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What’s the Plan?
Garry Bartecki
Garry Bartecki

I assume you have one….a plan that is. A plan that deals with all the variables now facing every material handling dealer in the country.

I guess stage one of the plan is to finish up 2013, taking into account your tax and cash positions. Again I assume you know where you stand for the year end. If you don’t, changing that situation for 2014 should be part of your plan…..a big PART of the plan.

I read a lot, especially about economic issues. Sometimes that is good and sometimes bad. Currently it is bad because for every article I find telling me the economy is fine I find two that tell me we are moving ahead at a snail’s pace and will remain so for some time to come. So when dealers or bankers ask me what I am expecting for next year it turns into a tough question to answer.

One of the articles I printed out was in Forbes (Nov 18 issue). Forbes collaborated with Zurich on a survey of the risk factors dealers should associate with their growth strategy. The risks considered were:

Operational risk

Financial risk

Strategic risk

Technology risk

Regulation/Compliance risk

These make sense to me and I am sure you could add a few depending on your personal situation.

If you are thinking you are in one of the hot spots, such as the energy fields you may be doing just fine thinking you are above this risk assessment nonsense. Think again, because whether you are flying high or just marking time you both have risks to consider. They may not be the same risks, but the risks are there requiring your attention when planning 2014.

If your business is still on the slow side you can anticipate some equipment cost and operating cost increases, not to mention personnel costs. On the pricing side you are in a bind because there is not a lot you can do because of the competitive market you are in. In the end both gross margins and net profit margins will shrink unless you take steps to protect your profits.

If your territory is providing above average opportunities you have the risk of over anticipating your profit potentials or financing capability, thus facing a cash shortage if the market turns on you unexpectedly. A company in your position may make decisions without properly considering risk and wind up making a costly decision.

Drilling down a bit further some of the risks are what happens with the Economy, energy prices, healthcare costs, the global economy, a new tax bill, interest rates and consumer spending. Again, please feel free you add to this list.

What was really interesting in the report was how the executives that participated graded their company’s ability to deal with risk. They gave themselves pretty high marks along these lines. But upon further analysis it became apparent that these same companies had problems understanding the sources of risk and how to mitigate risk. In other words, more attention needs to be spent on this area if management hopes to avoid financial and operational mishaps.

Some of the growth strategies being embarked on by the participating companies are as follows:

New products and services; expansion of territories

New marketing programs to stay in touch with customers

New recruiting efforts to find qualified employees

BUT, before we can plan to the extent we are discussing you have to know where you stand currently; by industry, department and the other categories found in MHEDA’s Disc report or other benchmarking data. Even if you don’t participate in the report you should compile your financial statements to conform to the Disc report to find where you need to change or train personnel or adjust policies.

When forecasting income and expenses do not forget to pay yourself first. In other words, forecast the revenues and then the profit, and then go back in and fill in the expense categories. Profits have to provide adequate EBITDA to cover debt service.

One trick people use is to ask to have the detail for all expense accounts printed out for your review. If you need to cut expenses to meet your profit goal… will find cost reductions going through this exercise because you will find expenses that just don’t belong there any longer.    

If your forecast still falls short you may have to re-think personnel cost or hours worked or consider bidding out the cost for goods and services you purchase.

Re-shoring, the Panama Canal widening and new warehousing needs to support both manufacturing and distribution models suggest that business should be picking up. But like I said, this theory is sure to be countered by other factors.

Risk assessment for company strategies is a must. Avoid it at your financial risk if you choose.  I hope you are making the right decision.

Garry Bartecki is a CPA MBA with GB Financial Services LLC. E-mail to contact Garry.