What is right around the corner? 2012 is, which means it’s time to update your thinking about a business plan for at least the first quarter of 2012. I would have normally said “budget next year,” but in this environment if you can work on 90 days at a time, you are probably better off and will have a better handle on what needs to be adjusted over the next 30 days. Needless to say, please don’t ignore the balance of 2011 because you need a strong finish if you wish to start 2012 on an even keel.
Last month we noted 2012 is likely to be soft in terms of GDP growth, at +/- two percent. My friend Eli Lustgarten, who participates in my annual CFO Conference, used his updated market stats to arrive at the +/- 2 percent conclusion. Regarding specific markets, it looks like auto, trucks, machine tools, fluid power and construction will all be down in 2012 vs. 2011, and we know 2011 was nothing to write home about.
What was most interesting about Eli’s discussion was how much of the price increases for just about everything is more related to government policy and intervention. As a result, many buyers bought in 2011 to avoid price increases and to take advantage of the Bonus Depreciation allowing 100 percent, which increased manufacturing profits in 2011, which may not be repeated in 2012.
As in turns out, Bonus Deprecation is again on the table to be extended into 2012, and I would guess it is more likely than not it will be carried over into 2012. Be that as it may, I would still have my sales staff pushing both the Bonus and Section 179 tax benefits to potential customers for inventory you can get to them by December 31, 2011. And just so you know, both Bonus and Section 179 are scheduled to be reduced in 2012 to 50 percent Bonus (still not bad) and $125,000, respectively.
On the bright side of this economic equation is what Eli reported about trucking and rail car activity. It has been better than expected, and I would assume if companies are buying trucks and rail cars they have something to move, which require lift trucks to move them. Conversely, what we also see is some areas are hot and some very weak, meaning you need assess your markets before making monetary decisions that may not have the potential to produce the results you are looking for. My suggestion would be to stick to the three month budget process to insure you stay on top of actual to planned operating results.
So it looks like upper single digit (at best) is what you can expect for 2012, and if you follow the Al Bates School of Distributor Theory you understand total personnel costs cannot be allowed to increase over the top line growth percentage. At the same time, you realize you need to get all the business you can in your territory and I have to say the articles by John Walker and Dave Kahle in the November issue provide a lot of opportunity to achieve that goal.
Since we are on the topic of new revenue sources, getting your share of F&I revenues should be on your list of things to explore if you are not doing so already. There is no doubt that customers like “one stop shopping,” and being able to get funding as part of the equipment sale produces that result. You probably have some manufacturer financing available, but it is also a plus to have some others on your side of the table if you need them. While this may sound like a reasonable idea, you may not have staff time to deal with it. If that is the case, you should investigate DealerBahn.com, which is a virtual F&I site allowing you to search for funding sources or terms you need to close a deal. What‘s great about it is the founder financed your industry for many years and you get a person that represents the “dealer” in the transaction.
In terms of financing, in my way of thinking the financing model for financing rental fleet and equipment purchases is a little bit broke because it is tough to support the debt service of an equipment purchase in this type of economy. You just can’t make enough to support the purchase decision. Consequently, finding new ways to support a purchase has to be addressed by both the manufacturers and dealers. A recent seminar I attended about leasing offered solutions with the creative payment schedules available: skips, step payments, fixed residuals, FMV deals and others all of which helped address a potential buyers concerns regarding debt service commitments.
So there you have it: no more than a five percent revenue bump for 2012, plan in 90 day segments and no more than a 4.5 percent bump in personnel cost. Follow John Walker’s advice to work the high margin segments of your business, follow Dave Kahle’s methods for prospecting, examine your F&I function and keep the 2011 tax benefits in front of your customers.
Garry Bartecki is a CPA MBA with GB Financial Services LLC. You may contact him by e-mailing firstname.lastname@example.org.