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December 2017
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How to prepare for the future
Garry Bartecki
Garry Bartecki

Sometimes I wonder why I do things. Which is what I did after typing in the title of this month’s column. You know how it is….use the word “future” and no matter what you say it is going to be wrong for some people.

So I guess we have to define “future.” In this case I am aiming for a mid-term timeframe, thinking what we should be thinking about if we have a plan to exit the business in five years or so.

That being said, just what do we need to consider to keep our heads above water and at the same time maximize the value of the business?

From a 5000 ft level I believe dealers have to play it close to the vest for the foreseeable future, or until there is definite sustained growth back to some believable level of economic activity. I say this because the more I read and study the more I feel that the economy is still not right and that we could again be entering a period of slower growth or declining activity.

So, what’s bothering me?

Retail and wholesale sales are going negative on year-over-year basis.

Inventory levels are starting to build.

Factory orders are slowing down.

Foreign orders also slowing.

Not much to write home about here. And for dealers updating their business plan for the next 12 months, I would certainly think this analysis would add a negative tone to their planning activities if they aren’t seeing a slowdown already.

To cut to the chase, dealers selling durable goods have to manage their business and cash flow assuming moderate if any growth to the top line. Sure there will be regions where business is above average, but for the rest of us it may be prudent to not stick our neck out without extreme confidence you are on the right track with controls in place to monitor performance. To do otherwise may be painful in many ways, especially related to cash flow.

Keeping in mind we are working with a five-year window…..what steps does the shareholder need to focus on to maintain shareholder value? Here are a few to consider:

Top line growth will come from increases in market share.

Gross profit dollars will materialize from more product support activity.

Managing every dollar of gross profit will pay dividends.

Avoiding or eliminating fixed costs will protect the bottom line.

Your bank loan interest rates should have been adjusted down in the last year or so.

Following Dr. Al Bates philosophy that payroll costs CANNOT increase faster than sales must be adhered to.

Preparing a flexible budget that maintains bottom line profits and EBITDA margins should be part of the management process.

Controlling capital expenditures is part of this process.

Hey….nothing to it. Easy to say, but we know better. It takes focus and effort to manage the process with constant review to ensure favorable results.

To get market share you have to review your marketing and sales efforts. Are you calling on prospects or just current customers? If only current customers you may want to add a process to your sales efforts where each salesman has to bring in at least five credit apps a week. I would also go back to my vendors and ask for “specials” you can bring into your market that could generate interest in your product.

Examining your company’s “value added” proposition may also be in order. In short, why should someone do business with you compared to all the other folks that compete with you? If you ask yourself that question and don’t have at least three good reasons why your services are better, it is time to figure out why and do something about it.

Watching costs is required to manage gross profit margins. Both hard costs and payroll costs. If you can’t control these two costs you have to pass them on. It’s tough to do but if you don’t, margins decrease along with the value of the company. In the end we either control the margin or pass on the increases, and in this market it may be easier to control the margin.

Your most efficient way to increase margins is through product support sales. This is especially true if customers are feeling the sales slide we anticipate. Customers feeling the pinch will not really want to buy new equipment and be more inclined to fix what they have. Here is where that “value added” proposition comes into play. If you truly have some value added magic you will win the fight for existing and new business.

The balance of my “to do” list deals with common sense financial matters. Avoiding capital expenditures, lowering fixed costs and getting the bank line under control are all doable in the normal course of business. You just have to keep them in mind and do them.

In the end, all dealers can put themselves into the hi-profit category of the MHEDA DiSC report with a little work and preparation. Some if it is hard work, putting into place systems to reduce cost and hold margins and some financial engineering to keep the balance sheet strong and the shareholder value high.

If you haven’t given this type of program any thought, now is the time to do so. Especially if you are in the five-year window to transition out.

Many of the solutions discussed this month are covered in this publication every month via the articles presented by our esteemed list of authors. Make sure you read them every month. I do and find that this publications contains high quality material every month to help you make money.

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