Garry Bartecki Much needed plans for 2022
There is little doubt that 2022 is going to be a handful to deal with. David Baiocchi laid it all out in last month’s issue and every bit of what he said is going to take place in some form in 2022 and even 2023.
To make matter worse, from the time David’s article appeared in MHW we have a new highly contagious COVID-19 strain to deal with which could put you back six or nine months, which in turn could offset some of the changes you made to your business to get back on track to a more profitable 2022. Not only is the new Covid strain a problem but when you add in the supply chain issues that continue to plague us there seem to be more roadblocks in front of us than pathways to profitability and cash flow.
And just so you know, Dean informed me I had the cover story for January and the topic should cover what dealers will face in 2022 to the best of my ability. I said that would not be a problem. The next day, however, I received a copy of David’s article. Needless to say, I am thinking David covered most of what to expect in 2022, leaving me to follow up where he left off which in my mind is a tough thing to do. So, I did my homework and am taking a shot at projecting what roadblocks you will face in 22 along with ideas on how to turn problems into opportunities. Hopefully, I will provide you with some paths to explore to improve sales, profits, and cash flow.
So, let us get going.
First of all, let us stop talking about 2019. I keep hearing people say they wish they could get back to their 2019 operating results. Well, FORGET IT! It is not going to happen because too much has changed in your business world that will not permit a return to the past. If you want to understand what I am talking about go back and read David’s article and then tell me how you would use your 2019 business strategy to correct your problems and put you back at 2019 operating results. Not going to happen.
Equipment and parts are somewhere on a boat or on a truck (if you are lucky). A recent article written by a 35-year truck driver states that non-union drivers who get paid per load or some other metric will not go to the ports because they wind up losing money on the deal. His conclusion was that this condition will continue for years to come. So do not expect to replenish your new unit inventory any time soon.
The labor problem also seems to continue even though there are plenty of jobs available. People want to work from home. People want to avoid coming in contact with the virus. People want more money for what they do. All these factors place you in a tough position.
And then we have inflation to deal with, which many of you have not had the pleasure of dealing with the negative impact of inflation. Your inventory and parts cost increase. Your other expenses increase. Payroll increases because employees need to cover the inflationary cost increases.
How do you plan for these scenarios and still have adequate capital to stay afloat? That is the question to which every one of you will have a different answer, depending on how much capital you have available, the markets you are in and the customer base you do business with. Quite frankly, you are starting with a clean slate when you plan out 22 because all the variables are nothing like what you faced in the past with fewer solutions and resources available to make meaningful changes.
If I were sitting in your office, I would suggest using a zero-base budgeting approach to attempt to zero in on areas where the spend is too high or the returns too low. There is little doubt that technology will be part of this correction even though part of the problem is to figure out which technology to adopt. But no matter what the technology has to provide benefits and support to customers as well as your company. Otherwise, you are wasting your money.
To start on a budget, I suggest you make use of the Profit Planning Model found in the annual MHEDA DiSC report. This tool provides methods to determine RETURN ON ASSETS and RETURN ON NET WORTH. The formula covers both your balance sheet and income statement activity, making it easy to spot what activity or investments are causing the ROA or RONW to move to the better or worse.
To start with I would not use your 2019 operating results as a starting point for your budgets. I would use that zero-based approach where you build up costs from the bottom up using a method where you eliminate unnecessary costs or excessive costs. But no matter how you look at it the goal is to arrive at a plan that allows you to do more with less and more efficiently with the dollars you spend. If you cannot arrive at this goal, I believe you will find it hard to compete in your markets because a competitor has produced a new strategic plan that allows him/her to put forth more competitive pricing than you can. This competitor will have a good handle on customer needs and how to fill them, be able to notify customers of potential problems, use fewer people to do more work, and market in a way to attract new customers.
Let us face it, the cheapest way to reduce cost is to become more productive. Know what your employees are doing, have employees accountable for the work they perform. Find ways to reduce the time to perform tasks. This goes for your employees and the employees of vendors that supply goods and services. Part of this solution may require outsourcing some activities. Or bring in part-time college folks who are comfortable working with your modern technology.
One unusual approach to consider is creating an inside sales operation. Do you know why you want to do this? It is because your normal outside sales meetings are going to decline in number because people you wish to speak with are working out of the office. Working from home has educated buyers that they can get what they need without meeting with salespeople. And I can guarantee that if you adopted this process, you would be the only one doing it. In the end, you may decide you need fewer outside sales folks.
One way to get ahead of the game is to have control of all your equipment. Know where it is and what it is going and if there are problems needing attention. Telematics on your units and those in use by customers will address this need for information.
A process to track inside and outside techs would accomplish a similar result. Where are they and what are they doing. This approach is being adopted by the construction industry with very meaningful results.
So, in the end, you are doing more with fewer people and attending to customer needs at a higher level. And as sales growth is concerned gaining customer trust and finding ways to encourage repeat business with your company will find you retaining customers longer which altogether is a cheap way to increase business compared to trying to find new customers.
I also want to mention one comment you hear about the auto industry. We also come around to the fact that what happens in the auto industry will eventually wind up as part of the lift truck business. A recent interview with a CarGuru stated that new car prices are up 20+% and used cars up 30+% with the end result being that potential buyers are sitting on the side, keeping their current equipment longer and waiting to get a price they are more comfortable with. Guess what? You will experience a comparable situation. But it could be a benefit if you can provide better service for the customer units, supply used units out of your rental fleet to those in need, suggest telematics for customer-owned units have a good knowledge of the used market to assist with moving customer units out when the time is right. As I have mentioned in the past, refurbing used units in your short-term rental fleet and making them available for sale would have a nice impact on margins.
So here we are dealing with a number of “new” issues we have to learn how to operate under to turn a meaningful profit. Getting more productive and using technology is necessary to achieve this profitable result. But there is one last issue to deal with and that is inflation.
It is no secret that inflation is with us and probably here to stay. As of November 2021, there is a 6.2% increase in the consumer price index compared to a year ago. Tough on your business costs and your pricing strategy. There are three issues a business owner has to deal with regarding inflation. First are the interest rate costs. The second is managing your gross margin to expected results. The third is managing Labor Costs. Three solutions to these problems are:
Move loans with variable rates to a fixed rate while the rates a still low. After one or two rate hikes this move may not be available.
Understand your margins in real-time. Do the work to get this data regarding both the balance sheet and income statement. Your operating system should do this for you.
Consider outsourcing labor to become more efficient and have lower-cost obligations for insurance and other employee-related costs.
This new COVID-19 strain could throw a monkey wrench into your plans for 2022. But no matter what the eventual goal has to be to become more productive and aggressive in addressing customer needs.
2022….HERE WE COME!
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
