Garry Bartecki Changing landscape
And that is the problem. Inflation or no inflation. GDP growth or inadequate GDP growth. Job claims that help and worker shortfall that does not. Interest rates too high or not high enough. Consumer spending to slow because of increasing personal debt balances. Just what are economic factors telling us that provide comfort because you feel the “conclusions” our “guesses” are reasonable?
As you know I read many economic reports and follow the markets closely to get a feel for the industries I follow. One of those is drafted by John Mauldin who I read religiously every Friday evening. It is a free publication, prepared for anybody who needs to get a feel for what is going on in the economy, which I hope then will assist with your ability to make both personal and business decisions. John’s February 17, 2024, letter is titled CHOOSE YOUR OWN ECONOMY, primarily to explain the complexities in today’s economic environment whereby economists are having a hard time deciding what data sets to select to be able to produce a meaningful forecast, which is almost impossible to do. In short, recent forecasts have not been close and thus leave us hanging from a planning perspective.
I tell myself there must be a report that works better than most that explains where we are heading, and I find the CB Leading Economic Index dated February 24. The LEI is made up of several indicators that anticipate turning points in the business cycle, which then in turn can anticipate where the economy is headed. On average, there are usually 10.6 months between a peak and a recession. This report has been in place for many years with the last peak in 2021 and we are 12.8% off the 21 peak, which puts us 25 months off from the 21 peak without a recession. With 10.6 months being the average for a recession to follow a peak, 25 months from the last peak in 21 makes me think we are closer to a recession than we think.
POINT #1 for this month is to plan thinking there is trouble on the way.
The next issue I found interesting this month is the reshoring movement to bring more manufacturing back to the US and the rest of North America. GOOD NEWS for lift truck dealers because these shops will require lift trucks for both the manufacturing and warehousing of materials or finished products.
POINT #2 for this month is to research the possibility of who may be coming into your territory to do this work. I would ask the sales team to question customers as well as OEMs about any activity coming your way. City officials would normally have leads related to permits or any approval process required to do the work in that City. Contractors may also have leads if properties need to be upgraded for a new tenant.
Another important issue arising is the use of AI to better provide services and products for less cost than those not using AI. This topic was all over the February/March Forbes talk about AI and robots to do work for less cost compared to current methods being used. The important point is that larger firms are spending to accomplish this goal to better compete with firms that are not. Usually, a smaller firm has an advantage cost-wise. That may not be true any longer. AI is also being used to close the union versus non-union gap from a cost standpoint.
POINT #3 for this month is to decide if your major customers are at risk because another major dealer can now compete on a product and service basis. After all, they are now more efficient and can reduce costs. I see this as a major threat for many dealers who do not have the time or funding available to produce AI to reduce costs and improve customer service. This is happening NOW and should be considered when you ponder what your company may be worth a year from now.
There is, however, some good news that could help you mitigate these problems. I have a couple of sale deals working and in reviewing the M&A markets I see that Private Equity firms are moving into situations where they want to keep investments longer to set up platform companies and then acquire add-ons to grow the operation and increase the value to produce a healthy ROI. Sellers could sell 100% and be paid off. Or they could leave a piece of the deal and play the growth game for bigger returns when the deal is finally turned over. Or dealers with the financial ability could become a platform, take on add-ons, and sell to a PE firm. There are many options available. A shareholder could take a lifestyle approach and take as much out every year as possible. Or take an investment approach to grow the company and increase overall wealth.
POINT #4 for this month is to spend some time to see how you fit into this CHANGING LANDSCAPE. Put in the time, effort, and funding to protect your investment or invest to grow wealth. There appears to be plenty of opportunity coming down the line stemming from the government programs and reshoring efforts being made by manufacturers to reduce costs. This potential business, however, will go to the most professional firms, with high levels of customer service and competitive cost, which may not be one of the smaller dealers in town.
A lot to think about.
About the Columnist:
Garry Bartecki is a CPA MBA with GB Financial Services LLC and a Wholesaler columnist since August 1993. E-mail [email protected] to contact Garry.
