Small Building Contractors Shift Gears As COVID-19 Shrinks Business

The coronavirus is hitting smaller firms in the U.S. especially hard.

With the recent launch of the Paycheck Protection Program (PPP), with $349 billion backstopped by the government to keep SMBs (and the economy) afloat, just keeping staff paid while waiting for things to return to some semblance of normalcy is a challenge.

Thomas Vessella, Sr., president and owner of Energy-One, a heating, air conditioning and oil delivery service firm based in Rhode Island and serving that state and Massachusetts, told Karen Webster that survival is top of mind.

Prior to the coronavirus, he told Webster, the company was enjoying the tailwinds of a construction boom, with an abundance of commercial and residential projects.

“When the coronavirus hit, I honestly didn’t take it that seriously at first,” Vessella told Webster. “There was no impact whatsoever to our business. And then within weeks, we started to see things change rapidly.”

By way of example, he said that Energy-One had projects underway, with multiple individuals on-site, that had to be shut down as contractors and owners increasingly took precautions for social distancing. He said those measures led to an immediate layoff of at least some staffers, and a shifting around of workers to other projects that require fewer individuals to be there.

He said, too, that the retail fuel business is at least somewhat insulated from the impact of the virus, as people need to be able to heat their homes, of course, and Energy-One’s drivers rarely come face-to-face with business owners or homeowners.

“I’ve been very blessed. I think we have a pretty balanced portfolio of business, so to speak, which really helps us to get through this tough time,” Vessella told Webster.

For now, projects will likely continue to be put on hold, as homeowners may shy away from committing capital to new projects, and may want to step back as a recession takes root and re-establish their savings.  Some projects may never see the light of day, as – at least for some consumers – a Depression-era mentality might set in.

On the other side of the pandemic, Vessella said that as the green light shines for projects currently delayed, owners and contractors will be looking for what he termed “immediate resolution and resumption of these projects.”

There may be disputes, too, over which projects get priority. When projects do re-commence, when the switch is flipped, he said, there will be staffing pressure.

The construction trade is marked by what he said was a landscape of “zero unemployment,” with fierce competition for labor.  There will be a lot of overtime, too, and firms like Energy-One will eventually have to take on the additional expense.

But those pressures are a ways off, and there still remains a backlog for payments due to Energy-One for work already performed.

As Vessella noted, “I don’t get paid on the spot. I’m not a retailer – and I don’t get paid with a credit card at the end of the transaction.”

He noted that the typical billing cycle has stretched out over 30 days. The company is not currently looking at tapping into government assistance, but would not rule out the possibility that the firm may need to take advantage of those offerings at some point in the future.

Competitive Advantage

Looking at the contracting industry as a whole, payment terms are likely to get stricter.

“There was a time where we didn’t even need a piece of paper,” Vessella told Webster. “We just did a handshake and we pretty much knew that the individual or the organization was going to pay us. And then as time has gone by, we’ve kind of gotten tougher and tougher, because everyone has the best of intentions, but when the chips are down, it’s every man for himself.”

Many contractors will demand payment well inside of the 30-day terms that were previously (pre-pandemic) the norm.

For businesses the size of Energy-One and certainly larger, Vessella added, there is too much exposure and too much capital that needs to be accounted for.

That’s true of small businesses across all verticals, he said, and while the last decade was a rosy one for SMBs, the expectations that everything was set to continue into 2020 (as PYMNTS found in its recent Main Street surveys) have been soundly dashed.

Vessella recounted that many of his acquaintances have said they may be out of cash in a matter of weeks.

To maintain a competitive advantage in an industry where the jockeying for jobs might be likened to trench warfare, the competitive advantage will go to the companies that are financially strong.

Smaller companies will be less adept at navigating current operating and cash flow pressures. Some owners may be forced to sell their businesses, which means relatively stronger firms like Vessella’s will be able to make acquisitions.

“We’re always managing the bottom line, and somehow we’ve got to figure out how to keep money in the business so that if the rainy day comes, we’re prepared,” he told Webster.