How much powder do you keep dry, and for how long? That is the question. I don’t envy any C level executive these days because it is so crazy out there that the normal C level executive cannot possibly think they can make business decisions with confidence. There have to be a ton of sleepless nights that go with this territory.
Almost every major business/industry/economic issue effecting business seems to be up in the air, as every business expert makes a statement that is 180 degrees opposite from what you heard 15 minutes earlier. We need the daily results to smooth out so we can get a feel for the industry trends important to you.
I expect most readers are employees of independent companies and thus subject to restrictions associated with independent ownership. These type of companies only get one or two chances at the financing well before they cut off completely, and you probably used one of those up already over the last couple of years. Therefore, one needs to be careful going forward.
Most of your management teams consist of the CEO, COO (maybe), CFO, sales manager, rental manager, parts manager and service manager.
In terms of the economy, business may be improving. The time will come when the department heads start saying they cannot carry on like they have been and need more resources to do the job. You probably heard that already.
If you partner with a primary vendor, you are also getting pressure to step up your game and use some of that dry powder you accumulated through the last 18 months. You also start hearing talk about dealer consolidation, where you could be the buyer or the seller. Who knows, you should probably take a look at any deal that comes your way.
The sales manager will come up with a sales plan that will add to the inventory.
The parts manager is having trouble getting parts and may suggest buying a little extra just in case.
The service manager is complaining he/she does not have enough techs to do the work. Where did all those guys go we laid off?
The rental manager is running at acceptable utilization rates and is getting requests to sell his used units, and with the market heating up he would like to shore up the fleet.
And after checking current transportation costs you know you have to get more just to break even.
This is what the C level folks get paid for: To take all this data and come up with a plan for the next day, week, month and year, and years to come. Hey, nothing to it. There is only one problem. No matter how much effort goes into the planning the projected results they will only be good for the next 30 days because of changing economic conditions such as gas prices, interest rates, product costs, inflation, value of the dollar, employment stats, benefit costs, the national debt, expected tax increases and world events.
The C level has to keep their flexibility and capital base intact, and close to the vest. Doing anything based on annual sales budgets or expected economic results in my mind is still not in the cards, and thus making investments requiring pay-back based on long term expectations should be avoided until we all have a better handle on what is going on.
So what is the best way to keep the program close to the vest? I have to say that I agree with my fellow columnist John Walker. Concentrate limited resources in parts, service and the rental business. My sales would consist of selling off select rental units and replacing my rental units with the hot items. It would make sure I collect for my transportation and insurance costs. It means reviewing all rental rates to reflect market conditions. There is probably no reason you can’t increase rental rates 10 percent or more.
Service work also needs a review in terms of tech rates. Need to raise them? Then do it. But also make sure you track the time and dollar utilization of each tech to maximize profits.
The parts department needs your attention as well. Check the pricing and inventory levels. Know what is going on every day.
The sales department bothers me because I don’t have the comfort level to invest in inventory beyond that 30-45 day window. If I bet wrong, I wind up in trouble again. What it comes down to is the sales department offers up the most risk based on current conditions. And I have to think customers are thinking the same way and that long-term rentals with maintenance may not be as lucrative as they once were.
The message here is to keep your investments on a short leash to avoid getting caught in a business downturn not of your making.
Garry Bartecki is a CPA MBA with GB Financial Services LLC. You may contact him by e-mailing firstname.lastname@example.org.