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What’s in your projection?
Garry Bartecki
Garry Bartecki

Why am I asking about your plans for 2018? Because based on everything I hear, read or see company owners are anticipating a strong 2018, and I assume you are too.

What peaked my interest in business planning for 2018 was my attendance at an annual wealth planning meeting for bank customers to review 2017 investment performance and expectations for 2018. After a brief introduction one of the main speakers asked the attendees the following questions:

  • How many of you believe the economy is on the right track?
  • How many of you anticipate a bigger top line?
  • How many of you are planning to hire more employees?
  • How many of you are planning wage increases in 2018?
  • How many of you will be making investments in your business in 2018?
  • How many of you believe the tax cuts will help improve your business?
  • How many of you are reviewing potential acquisition candidates in 2018?

For all except the last question the majority of attendees raised their hands. And, the hands for the last question was also in excess of my expectations.

Quite frankly I was taken aback by the responses after listening to the media talking heads telling us repeatedly about bubbles and the next recession that is right around the corner. Obviously, the attendees at this meeting didn’t see it that way. And after the two presentations regarding the economy in general and the stock market metrics for 2017 and those expected in 2018 the general consensus was that any correction is probably at least two years off. In summary, two professional presentations, supported by historical and current metrics reflected some really GOOD NEWS.

So let’s assume that you would respond in the same way as the attendees at the wealth planning meeting. If so I hope you attain the results you expect. But, at the same time I hope you planned out this continued growth cycle with the thought in mind that it could end rather quickly 18-24 months from now. In other words, taking on debt service commitments or contracts that cover an extended period well over 18-24 months out should be given careful thought before signing on the dotted line.

What we are talking about is increasing fixed costs which will remain in place once the correction is upon us. Rents, lease payments, investments funded with long-term debt, investment funded with five-year debt. That monthly EBITDA number you review on your monthly financials, as you well know, has to cover your debt service or you will incur cash flow problems that can lead to financial distress.

So what is in your projections for 2018-19 and HOW WILL YOU FUND the investments and expense increases related to the questions? Good question, and one where you should have the answer for on the tip of your tongue. And if you don’t I suggest you spend some time with your management team to get the answers to the question.

Funding comes in many different packages.

  • Sales increases of existing products and services
  • New products and services
  • Margin increases (Price increases)
  • Expense reduction
  • Bank financing
  • Bank refinancing
  • Shareholder loans
  • Shareholder capital
  • Partnerships
  • Increased productivity
  • Personnel adjustments as result of IofT
  • Sale of business segment
  • And, so on

So many opportunities and so many options. Where do we start?

We start by assessing our own company to see where we stand in terms of both balance sheet status and cash flow status. If we are in good shape with plenty of bankable assets and hi-profit dealer cash flow, our risk tolerance may be higher than a dealer with a high leverage balance sheet and performance on the low end of the MHEDA DiSC report operating results. What we want to avoid is overextending ourselves no matter what our current financial status is, but rather work with what we have to improve operating results for 2018 and 2019 while hedging and protecting cash flow for when the correction actually comes.

Most of the funding required for the changes noted in the questions are clearly variable. You can implement changes and increase expenses but can also reverse those cash outflows if you need to.

Don’t forget the lead time required between the cash outflow for products and services delivered and the actual collection of cash. Leveraged dealers may not even want to invest at any level if immediate positive results are required to fund the expenditures.

REMEMBER….. EVERY DOLLAR OF ADDITIONAL SALES REQUIRES ADDITIONAL CAPITAL. If you are fully leveraged you may want to work on the less costly alternatives to improve operating results. Believe it or not …..YOU CAN SELL YOURSELF INTO BANKRUPTCY.

Obviously, acquisitions and other investments requiring substantial amounts of capital are where the bear traps lay. If you are a shareholder with many years of business before you, the risks can be overcome with a well-managed operation that can withstand a downturn. If, on the other hand, you are in a transition mode you may want to avoid such investments unless you can really assess the risk factor to be minimum…..because if you make a mistake it may take ten years before you are again in a position to sell at a price that works for you.

So may questions……so many options….. Consider all of them when projecting out the next 24 months.

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