Contractor Downturn Preparation
All contractors should have a B Plan for their contractor downturn preparation.
As regular readers know, I’ve said that we don’t think this downturn is going to hit IT Contractors hard but it’s just possible that I may turn out to be wrong.
If that’s the case, then it is worthwhile giving contractors some advice, especially those that have never seen a downturn, what they should do to prepare for it.
The most crucial thing is to have some cash.
We’ve advised in the past that contractors should not be fully invested in shares or property or whatever.
They should always have a cash pile. This should be able to see them through at the very minimum six months, but preferably a year.
Problem of Declining Assets
One of the problems that contractors have is that, just when they need the money that they have invested most, that is usually the time when those assets are declining most sharply.
One moment it looks good. You have a well paid contract. You have property assets as well. They are rising in price and you check your rising share prices every Saturday to calculate your total wealth.
Then, in a short space of time, you are out of work with not much chance of finding any. You are finding it difficult to pay the mortgage on your spare property(ies). Also, the shares that were rising inexhorably before are now plunging to near worthlessness.
You are having to sell your shares at knockdown prices just to live and to service your property loans.
Money Working for You
It is always tempting to have all of your money working for you. However, unless you have cash which can tide you through the bad times you will be forced to sell those assets at those knockdown prices rather than riding out the downturn and the Stock Market fall and waiting for the market to rise again to greater heights than before.
It’s happened to me more than once.
Stay In Work
The other thing to do is to make sure that you stay in work, if you can.
If the market turns bad, forget about taking that round the world trip between contracts.
Take any renewal on any terms.
You can always look for something else, and if it comes around you can pack the other contract in.
Even if you are unhappy with no rise in rates or even a cut, it is far superior than to be out of work and first of all using up all your spare cash and then selling your dwindling assets.
Proactive in Getting Contract Renewal
Contractors don’t tend to be proactive in terms of trying to make sure they get renewed, beyond trying to do a good job.
If there are 10 contractors at your client site and you hear that they are only going to renew 6 of them, try your best to make sure that it is you, even if you have to suggest a rate cut yourself.
I often used to find that when they were looking to save money by lopping off contractors, they often just lopped the more expensive ones willy nilly.
It would be a good idea to find out where you are on the expensive scale and then offer to chop a bit off.
If you’re really good they might keep you anyway, but if you are like most of us you need to look for some way of differentiating you from the rest and that may need to be creating a cost differential.
Of course, another good way of getting renewed is sucking up to the boss. They don’t usually get rid of people they like.
However, you already do this or don’t do this already and don’t need any advice from me on it.
B-Plan for Contractor Downturn Preparation
We are seeing that some of the world’s top banks and insurance companies hadn’t pencilled in a B-Plan for when the market starts falling, as it does every so often.
IT Contractors should ask themselves if they have enough resources to go a year out of work WITHOUT selling any shares or property assets.
If they haven’t then they should look to make sure that they do either by stopping investing new money in those kind of assets, or by thinking about selling some of those assets now.
The market may turn up and you lose out.
However, if the market continues to fall you’ll have lost your safety net.
Hopefully this scenario isn’t going to happen in this downturn but it is as well to have this kind of B-Plan in place – just in case.
Your contractor downturn preparation should be done now.
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