Preparing for a Downturn
It’s time to start thinking about preparing for a downturn in the market.
There is a possibility that we are going to see a downturn in the next few years. It has been 9 years since the last downturn commenced. There’s usually a downturn once a decade.
Contractors never seem to prepare for downturns. They are never expecting them.
We document here the problems that IT Contractors got into in the last couple of downturns. So we thought we would pool that information and offer some advice.
Check your agency‘s financial health
One huge mistake that IT Contractors made in the 2002 downturn was that they took contracts through agencies that went bust leaving them with debts of thousands and sometimes tens of thousands of pounds.
There was even one guy who was owed £48,000 by an agency that went under.
I know some of you are thinking that you wouldn‘t let it get that far. However, agencies are very plausible when in financial trouble blaming it on a variety of reasons. They reassure the contractor that the money will be coming soon.
Contractors don‘t want to upset the applecart (and the agency) by dumping them as soon as they have breached their contracts. However, this is a mistake.
You should check your agency‘s balance sheet before taking a contract. If you don‘t know how to read them or how to spot the red flags then send a copy of their last accounts to us.
In the last downturn we warned contractors about two agencies that subsequently went under.
We even gave nine months advance notice on one and a year on the other that they were in dire straits. However, unfortunately, not all IT Contractors read ITContractor.com.
Stop spending on big ticket items
This is no time to be spending on big ticket items like flash cars, fancy new houses or exotic holidays abroad. This is time to batten down the hatches and to pile up enough cash so that you can last a year without work.
IT Contractors have been pretty lucky this time around as this has been a downturn which has been slow to hit us giving most of us preparation time – unlike other downturns.
Pay your contractor tax
It might be a good idea to pay your tax as soon as possible.
The last thing you want is to have HMRC amongst the creditors chasing you.
Peparing for a Downturn – Pay down any large debts
If you have a big mortgage, then why not pay some of it off while you can. Bring it down to more manageable levels in case you are stuck for cash when out of work.
Look for any other debts that you can pay off or pay down a bit.
Stop your partner spending freely
Being the partner of an IT Contractor can be quite a good lifestyle and sometimes the partners get used to living it up and spending freely.
There‘s no point in you battening down the hatches in preparation for a downturn whilst your partner is spending freely.
Have a talk with your partner to tell him or her about the dangers that may lie ahead. Get their buy in for cutting back on spending for a while at least till the scare is over.
So many IT Contractors, male and female, lose their partners when the cash runs out and bills replaced it.
Preparing for a Downturn – Get A Contract Renewal
The most important thing is to be in work during a downturn.
You can do this in several ways.
You can work harder and impress more. They seldom lay off all their contractors in a downturn. If they have 10 contractors then typically they might keep the best six. Make sure you are one of them.
You can do this by hard work and by making sure that you keep in with whoever is responsible for making the decision on who stays on.
You could even take them out for a meal or to the pub.
I know that this is something that IT Contractors might turn their noses up at but he or she is your client after all and it is very usual for people to take their clients out to keep them sweet.
Your agency does it.
Be Flexible on IT Contract Rates
As an IT contractor I was a very good negotiator on rates.
I consistently got better deals than other contractors at renewal time. I consistently took a bit more from both the client and the agency each time I renewed.
Indeed at one company where they only gave three month renewals my agency told me that the client insisted on a six month contract for me. The client ‘didn‘t want to go through this every three months’.
However, often when they are lopping contractors off during a downturn they often just chop off the most expensive ones. I was usually one of those.
This meant that I normally had non-earning spells on the bench during downturns. This ate away at the cash that I made during good times.
My brother, on the other hand, always had rates that were slightly below the market rates. He was always in work, even during downturns.
In prreparing for a downturn make sure that your rate is competitive for the time when they want to make cost cuts.
Be nice to the permies
The permies have access to the people making the decisions on which contractors get kept on and who don‘t – and they often socialise with them. So you don‘t want permies putting in bad words for you.
I remember losing one contract because I used to tease the permie who sat beside me.
It was only banter but he was a bit serious and didn‘t see it that way.
Be always available for work
Most IT Contractors when they get a contract settle down there and don‘t even think about looking for work till a couple of weeks or so before the end of the contract.
They get too wrapped up in the work of the client and forget that they are working for themselves and that keeping themselves in lucrative employment is the main priority.
However, you should be always available.
You never know when a real humdinger of a contract comes up either in terms of rates or in terms of location that suits you down to the ground.
Even if this pearl of a contract comes up whilst you are in mid-contract elsewhere, there is always a way out of any contract.
I remember one Aussie contractor I worked with who wanted to take a contract in Paris which started within two weeks but who was told that he would have to work his full notice telling the boss ‘there‘s always ways to get out of a contract. I could stand up on the desk and I could piss on your face’.
He was gone before I even arrived for work that day.
Keep in touch with your best friend
And who is your best friend as an IT Contractor?
It is, of course, your accountant.
If you are already out of work and starting to struggle, keep in touch with your accountant. There are always around anything and your accountant can guide you as to the best route to take. Make it sooner rather than later to contact them.
Many‘s a time I‘ve thought I‘ve been up sh*t creek during a period on the bench in a downturn only to be reassured by my accountant who always came up with a solution. ‘Why did you leave it so long without calling me’ he would always say.
So, to sum up, don‘t leave it till you are told that your contract won‘t be getting renewed before you start to take action.
Start making a survival plan now.
The next downturn will come as a surpise to most contractors. It will come as a susrpise to you too – but make sure that you are prepared for it when it happens.
Preparing for a downturn in the contract market is what all wise contractors should do.
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