The next round of planning
Time to figure out how to plan for and deal with 2020. A tough assignment for just about any professional manager.
Let’s see ………….
- Could be bad
- Not so bad
- Same as last year
- Better than last year
- Extremely better than last year
Must be one of these choices.
But the “real’ results will depend on both internal and external factors that could sway the results one way or the other. So best to have a plan or two that cover where the “factors” lead you.
External Factors
ECONOMY
Nobody knows where it is headed but some can provide reasonable analysis that can get you through the next 12 months. I read a lot of financial publications with a central theme that the amount of debt accumulating simply cannot be repaid following standard accounting rules and economic history, which will in time create a credit crisis which in turn will trigger a massive recession similar to 2008. The question, however, is when.
So, the question is “Do we have to worry about a major recession in 2020?” Probably not since our economy is working quite well now with earnings able to provide debt service coverage and thus avoiding a credit crisis, we fear will cause a major recession.
On a scale of 1 to 10 with 1 being a disaster and 10 a home run I come out between 6-7 for 2020. That being the case, I would plan for at least a repeat of 2019 with a good chance to do even better.
INTEREST RATES
Interest is a major expense on your income statement that eats up a significant portion of cash flow. On the other hand, rates are low and right now there is not much reason to expect them to change in 2020. And even if they increased by 20-30 basis points, the impact would hardly be noticed.
If anything, and I have mentioned this before, I would be reviewing all note obligations to see if refinancing is possible. I recently looked over a note only two years old and discovered I could refinance for 1% less, which lowered interest expense by $200,000. Free money.
INFLATION
This is another factor that was expected to increase. But so far under control, expect for tariffs which many of you may be experiencing. Tariffs will increase inventory cost which could put you in a poor competitive position. If you can, reduce buying new and buy used until the situation clears itself. You can do the same regarding rental units.
Irrespective of tariffs, the old demand and supply still impacts costs as well as revenues. And those of you in a union environment know full well you will get an annual bump.
I have been refurbing units internally as well as buying refurb units from manufacturers. Costs are down along with an increase in customer interest in refurb units.
EMPLOYMENT
This is our fly in the ointment. It seems everybody is looking for talent with none to be found. If you can’t find people then consider outsourcing what needs to get done. Adopting a new system can also result in becoming more efficient and thus needing less people. In any event, getting more efficient by getting more out of the staff you have is a must. You must know what the techs are producing, and what truck drivers are doing.
I just attended a demo for a new system and was astounded how much better it is compared to the one purchased 15 years ago. All departments can be managed by C level folks off on one screen. You get more efficiency, better customer service, it makes you easier to do business with, speeds up the collection process, and every person on your payroll knows what is going on through their phone or tablet. How can I not convert to the new player in town?
Time to repeat one more suggestion I have made previously. Hire several recent graduates. You will become more efficient whether you like it or not, and your transition to a new system will be much faster.
Internal Factors
PLANNING
Planning for profits and cash flow from operations is a must, also keeping in mind the tax aspects of your business. I also suggest getting familiar with tax planning tips you can pass off on your customers.
I attended the AED convention last week and in talking to one member asked how business was going and what aspects seemed to be growing. The answer was “FLEET MAINTENANCE”; the fastest growing section of his business.
REVENUE
Based on what we covered so far you can expect a repeat of last year. But keep in mind that those folks with the new system using the latest technology may have a “better mousetrap” for your customer. Best to figure out what you are up against, because this issue will not go away. And remember, rental continues to become more popular as the popularity of fleet maintenance supports.
LABOR
Here MONEY AND SUPPORT “talks. Pay referral fees to employees. Kick in more money to retirement plans. Provide a bonus program when departments hit goals. Provide training for higher paying jobs. Follow a team approach to keep them interested in your company. Acknowledge hard work and achievement.
OVERHEAD
Insurance markets are very tight. Expect major increases especially in umbrella coverage. Run a tight, safe ship to avoid problems with insurance.
I know of one insurance agent who had to approach 40 companies for an umbrella policy. And still a “no go”.
Technology is getting pushed down to smaller and smaller companies. Best tell some of those new young hires to search out what competitors are doing and what you can do to attract new business. You will be surprised at what they bring you.
I work with one young lad who worked a deal and a re-deal on his phone in amount five minutes. Collected the data and sent pictures of invoices and machines. All I could think was, “why can’t everybody do that?”
The sales and use tax arena are getting NUTS. Better be right when you bill out of state or receive goods from out of state. Jim Margner, who is a real expert in our industry and made a presentation at the Conference is the guy who can provide with a plan to follow that will keep you out of trouble. I must call him at least two or three times a month to find out how to handle a transaction . Plus, with the rates being higher is some states and lower in others you may be passing up a competitive advantage if you are not using the lower rate. Jim can be reached at 630 279-2822or by email at [email protected] . Jim has prepared a memo covering your industry regarding state and local tax issues, Wayfair issues and drop-ship transactions.
SUMMARY
The business climate changes every day, and in these times every hour or every minute. You owe it to yourself and your employees to keep abreast of your markets and business practices. Benchmark your operational and close the gaps to keep competitive.
That credit crisis is out there and requires that each CEO manage with caution. Run lean and keep fixed costs down and you will be ready when it shows up.
Garry Bartecki is a CPA MBA with GB Financial Services LLC. E-mail [email protected] to contact Garry.
