How to Prepare for a Recession in Construction

By Lynn Pearcey, MBA, Copywriter, AIA Contract Documents

October 13, 2023

Table of Contents

  • Introduction
  • Build up Cash Reserves
  • Deal with Your Current Projects
  • Constantly Manage Costs
  • Value Your Staff
  • Conduct Regular Reviews
  • Conclusion



Recession. Just saying the word brings chills to the spines of economists, households, and business owners alike. There’s no getting around it: a recession is the last thing anyone wants to deal with as it has ramifications that can take years, sometimes lifetimes, to recover from. But here’s the reality of it all: recessions are a part of the economic world, and at some point, every person will have to live and find their way through one … and that includes people who own construction firms.

Navigating a recession is challenging, but here are a few tips to help you prepare for the challenge and position you for success once it ends.

Build up Cash Reserves

Cash reserves, often called the rainy-day fund, can be handy tools during a recession. Sure, your business needs money to grow, and by all means, you don’t want to stifle growth. But on the other hand, you need to protect your investment if the economy goes haywire. A good rule of thumb is to save 5-8% of the profits for every project completed. This approach will ensure you can survive and, more importantly, come out thriving once the recession ends.

Deal with your Current Projects

Backlogs are part of any construction operation, but what happens when the backlog goes away? This is what most construction entities face as clients are going through the same dark economic days they’re experiencing. As such, projects that were scheduled to begin months down the road are put on an indefinite hold. Instead of depending on backlogs, begin aggressively diversifying your portfolio of services. These multiple income streams will pay huge dividends during the recession and position you for even more success once the dark economic days are over.

Constantly Manage Costs

Make cost management an essential part of your daily operations. If you wait until a recession hits, you’ve waited too late. Constantly revisit your costs on every project down to the last penny. This way, you’ll have a firm handle on what you can afford and position your firm to build a sustainable financial model that can handle the rigors of a recession.

Value Your Staff

Outside of recession, the most feared word in any workplace is layoffs. Layoffs mean the company can’t support the financial demands of the workforce, and they’re never easy. Unfortunately, staff reductions are part of a recession. Firms sometimes are forced to release some of their top-tier talents. Treating them well while they’re in your employ will soothe the pain of being forced to lay them off should the financial burden become too much to support. More importantly, how you treat them could bring them back into the fold once the economy recovers.

Conduct Regular Reviews

There are unnecessary portions of every business, and conducting regular reviews to uncover them makes good sense. These are areas where cost savings go to die. But here’s the good news: you can give them life if you pay close attention to the details. With that, assemble leaders of your departments, even if that leader is only you, and comb through the operation to find which hidden costs you can uncover that will breathe life into your business during a recession.


Recessions are a part of the business cycle and they’re hard to manage, but they don’t always have to end as disaster. Taking the necessary steps before the dark economic days come will ensure that you survive once they are over. Build your business smartly by holding on to portions of your profits and instead of relying on future projects, focus intensely on what’s in front of your firm. Always manage costs and value your staff because they are the true drivers of your business. Lastly, review all facets of your operations to make sure you’re at your peak financial strength. Remember, recessions are challenging, but getting through one doesn’t have to be.

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AIA Contract Documents has provided this article for general informational purposes only. The information provided is not legal opinion or legal advice and does not create an attorney-client relationship of any kind. This article is also not intended to provide guidance as to how project parties should interpret their specific contracts or resolve contract disputes, as those decisions will need to be made in consultation with legal counsel, insurance counsel, and other professionals, and based upon a multitude of factors.