Garry Bartecki 2021 based on 2020. The way I see it.
When Dean, the General Manager & Publisher of Material Handling Wholesaler, gave me this topic to cover for the January 21 issue I thought “Gee Dean, if I knew the answer to this question, I would be in my private jet heading to the Caribbean with my hot wife, a case of Scotch, and five boxes of Churchill size cigars.” But after settling down, curiosity got the better of me and I started researching the storyline and jotting down various topics I believe will be part of the 2021 landscape.
Here is the list I started with and I am sure you can add another 100 topics to my list:
RECOVERY
- Headwinds or tailwinds
- Business Resilience
- Your current business processes
- Your post-COVID-19 business process’
- It is the Balance Sheet that counts
- Revenue recovery
- Do not count on major recovery in 21
- Additional stimulus
- Changes to anticipate
THE ECONOMY
- Recession or Depression
- Vaccine acceptance
- The Biden Plan-Infrastructure Plan
- The Biden Plan- Taxes
- The Biden Plan-Spending
INDUSTRY ISSUES
- Customer status
- Supply chain status
- Personnel status
- Inventory availability
- OEM financial health
- Refurb units
HOW DO WE PLAN FOR 2021?
- Revenues
- Costs- fixed
- Cost- variable
- Cost- Semi-variable
- Financing
HOW DO WE KNOW WE ARE BACK?
- COVID-19 vaccine acceptance
- Consumer spending.
- Employee demands increase
Before we go any further, I want to mention last month’s lead story by Dave Baiocchi. What he covered about directions OEM’s are taking should wake all of us up. The acceptable playing field, as far as OEMs are concerned, is moving higher and higher and will continue to do with the hope of maintaining and increasing market share. On the other hand, with COVID-19 and a potential long-term recession facing us, a dealer should avoid overextending their operations beyond reasonable financial guidelines. You should be committed to your OEM but at the same time communicate what you can and cannot do until this pandemic is under control and the economy returns to 2019 levels.
Material handling dealers have access to the retail, wholesale, distribution and logistics services, manufacturing, and other venues where lift trucks or warehouse distribution systems are employed. If this continuing customer base is active and essential, dealers should have a constant base level of work and products to sell these customers. But is it the same level as 2019 revenue? How about for Q1 20? I bet not.
Customers are encountering the same financial pains as everyone else, with the added issue of having more efficient and more knowledgeable competitors planning to increase sales because of a lower-cost alternative. Current customers still operating using the same business model as they were 10 years ago will find themselves at risk, which extends that risk to you. Come to think about it, you also need to review your current business model, and compare it to your competitors and other equipment-related business offerings. Not doing so could put you in the crosshairs of your OEM to move you out of your territory as Dave discussed last month.
In terms of the economy, it appears we are stuck in neutral until the virus is under control and our population believes that is the case. Two different issues, with both requiring getting control of the virus. Me, I do not see this happening until late in 21 or not in 2021 at all. The budgets I am preparing for 2021 are flat and mirror Q2-Q3-Q4 2020 results. This budget naturally contains heavy cost reductions in terms of payroll and other variable and semi-variable expenditures, with an assumption that when revenues and profits increase, both payroll and expenditures will also increase to support higher revenue levels. I just cannot make myself believe that GDP will return to 2019 levels in the next twelve months. Too many companies and businesses have closed. Too many people remaining without a viable income to support their families. And not enough consumer spending to bring GDP up in any significant way. AND SEEING THAT CONSUMER SPENDING MAKES UP 70% OF OUR ECONOMY I GUESS OUR CITIZENS WILL TELL US WHEN THIS PANDEMIC IN UNDER CONTROL AND WE ARE BACK ON TRACK TO 19 LEVEL WHEN SPENDING HITS 19 LEVELS.
When do you see this happening?
Am I being too pessimistic about this? Maybe. Who knows, maybe the vaccine will produce a miracle which provides more flexibility regarding our business activities. But even if that occurs will there be adequate income to spend to get us to pre-COVID-19 levels? I doubt it. The time it will take to convince the population to participate in the vaccine program, provide comfort, and get them back to work will be tough to do in the next twelve months. Heck, it may take six months to convince people to get the vaccine shots.
Let’s move on to the “economy”
The Biden Plans propose to raise $3.375 trillion in taxes over a 10-year period. They will increase spending by $5.37 trillion over this same period. The taxes will come from corporate tax ($1.4 trillion), payroll tax ($993 billion), and individual tax ($944 billion). Over the same period, there will be spending on education ($1.9 trillion) and Infrastructure ($1.6 trillion.) About 80% of the increase in taxes fall on the top 1% of the income distribution, primarily those making more than $400,000 per year. Our problem or maybe benefit is that most of these changes will probably not take place until after 2021.
On a more specific tax issue, the IRS has stated that the spending of the PPP funds received will not be deductible for tax purposes in the year spent. In other words, the PPP funds spent are taxable. And from an accounting standpoint, the forgiveness amount will be recorded as miscellaneous income. So, make sure you know your situation if you are a PPP recipient.
After going through this 2021 planning process, I suggest you plan for the worst and hope and produce better or best. Doing your homework to mitigate revenue losses by going after the most profitable business and working closely with your best customers to show them you are a value-added partner, who will help them through this pandemic and recession, will help maintain core business.
To deal with potential disruption on the supply chain side it would be prudent to review all supply chain relationships to ensure they will provide timely delivery of products and services that meets customer demand at competitive prices. Keep an eye on these vendors and watch for financial red flags.
Noting my previous comment about your balance sheet is the key to dealing with this pandemic and coming out the other side in one piece, management must use their budget and related assumptions to ensure adequate cash flow and bank covenant compliance. Any potential problems along these lines should require further adjustments to the budget numbers or through additional financing. All fixed, semi-variable, and variable expenses should be part of this discussion. THIS IS TOUGH as you well know. But NECESSARY if you plan to stay in business.
And no matter what you do, or how you deal with this pandemic, believe that returning to business as usual is not going to happen if you wish to be a competitive player in your market. Looking beyond 2021 start thinking about what your company will look like then. It should look much different than it does today in terms of systems, personnel, products and services, and workflow. The technology now available will demand this. Think about it. Artificial intelligence (AI) along with telematics and other solution generating data will make your products more efficient, which thus will reduce new sales along with service and parts dollars. So how will you make up for these shortfalls? One way I can suggest is producing refurb units you can sell at “refurb prices” along with parts and service.
To assist with this endeavor, make sure you staff up with young technology-oriented people. They will be a great help, quick learners, and competitively priced.
To listen to Garry Bartecki and The New Warehouse moderator talk further about this article, listen to their podcast by clicking here.
Garry Bartecki is a CPA MBA with GB Financial Services LLC. E-mail [email protected] to contact Garry
