Navigating going forward
Navigating is not as easy as it sounds. First you need to know where you are starting out, and more importantly know where you plan to wind up. Then you have to have access to all the information you use to navigate to ensure you will get where you are going in the time you plan to get there. Common sense.
But as we all know, the best laid plans……sometimes go array …..always at an inopportune time .…causing you to scramble to right the ship. Being a private pilot I can provide a few examples where you are cruising along and something quits and you need to assess the situation to avoid a more serious problem. All of a sudden you are checking a map, the fuel supply, the winds ….and making appropriate adjustments to ensure you arrive as scheduled. It’s amazing how you can focus on the decision making when your feet are put to the fire. You may not be making the best decision, but it is a reasonable solution that puts you in a better place than you would have been had you done nothing.
Sound familiar? Bet you come across this situation at least once a week in your business or maybe twice a week? And sometimes five times a week! Something hits the fan and you have to react or pay the price. You check your options and pick what you believe to be the best solution and do the best you can. The reason I bring this up is you will probably be running your business like this for some time to come unless you are in one of the hot spots or sectors which is related to energy. For the rest of us we can expect the following: 1) slow growth, 2) more taxes from all government sources, 3) higher costs, 4) competitive market share environment, 5) do more with less and 6) consistent navigating to make a buck.
Based on what I see in industry commentary there is nothing to write home about concerning the lift truck business. Fortunately, most of you have been through the worse part of the recession and are still around running in the lean and mean mode, with hope for a rebound in 2012 or 2013. But now it appears we will be in slow growth mode for an extended period meaning there will be some tough decisions to make in the near future. It’s one thing to push off capital improvements for a few years to avoid the cash drain on buying replacement property thinking a rebound will allow you to catch up, but completely something else when the replacement has to happen now when business is still slow. Get that navigation gear out! Even though this could be a long drawn out affair, we must still manage for today, this week, this month and this year; expecting to do the same for next year and so on until the economy finally positively responds. So, there are a couple of rules you have heard before that are worth repeating at this time. Two relate to Al Bates theories which are: 1) price increases add the most profit and 2) annual sales increases have to be 2% more than the annual increase in payroll costs.
Get that 1% more in pricing and it falls through to the bottom line. 1% of the biggest number on the income statement is a big deal. Maintaining the 2% spread between sales and payroll can be reviewed as part of the annual budget. And sensitivity analysis allows you to plan assuming different sales levels.
Most dealers up to this point are running lean but may have to give more thought to outsourcing or part-time work. Since replacing customers are so costly these days, customer communication activity has to be reviewed. I recommend the CEO visit the accounts providing 75% of the business. Using the 80/20 principle, that should be 20% of your customers. Find out how you are doing and what more you can do to help them run their business. If you want that extra 1% in the sales price I suggest you pay for it by adjusting the sales comp plan. We need new accounts, deeper penetration into current accounts, more parts and service business and let’s throw rental into the mix. It should be no surprise that “paying” for these results usually works.
Benchmarking is more important than ever in this environment. Using the right process normally provides profit opportunity that can be generated pretty quickly. Find a way to benchmark your business. While all this is going on you still have to worry about Obamacare and the changing tax picture. In addition, let’s remember we have to deal with all the deferred items that need replacing or fixing. Don’t forget to look at the auto and truck costs because moving to smaller vehicles or vans can reduce auto expense dramatically.
In the end, you need to hit the EBITDA number you need for your debt service covenant that a lot of you have to deal with. By planning and navigating, your odds of coming out where you planned to be increases tenfold.
Garry Bartecki is a CPA MBA with GB Financial Services LLC. E-mail [email protected] to contact Garry.
