the challenges and opportunities faced by the construction industry, especially in the turbulent waters of a recession. Scott explores the survival strategies needed for construction businesses, big or small, to weather a financial storm and venture afloat when facing a recession. He explains why cross-training your teams across various services is a vital aspect of business resilience. He also lists down the dos and don’ts when managing financial crises in construction, from the risks of taking new debt to the importance of having cash reserves. Scott plugs in his book, “The Big Book of Cash Flow,” which helps understand the financial side of your construction business. Uncomplicated, informative, and full of practical advice, it’s a must-read for anyone looking to strengthen their financial acumen in construction. Tune in now and learn how to keep your construction business afloat, no matter the weather.

 

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Managing Cash And Crews: Surviving A Recession In The Construction Industry With Scott Peper

Scott Peper of Mobilization Funding is back on the show to talk about recessions, labor, and policies. We’re going to have a big-picture conversation about what you can do as your particular area of the country may be going into recession, how you can prep for that from a cashflow perspective so that you’re able to ride it out, and what you need to think of in terms of being flexible.

We’re going to have a good conversation at one point. It’s interesting. You have to tune in to this one. It’s about how to handle emotionally the challenge of having to lay people off and how your competition may help you to do that. We’re also going to talk about the importance of committing to your local area where you build and work in terms of influencing the flow of labor, not throwing up your hands and saying, “I can’t find any good labor,” but doing some practical things.

I’m going to talk about some examples from my area here in Sacramento about how construction companies and industry associations are on the front foot, looking to influence, for the long-term the flow of labor into their companies. We’ll also talk about policies and how you can influence policies at a local level so that you can maximize your opportunity to build the types of projects that you work on and build the business that you’re looking to build.

It’s a practical conversation. Scott is engaging. I want to encourage you to check out his website, his YouTube channel, and his book, but we don’t spend a lot of time pitching all of that stuff. You’ll be thankful for that if we spend a lot of time talking about how to run a better construction company. Enjoy my conversation with Scott. Thank you for tuning in and let’s dive right in.

Scott, welcome back to the show.

How’s it going, Eric?

It’s going very well. It’s an interesting time in construction. There are some areas of the country that are thriving, some areas of the country that, as far as construction is concerned, they’re perhaps not as busy as they could be. As you’re looking at the big picture of the economy and based on the conversations you’re having, what’s your view on the likelihood of a recession or the way that the economic waves are impacting the industry at the moment?

I’m not an economist and I’ve never claimed to be. What I can say is I do see trends in how they’ve impacted construction and other areas. There are certain places in the country, geographically, that are doing well. They’re not behaving the same as others. That could be construed as a recession or not. By definition, we’ve already been in a recession.

If you go around the country and say, “What’s that mean?” Some people are like, “I felt this recession.” Other people are like, “I don’t even know what you’re talking about.” For example, there are certain places in Tampa where I live locally that have 7% and 8% interest rates, but new records are being set on the street every week of a house being sold. Why is that?

We’re talking to a client who’s trying to sell a piece of property. It’s been sitting on the market for 6, 7, 8, or 10 months and hasn’t had any offers, whereas in 2022, it would’ve sold in a day. Why is that? I don’t purport to know all the answers to that but what I can tell you for sure is you need to know where you’re located and why these types of things are happening.

I’ll give you more keen example to construction. We see lots of private projects coming out of the ground here in Tampa, around the State of Florida, in Texas, and in the Southeast, but yet in other parts of the country, we had clients in California or out West, in the Northeast, or even some in the Midwest, that are all of a sudden the project they were ready to do is getting either tabled or canceled altogether. These aren’t like private projects that might be mixed-use with some residential and retail. I’m talking about corporate office buildings and mixed retail.

I’ll give you another one. What is thriving is multifamily housing in and around your universities and colleges. There’s a big push in there. Those are the types of projects that are coming out of the ground a lot, but the banks have a hard time trying to finance those projects depending on who the developers are, the geographical location, and the fortitude or desire of the bank to lend into that space. These are the things that I’m seeing a lot of that you have to pay close attention to as a general contractor or a subcontractor. We work primarily with subcontractors and our clients, but you have to know what’s going on with that project before you get rolling.

I was chatting with some owners. One of them was telling me about Google. They were planning to do a massive 80-acre mega campus that was taking over a large chunk of downtown San Jose. They put that on the shelf. The other contractor I was talking to was like, “I landed some work with a university down the street doing some multifamily housing.”

There are those pockets of the country where geographically things are struggling, but it’s the type of projects you hit on there. If you think about it, office buildings, shopping centers, malls, sports, and recreation are down, but data centers, life sciences, logistics, and transportation systems are much up. There’s a sense of a new economy and an old economy with construction at the moment. Are you seeing that at all?

It’s the big segments we see. I couldn’t agree with you more. You have to look geographically. What type of industries is the project servicing? Where and what is it financed? What is going on? Amazon, UPS, and TJ Maxx are building big centers for logistics. They call them their depots, sorting facilities, or distribution centers. There’s a multitude of different ones.

If you go out to Arizona and you look in the Phoenix area, there’s a gigantic project going on for chip manufacturing. There’s a lot going on there. In Salesforce, I don’t know how many people they cut out of their team, but they cut a lot of people from their labor force. What does that mean? Salesforce was a big user of commercial real estate. That’s open and available. You have to look at where you’re at, what the industry is, and what they’re trying to serve, and be paying attention to what the end use of those projects is before you start on them. If you’re counting on them to start or come out of the ground, those are the things you need to be paying attention to.

In your business, you work on the financial side and cashflow side of the business with your clients. What are some of the potholes or challenges that could be faced if you’re on a project and you’re not going to get paid? Are you seeing that at all?

It depends on why you’re not getting paid. It is the first thing. If the project is completely financed and everything is going smoothly on it, it’s no big deal. You might not get paid because you didn’t perform, someone else didn’t perform, or there’s an engineering flaw. Those are things that all construction clients work with normally.

We’re seeing projects that got started. Developers were ambitious. Their equity is already on the project. They already had a lot of sunk costs. They want to get it out of the ground. They’re counting on their financing to come in place to meet. When I say financing, it’s their senior credit facility. We held a live event. What I was surprised to know is I don’t think a lot of the construction community necessarily understands how a big project might be financed in terms of the capital stack. When you have a bank and the signs out front say, “Proudly financed by such and such bank,” they are only financing sometimes 65%, 70%, maybe at the most 80% of that project.

You mean the project itself when they see a sign out in front of the project.

If you’ve got a $50 million project, you have to know that that developer’s got $10 million into that in equity themselves somewhere. There might be multiple stacks. It could be $10 million or $15 million. What does that mean? If you have $10 million or $15 million and you’re a developer, you have to spend that money before the project comes out or while the project’s coming out of the ground. Before you even get to the senior credit facility, you could do a lot of work.

If you’re an early site contractor or you’re doing early underground plumbing, mechanical, or electrical, you could easily fit into that first number of equity. All of a sudden, you’re halfway out there and there’s a slowdown. Money isn’t coming off. The second payout and third payout may be delayed. That senior credit facility hasn’t been closed yet. That’s a real concern. All of a sudden, you’re being held up payment. There could be arguments, fights, and all kinds of stuff.

Someone would say, “Listen to this. Why the heck would anyone ever do that?” You have to remember that no one starts a project thinking they’re not going to get the financing. Sometimes, these deadlines and timelines are there. These are some costs that are already out. What can you do? If you’re a commercial contractor, general contractor, or sub, you can find out and you want to make sure that you get noticed, or you can ask for verification that the senior credit facility or the loan is in place or how this project is being financed. Is it a grant? Is it whatever? Make sure it’s in place.

We had a large contractor. I’m talking about a national contractor. It’s a $7 billion general contractor. Everybody would know their name. I don’t want to mention them for this but think of all the big ones. They are the general contractors that are building airports. They got many millions of dollars out of their project. They’ve got to the point where they’re stopping work because the senior credit facility isn’t in place yet.

That GC understands and knows they went at risk doing that. They made a calculated, conscious decision. They’ll get the senior credit facility ultimately closed, not the general contract, but the developer that they’re working for. They got to a stopping point where they were not comfortable going any further at risk.

That’s a large, well-capitalized, multiple billion-dollar general contractor, but the subs underneath that might not be in the same spot. If you’re in a paid-when-paid or paid-if-paid contract, you might not get paid. The general contractor can get paid either but they have a different type of risk management they can handle. You want to ask. There’s nothing wrong with asking. Is the project financing in place?

Let me ask you, Scott. What are 2 or 3 key questions I need to be asking as I’m bidding on the project to make sure that the money is there?

It’s not so much when you’re bidding on the project. It’s after you’ve won it. When you’re bidding on it, there’s probably not in place yet. When you’ve won it or in your contract, you can say something like, “I have the right to verify the financing on this overall project. How is it being financed? I have the right to ask for it. I don’t have to start work yet until there’s been proof or verification that the financing has been put in place.” The general contractors are asking that question. It’s not an unfair question to ask. It’s documented. There’s nothing wrong with asking that question. If you ask that question and you get some pushback on it, that would be a reason for concern. Otherwise, banks issue closings all the time.

You can also look at the property address and find out if there’s a note on the property already if it’s closed. Banks are always going to file their proper notifications or information in the state departments or the local townships to make sure that the property is collateralized. That’s public information. You can do your own research on that, but there’s nothing wrong with asking. You can put some things in your contract that if there’s not a senior credit facility in place or if you don’t know what the financing is, you can’t be thrown off that project for stopping work or you’re not in default for stopping work.

Let’s talk about a contractor that is in a geographic location where there is a recession. They want to ride it out. They want to make sure that they can make it through. One of the main concerns a lot of contractors have is, “I got to try and keep my guys busy. I got to retain that talent.” What are some key strategies from a cashflow perspective that you would say are essential for a contractor to implement when it comes to writing through a recession?

The first thing I would tell you is you need to know what your cashflow is for that project. What does that mean? That means have you planned out based on what your costs are for the project and based on what the schedule you’re going to try to keep, which aligns directly with what you’re asking, Eric. How am I going to keep my labor force on this job? If the labor force is on that job and the project is running, it’s no issue. They’re doing work, you’re invoicing for it, you’re getting paid, and you’re paying them. It’s a piece of cake.

To your point, if all of a sudden that project doesn’t start or go off, now you have a choice. Keep my labor force for if and when it starts again, which is at a cost to the contractor at that point, or lay them off or have another project to put them on. What’s critical in those settings, and I would make sure folks are doing now, is you have to use some cashflow tool for you to know any project you start, not only what my costs are and what I’m going to make, but how am I going to spend those costs over the actual schedule that I’m trying to maintain?

If you have a $500,000 project that has $350,000 in cost in it, how are you going to spend that $350,000 on that schedule? If you get to the four-week mark and the project stops, what does that do to your cashflow? Do you have two weeks of extra flow in there? Do you have a month of extra flow in there? You want to know those things. You can stress test your cashflow model by putting those variable factors in advance prior to you starting so that you know if that happens. That gives you that wiggle room.

How fast am I going to eat up the “contingency” that I’ve built into this? Do I have the contingency? If something does happen, you can make quick and effective decisions. If you knew that in advance and you know you only have two weeks of labor extra, you can lay people off right away versus waiting 3 or 4 weeks and make the choice. There are things you want to do. That’s the first thing.

The second thing I would do is, depending on what your business is, how big your business is, how many projects you have going on, or what other service lines you have going on, I would make sure that all your people are cross-trained across your business. Let’s say you’re in the MEP trades. If you have a residential service side or an industrial service side to your business but you also do commercial work, make sure your folks are cross-trained to be able to do the service work. Service work is not going to go away. People are always going to need that service work.

If you have a residential service side or an industrial service side to your business, but you also do commercial work, make sure your folks are cross trained to be able to do the service work. Share on X

Can you deploy another truck or crew out there to do service work versus laying them off? They can drive revenue in a different cashflow model. If you don’t have that capability yet or that’s not something you’re out of, maybe that’s something you start doing. You can keep your best talent in a scenario where something doesn’t work on a commercial side.

Let me make a couple of different points there. I want to highlight some words. The first one is discipline. When things are going well, we tend to get a little loose and easy. We tend to say, “This is great. It’s going to go on forever.” We forget the last recession and we build. We do need to be disciplined. That goes back to the first thing you were talking about with the cashflow tool.

The second one and I want to make this word clear is the flexibility with the cross-training. Flexibility is essential. If you are a mechanical contractor out there, now is the time to emphasize those special projects and service aspects of your business that can help you smooth out some of those dips that are going through with the recession. What other strategies did you have there, Scott?

The other thing I have that was critical is what not to do. What not to do to solve an issue like that is borrow new money to pay for your labor because you need to keep those people on. If a recession or something macroeconomically is triggering this type of thing, the last thing you want to do to your business is put new debt on it to solve what otherwise is a bridge. You also want to be disciplined not to use all of your cash surpluses or your retained earnings to do that because that’s the nest egg.

You might need to downsize and survive through a downturn. Move your business to a better geographical area if that’s your choice and if it looks like it’s not going to come back quickly. You have to make those decisions. Borrowing new debt in these types of environments to solve a problem that are the things I’ve personally seen put businesses out of business. They put them into one thing or in a bad situation, but that choice is what put them out of business. I’d be careful taking on new debt to solve those types of issues.

Let me address this because there’s something interesting here and I’d like to tap into your experience working with contractors. One of the biggest challenges that a lot of contractors have is not necessarily economically related. They hold onto people too long because they hope they’re going to change. They don’t get rid of people who aren’t fit in their business. Everyone struggles with that.

What you’re talking about here is a little different species of that because I feel this obligation as a construction company owner to keep my guys on because I’m impacting them and their families. How do I, as a business owner, get into the right mental space to be able to lay people off, go through that process, and not wait long to damage the business in such a way that perhaps I have a real challenge recovering?

You and I could do an entire episode on that, but where I’ll go with that is twofold. I’ll give you a quick short-term. As a business owner, your number one priority to the business is to survive no matter what. If your number one priority is to survive, you have to make tough decisions sometimes. It might mean picking some of your team members, not all of your team members. You might have to have tough conversations that you haven’t had before. That’s what you have to do in the immediate scenario.

You did make a commitment to those employees and it’s going to suck to have to let somebody go, particularly if it’s people you don’t want to let go or you wish you could keep and they didn’t do anything wrong. There’s nothing worse than that but you have to make sure that your business can survive and you can always hire those people back. That’s the first thing at that moment.

Prior to getting to that moment, as a business owner, you hear a lot of people say, “I want to get to a certain size and I’ll stay right there. It’s comfortable. We’re doing great now so I’m going to take a little bit of a break.” You have to realize, as a business owner, the hardest truth is your business is either growing or dying. There is no steady. Does that mean some businesses stay steady at $5 million or $10 million a year in annualized sales?

That doesn’t mean that they might be growing every year but they’re also losing. Whatever they gain, they lose. You have to continue to grow because those employees and your team members need to grow. They have their own goals and ambitions. If you’re thinking about it, big picture-wise, if you had grown your business and you expanded your service lines, it gets back to something you and I did, Eric, if it’s the good times, you had built a service line to handle residential or industrial service. You’d have a lot more tools available to you now to handle this problem versus cutting people.

The first thing you need to do is proactively think about these environments when you’re in the good times. Continue to grow your business, expand, bring on people and talent, and bring them up. Don’t try to control everything. You have to start to delegate tasks. You have to start to take responsibility and build good systems and processes. These are all those things you have to do proactively in the good times so that you have a lot more options available to you as a business owner in the bad. If you haven’t done those things yet, to answer your question in the most concise way, your number one responsibility for the business is to survive.

It’s tough as a human beings. When things are going well, we’re patting ourselves on the back. We’re thinking, “I must be awesome. That’s why it’s going great.” It might be that there’s a tide that’s rising. I’m one of the ships on the tide and up I go. During those times when I do have mental and emotional space to think about how I can develop my business long-term and prepare for those inevitable ups and downs, that’s the time to increase optionality by looking at how I can develop my business, both from the perspective of the processes and from the perspective of the types of projects that I’m building.

Another thing you can do in the downturn is you don’t have to be all by yourself. You don’t have to make this decision in a box. Talk to the other business owners who are your competitors, the people that you’ve fought tooth and nail with, and say, “This is tough. Maybe you’re having the same scenarios, maybe you’re not, I don’t know, but I’m going to have to let 2 or 3 people go here in the next week that I don’t necessarily want to let go of because I need to keep my business, do a good job and maintain. I want to make sure that I give them a good landing spot.”

Any other competitive business has people they would love to replace with good talent. There’s always a position. Why not reach out to them and say, “Let me help you?” They’re your competition, but they’re not. In the great world of everything else, you’re going to compete and win some. They’re going to win some. You’re going to lose. Why not help them? You’re helping your team members. You have loyalty built across a competitive nature. You don’t need that. It can work. I know it might be contrary to your thought process, but I promise that that’s not a bad strategy at all. It’s actually very good.

I know we’re competing all day, every day with our competition, but you see those relationships that folks have built over the years. As we go through these cycles, when it’s down, we think it’s going to be the end of the world forever. When it’s up, we think it’s going to be awesomeness forever. If you’re playing that long-term game, having that type of relationship with someone, there’s that reciprocation that happens. When you’re not doing well, your competition helps you in some way. At some point, when they’re not doing well, you may be there to help them. That reciprocation goes back and forth.

The human that you helped and the team member that you’re worried about, you’re not going to help them if you keep them in your company for an extra month or two, and the world comes to an end, and now you’re in a terrible spot. Think about how much you are helping. It’s like, “This isn’t the spot here at this business for you now, which isn’t your fault, but I called our competitor. They have a great spot for you that you can work at.” You have built a loyalty and affiliation that you’ve shown and proven not only to that individual but also to the rest of your team individual. You don’t have that ego. You’re going to help them even in bad times and you’re honest. That is only going to help you. I promise it’s not going to hurt.

Let’s dive into this a little bit more. One of the main issues that lots of contractors struggle with is maximizing the efficiency of their labor, even finding labor. As you’re looking at the environment and you’ve been involved in conversations with contractors, what are your perspectives? What are some best practices related to labor?

We had a live event here in Tampa. We hosted and put a panel together with our local ABC chapter. We had a private developer there building things like airports, single-tenant, and multi-tenant. We had two general contractors. Large general contractor that makes multiple billions of dollars a year. We had another small regional contract that does well in and around our city of Tampa. We had a government prime that works for the State of Florida and HUD doing FEMA projects. We had a large mechanical contractor on the panel. We decided we were going to tackle labor and construction.

Let me tell you what came out of that. It coupled with the 130 guests we had in the audience, which were made up of primary subcontractors, banks, sureties, ancillary, and other folks who would service the construction world. What came out of it is there’s an aging population. I don’t think anyone will disagree with that. The average aging construction now is older than the median. That’s going to lead to a problem.

A few things came out of that. First, we need to start telling a lot better story about the construction industry, the opportunities in it, what kinds of things you can do, where you can do them, how you can enter the construction industry, and where you can go inside of that. Second, the population that we’re trying to appeal to are those folks that are 16, 17, 18, and up to 30. They are living in a little bit different environment. The internet is out. They see things. They are visual. They want to understand the videos and comments.

You have to go to social media and not advertise your business. You have to go to social media and tell stories about your business. Show them what you’re doing. It’s not a shovel digging a ditch. It’s driving a cool tractor. What is the income associated with that? Being out, putting huge pipe in, managing a crane, and managing a crew and a leader.

You have to go to social media and tell stories about your business. Show them what you're doing. Share on X

How did someone leave high school, and within a few years, they were making X amount of dollars, and within the next several years, they were promoted to this leadership position? Now they’re making this much money and that much money. You tell a real story that someone else can see on their path so that someone coming out of high school doesn’t think college or military. There are more options than that. I’m not trying to say be open. What I’m saying is there are a lot more options.

A lot of these folks are much more conscious that college might not be for them, and not only that, but college might not be for them right now. Maybe they want to work for several years, know what they want to do, and go to college. They want to do that online or they don’t want to go somewhere else to do it. They think going to college to have fun and party is awesome, but they also realize that’s going to come at a huge price tag and they’re not going to get real benefit from it.

At the same time, this industry is way more open to hiring people without a college education, promoting them, training them, teaching them, and educating them. Why aren’t we talking about that? Those are the big things that came out of that event. Each of them talked about that in a different way and the economics, how much you can make. I don’t think people realize you can make six figures quickly and fast in the construction world.

The idea of the stories on crafting the stories and where you go to tell those stories. I’m on LinkedIn all the time. I see some contractors who are making a push to tell those stories and do so in such a way that it makes it more attractive. I was talking to a guy. It was funny because he’s like, “I was a total knucklehead in high school. I followed my girlfriend up to Sacramento. I ended up going to Sac State. I went through the CM program. I am pumped up about how my career has taken off. We’re hiring people out of Sac State who do have that college degree. They’re getting $75,000 to $80,000 out of the gate as a project engineer.”

On the labor side, there’s this wonderful high school that opened up in Sacramento. It’s the Capital College and Career Academy. What they’re doing is they’re making that re-emphasis at the high school level on the vocational arts and the vocational journey and looking to develop those high school students who can come out of high school already having some on-the-job experience with construction companies, stepping into those labor roles, and getting to the point where they could be making six figures quickly as they get their qualifications and as they move in with some of those great companies.

The other thing that came out is supporting your local STEM programs, vocational schools, and the organizations that are entering into the high schools to show what you mentioned. They’re meeting those kids where they’re at. They’re showing them what they can do. They’re educating them about it and promoting the ability to be an entrepreneur and start your own business if you’d like and what that entails.

All those organizations, trades, and groups that are supporting the drive to do that and meeting those kids where they’re at is something you should support with your dollars in your local community. You can’t complain about it nationally online. Support those things financially. Support it with your time. Go to the schools. You have to grab these folks where they’re at as they’re growing. You can’t expect them to learn it in one five-minute talk. Let it drip on them over the course of their last few years of high school as they’re coming out.

Those are the key things and that’ll help folks. There are many cool things to do. You can enter construction anywhere you want and be a laborer the whole time. You can be a project manager. You can graduate as a superintendent. You can own your own business or you can own a public company. You can go into operations and finance. The whole industry offers everything at every level.

You said something that I want to make a note about a little earlier. This idea of kids going to college. They haven’t figured it out. It’s like extended high school. They’re partying and it’s a waste of time. If we can tell that story, “You’re eighteen. You don’t know what you want to do yet. Once you go and start working for a construction company, get out into the field, and you’ll make some decent money for an eighteen-year-old.”

After several years, you think, “Construction’s for me.” If you go to college and get a CM degree plus you have field experience, when you walk onto the job site as a project engineer, you’re not going to be some dude who the foreman or the superintendents look at and say, “This is another college guy who thinks he knows everything and he doesn’t know nothing.” You’ve had some experience out in the field. That’ll be immediately apparent as you’re working with folks. It’s a wonderful thing to think about there.

I have a real story for that. I was talking to one of my buddies. His son-in-law was an Army Ranger. He was in the military. He got injured. He came out, went to Colorado State University, and got a Construction Engineering degree. He went and started working for Hensel Phelps. He met my buddy’s daughter and they’re getting married. They’re going to move back to Tampa. Eric, do you know how many jobs this guy has been offered to him by every single construction company you can imagine? Think about that.

He had four years in the military before he got hurt. Construction and engineering and right to Hensel Phelps. There’s the experience and college to a great job. He has an experience there and he is moving across the country. He’s not a job hopper. He got married. He is moving to where she lives. Beck Construction, JE Dunn, and Hensel Phelps, every single company he could get an interview with and probably get offered, and he’s going to have a great offer.

I want to go back and talk about the Capital College and Career Academy here in Sacramento. It was a hard lift for the folks here. The guy who started it all, his name is Kevin Dobson. He’s the Founder and Executive Director. He was a high school principal. He had to grind to get this charter school established in Sacramento because the teacher’s union wasn’t exactly supportive of a charter school being established.

The wonderful thing is that going back to your thought about, “Let’s not complain about the labor shortage. Let’s do something about it.” A lot of the local contractors in this area have been tremendously committed to funding and supporting the academy. That has made a difference because they’re putting their money where their mouth is, getting down at the grassroots level, and making a long-term commitment to developing this academy so that they can hopefully develop a pipeline of labor coming out of it for their companies.

It’s to solve a real problem. You have a teacher’s union that doesn’t want to support a charter school. I’m sure the teacher’s union probably has a mission to serve children and kids and take them to a better place in the world. Not only that but the more kids you teach and educate and the more your city grows, the more you’re going to need schools. Who builds the schools? Wouldn’t it be great to have a charter school full of young kids who didn’t necessarily want to go to college and wanted to get in the trades to learn how to do that so you can build the next school? It’s ironic.

The more kids you teach and educate, and the more your city grows, the more you're going to need schools. Share on X

In construction, you can’t let somebody else fix that problem. Don’t make it the teacher’s union problem or one individual’s problem. Support people. Support the initiative to treat, teach, and educate the kids. That helps the teacher’s union. Support the guy, gal, or group of people who are trying to create a charter school to meet certain kids at a place for their path. Get involved. You can pour in both places. You don’t have to choose. You can still offer help to both sides of that equation. That’s perfect for construction.

I’m on the website of that academy. I’m looking at their board of directors. They have this killer combination of union and non-union contractors. They have unions, the university, and some government entities involved. They’ve done a good job bringing together diverse people from different parts of the industry to pour into this particular academy and lay that foundation for a future flow of labor into their businesses. It’s tremendous.

That’s smart because high tide rise is all about the scenario. It doesn’t need to be a controversy at all.

We wanted to cover this idea of policies. We’re already beginning to talk about it. Again, we live in a world where we’re getting bombarded by information and political opinions. When it comes to business, we’re looking to influence and we’re impacted by policies in different states and geographies. How can a contractor be on the front foot in terms of understanding how the policies impact his or her business and how to influence those things in any way possible?

First and foremost, you have to realize that who our leaders are matters because they influence the policy. What matters most is the policies that are in place. Those who impact the policies are the people who are there to serve us. The problem that exists and particularly right now, our national government is not necessarily here to serve the people. This is my own opinion and I’m not saying every local government. We’ve gone a little too far in them serving themselves or overstepping at what they can do. Some of these policies are getting wrapped up.

How that impacts construction is you have to realize that when you make a choice as to who you want to put in place, you also have to choose what you are electing someone for what issues. If you choose certain issues to vote for or support, that’s all okay. You have to understand that the implication of that is the same individuals all have certain opinions on policies that are economic or financial. It doesn’t matter who you vote for. It’s your right. You can choose however you want to vote and under whatever circumstances you want to vote. You can’t pretend that they’re not tied together because they are. That’s first.

It doesn't matter who you vote for, it's your right. You can choose however you want to vote and under whatever circumstances you want to vote, but you can't pretend that they're not tied together because they are. Share on X

For construction, don’t get wrapped up in the national elections because those aren’t the ones that are going to impact you. If anyone who is not in construction is reading this, that goes for you. It’s your local elections that are going to impact you the most. Nationally, policies can matter. They can impact recessions, financial security, the nation’s security, and labor, but you can directly impact your local market better. You need to get involved and pay attention. You certainly need to be voting in your local elections and finding out who’s going to support the policies or who is supporting policies or ideas that are going to help you in construction.

If you don’t know who those people are, it’s important for you to figure that out. If you don’t want to do that at all, the next thing you can do is get involved with the Federal programs, become a Federal contractor, and work for the Federal government. You can bifurcate what I said and try to stay in the Federal government program. You can ride or die on a national election and Federal policies. That’s an entirely different animal. If you’re not a Federal contractor and you don’t know what you’re doing there, there’s a road to that and a hurdle to climb that you also want to try to make sure you’re aware of. That’s not a quick pivot.

COGE 263 | Recession
Recession: If you’re not a federal contractor and you don’t know what you’re doing there, there’s a road to that and a hurdle to climb that you also want to try to make sure you’re aware of. That’s not a quick pivot.

 

There are a number of different things you can do. One of the things that you have to reflect on is the market that you’re in and the people who are influencing the policies locally that will then impact you in terms of the types of projects that you can do. There’s a real sense that you’ve got to show up, stick around, and build relationships with people.

Sometimes, when it comes to policies, people are making policies. We tend to think of policies as something that is outside of the people who’ve made them. It certainly isn’t. If I can get into those relationships with people and build them over time, and perhaps it’s through your local associations or whatever the case may be, that can help me to have at least some influence on the policies that are being made that affect my business.

Let’s summarize here and wrap up. We’ve talked about recession, some of the aspects of how to influence the flow of labor, policies, and how you can get involved in impacting that as well. Let’s talk about the subcontractors. You’re an expert in terms of cashflow. If you were to give a contractor 2 or 3 takeaways in uncertain times to focus on in terms of their cashflow, what would those 2 or 3 takeaways be as we’re wrapping up the episode here, Scott?

It depends on where you’re at, what contractor you are, what geographical location, and what’s going on. If I were to come through two things, they go back to the basics. If your game is not tight, you have to tighten up your game. When your game is tight and you have access to all the information, finances, and people, you can make a lot better decisions.

What do I mean by that? You want to know what your financials are. That means, what are your numbers? What does it cost you to run your business at this revenue level? What will it cost you to run it at a certain level, higher or lower? Which people and positions are the most effective for you now that are absolutely necessary and must? You have some overlap. You’ve made some investments in certain people, revenue centers, or new sectors. Maybe they haven’t panned out yet or you’ve stretched them a little farther than you want to.

Those investments, which are perfectly fine, if they haven’t materialized yet, it might be time to look at those if you’re going to go into a downturn. Start analyzing. You want to get tight and right. If you don’t know what I’m talking about or you do know what I’m talking about, but you are like, “How do I go figure that out?” You want to make sure that your financial infrastructure is set up. You have to have great systems and processes in place to understand your numbers.

I was talking to a friend of mine. He’s got a fairly large luxury home builder here. He’s not a client. We don’t do anything in the residential market, but I was talking to him. His controller has not got his books. She’s about three months behind on his books. She was way behind on the books, which means he was way behind on the books when doing taxes in ‘21 and ‘22.

I said to him, “If you don’t get control over that and you’re not getting your numbers, your income statement, balance sheet, and “financials” that you look at every month, that’s a business owner’s report card. If you don’t care about what your grades are, what do you care about? If you can’t get those numbers and you don’t have those numbers, it’s impossible for you, as great and educated as you are, to make the best decision because you don’t have the data in front of you. You got to get that stuff in place. It’s important. Do that immediately.

COGE 263 | Recession
Recession: If you don’t care about what your grades are, then really what do you care about? And if you can’t get those numbers, and you don’t have those numbers, it’s impossible for you, as great as you are, as educated as you are, to make the best decision because you don’t have the data in front of you.

 

The second thing is I would start to look at where are your most productive service revenue lines coming from. What things macroeconomically can impact them and which ones can’t? If you’re a plumber and you have trucks with crews on and running around doing service calls, it doesn’t matter if there’s a recession or not. If someone’s toilet is clogged, they’re calling a plumber. If you are an electrician and the power goes out, boom.

You might not need to do the large private commercial construction project if you’re a plumber. That’s a part of your business. You might want to invest more dollars into the service side that you know is going to build up and support your business. You can maintain that no matter what if you’re going to invest some new dollars. Those are the kinds of decisions you want to start making.

I would start to think about where your financial relationships are. I would get your credit lines in place. I would use your access to credit and make sure you’re building relationships with your lenders. If you have debt out there now, start to build relationships with them. Get in front of them, talk about the things you’re going to need and things that you’re trying to accomplish, and start to build a good rapport. Those are the two things I would do.

Tell us a little bit more about you, Scott, and Mobilization Funding. How people can get in touch with you?

The best way to find us is on my personal LinkedIn, Mobilization Funding LinkedIn, or our YouTube channel, Mobilization Funding. We have a great podcast also called Construction MF’ers. We post those on our YouTube channel. They’re also on every other place you can find our podcast. What Mobilization Funding does, Eric, is we work with construction subcontractors, other businesses, manufacturing, and fabrication, but a strong construction.

What we do is we help commercial subcontractors execute work by analyzing their cashflow in advance on a specific project, showing them where the cashflow deficits are, and becoming a source of that capital they can use to go from the start of a project to pay for project-related expenses, including labor, materials, and equipment, to the point in which the project cashflows itself. Imagine being able to take on a job without taking the financial stress into your normal operating budget and running that job to the point where it pays or cashflows itself by borrowing from us, utilizing it where and when you need it, and paying us back as you’re paid.

Why don’t you mention your book? It’s something that people have benefited from.

I did write a book. It’s called The Big Book of Cash Flow. It is 90 pages of the basics of what you need. If you are reading some of this conversation, you’re like, “I want to know what is financial infrastructure. What is the income statement good for the balance sheet? How do I use one?” As a business owner, you got into the trades because you’re great at the trades, and you got into the business because you wanted to get into business. You never picked up the other finance side of it. That’s a critical piece.

COGE 263 | Recession
The Big Book of Cash Flow: Unleash Your Company’s Ultimate Potential for Growth and Performance

This is a great book for you. It’s going to be able to give you 95% of what you need to know. You can hire the rest. You’ll be smart. You’ll understand what you need to know about cashflow projections and what they’ll do for you. You’ll be able to understand what this statement can do and what decisions you can make off of it. More importantly, it’ll water down and give you all the answers to what things you might be afraid to ask because you feel like you should already know. Therefore, you don’t want to ask.

This book is a quick, easy-hitting read. I got great charts in there. There are great tools. All the free tools that we utilize are in that book that you can access directly from our website on our resource page. More importantly, it’s a quick, easy read that can get you the education you need and give you a good, sustainable piece to make you feel comfortable with asking questions and knowing what’s right and wrong.

What about if you’re looking to educate your project managers and project engineers on cashflow so that they get an idea of what you’re talking about? Is this a book that would be beneficial for them?

It’s perfect for anybody. It’s perfect for any business owner or anyone in any leadership. One of the most important things that are critical to construction, if we were diving all the way into finance, is making sure that the business owner, the accounting group, and the project managers are all on the same page when you’re driving a project. All the cash makes a big decision.

If your project managers, accounting team, staff, and controllers are working together on a routine basis in a meeting, that means the project manager can always communicate, “This is running ahead. This is running behind.” The finance folks can decide where and how to spend cash. You can help execute the decisions as the leader. This book is perfect for anyone from project superintendent all the way to project manager and all the way up the chain. It’s clear and easy.

The book 'The Big Book of Cash Flow' is perfect for anyone that's in project superintendent all the way to project manager and all the way up the chain. Share on X

I want to make that point because there’s a lot of griping that goes on from the field to the office when the office is making some decisions based on cashflow that the field doesn’t maybe quite understand. If they can at least have that vocabulary, maybe those gripes can be alleviated a little bit.

All those acronyms that you feel like you don’t know are in there. I told you what they are. What’s the difference between margins? What’s the difference between markup? How do you calculate each? Why should you use one versus the other? What do the controller, project manager, and owner care about? How do they all relate it? All that stuff is in that book. It’s written the way I talk. It’ll be easy to read.

Those are the best kinds of books. I read books sometimes in the 19th Century. It is funny. I talk to my son. I say, “Read your paper out loud and see if it makes sense out loud because if it doesn’t, you need to rewrite it.”

There are no big words in there that I don’t know how to say. I doubt you’ll have to grab the dictionary or the Google machine and look any of it up. I know what you’re talking about, Eric. When I read some of these books and I have to look up one word per page, it’s exhausting. I can’t skim over it because I don’t know what the word means. Sometimes, I’ve never even heard it before.

At times, that’s useful because it does expand. When it comes to business, and we’re looking to get down to the nuts so that we can move forward, simple is best. Scott, thank you for your generosity for coming back on the show. I wish you all the best.

Thank you and I appreciate it. If we helped here, please jump on our YouTube channel. Click a little subscribe for us there. We’re trying to put a lot of good work and content out there, and I’d love to connect with you guys.

That YouTube game is essential. I know my YouTube game sucks a little bit, but I’m going to encourage you to go out to Scott’s YouTube channel and click subscribe. While you’re doing that, feel free to go to mine and click subscribe too.  

There’s great content there. We’re putting in lots of great information and easy, quick answers. There are all kinds of amazing guests and webinars. You can see that whole live event I mentioned. It’ll be on our YouTube channel.

I’ve gone over to Mobilization Funding. It’s Mobilization Funding on YouTube. I’ve subscribed. Let’s get real here. Scott is at 573 subscribers. You can tell the value that he provides here on the show is worth way more than 573. Get out there and let’s get those subscribers up on his YouTube channel.

Thanks, Eric. I appreciate it. Thank you, everybody, for reading. I appreciate you giving us the time. It’s awesome to come back and welcome. I’m going to have to have you on our show now. We’ll get you the hat and the whole kit.

That’d be sweet. Get me on your podcast. I’d enjoy that. Thanks a lot.

Thanks, Eric. Take care everybody.

Thank you for tuning in to my conversation with Scott. I enjoyed that. There are lots of practical takeaways there. We’re talking about a mindset as far as your company is concerned. You have to be on the front foot. We are entrepreneurs and leaders. We’re always looking to improve the way that we run our businesses from a cashflow perspective and people perspective, and even doing our best to influence those policies on a local basis.

Feel free to check out his website and book. I like that idea that we talked about at the end where you buy the book and you have your junior people read it so that they can get a real sense of what the dynamic of cash is in your business. They can get a sense of the vocabulary involved with cash management so that when there are decisions made that influence them or impact them, they have a better understanding of those decisions. Go out there and have a great day. Feel free to give the show a rating or a review. I appreciate you reading the blog. Let’s kick some butt.

 

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About Scott Peper

COGE 263 | RecessionScott Peper co-founded Mobilization Funding in 2013. It was Scott’s vision and strategy that transitioned a series of investments into the successful business Mobilization Funding is today. Prior to Mobilization Funding, Scott spent 16 years in the medical device industry with Angio Dynamics and Stryker Orthopedics. Before entering the medical device industry, he was the founder and principal, the Wellness Zone a health and fitness company focused on individual wellness programs for executives. Scott received his Bachelor’s in Business with a concentration in Marketing and Hospitality Management from Keuka College in New York.