The construction outlook for 2004 was better than 2003, and it seems to be holding true to forecasts so far. This is good news because it means business is firming up. But you also have what goes with it -- increased costs. Based on what you hear from equipment manufacturers, dealers are buying again, the used equipment market is tightening up and rental rates for equipment are increasing. Add to that the additional cost for fuel.
So where does this leave you as a business owner?
Running at full speed, 24/7, if I had to guess. Many of you are getting a late start on the season, and all of you have to manage the changes taking place in your cost structure. If you’re not careful to take time to manage the bid and actual work process, you could produce a lower gross profit than you had in prior years.
Evaluate Your Equipment Options
Equipment costs are increasing, and dealers will make them stick. Many manufacturers are six to eight months out, and it will probably get worse before it gets better. It seems that even though manufacturers were ready to go, component suppliers have been falling behind. If you ordered a new unit and need it for an upcoming job, you better keep checking on it or it may not be there when you think you are going to get it.
Rental companies are sucking up a major portion of new production. Now that rental rates have firmed up, rental companies should start unloading used equipment out of their fleets. If you can’t get a new unit, maybe you should consider a used one. However, prices are not going to be what they were 12 to 18 months ago. They have firmed up and should stay that way.
If used values have indeed improved, now may be the time to trade or sell units you were thinking of replacing but held back because of the soft market. Before you let anything go, make sure you can replace it, and take a careful look at your potential business opportunities for the year to make sure you won’t need it. It’s better to be safe than sorry.
Since the rental market is also sure to tighten up, it may be prudent to get your rental needs scheduled and confirmed. Getting rates confirmed, as well, might be a good idea. You know what will happen if there is more demand than supply for rental equipment -- the rates will increase (as they should) because that’s how good old capitalism works.
Fill Any Voids In The Field And Office
What is your personnel situation? Do you have enough people? Do you have the right people? Are you having trouble finding the right people? Make like a professional sports team — try signing and referral bonuses as a way to stimulate hiring. Of course, the bulk of the payment has to be deferred until the end of the season, or another time that works for you. There are compliance issues to deal with here, but you can work it out and make it a win--win for both you and your employees. The main point is to put it in writing and ensure both parties understand the terms and conditions.
With business picking up, the administrative workload will increase, as well. You may have cut back on clerical help if business was slow. In these circumstances, I like to use permanent part--time people to fill the void. There are many highly qualified people out there who can only work certain hours a day, or who can work at home if that works for you. They will love the opportunity, you can often get them for less money and, if you’re lucky, they don’t need the benefits.
To help with administrative duties, consider outsourcing as much as you can. Use a payroll service. Many banks today offer electronic services for both bill processing and collections and, in the process, eliminate a lot of paper pushing. I also find that today’s business environment requires a constant collection effort. Part--time people or a service can readily fill this need.
Benchmark Your Business
To make your efforts turn to cash faster, it may be time to review your system for collecting and disbursing data that is eventually used to process billing. There is equipment available that allows field personnel to generate invoices right from the field. They can input both time and materials used right after completing the work, have the customer sign off on the invoice and have it to them the next day. The systems today are plentiful for your industry. If you need an upgrade, find out what other people are using and give it some thought.
Also get your suppliers involved in helping you benchmark your business and monitor your costs. Equipment dealers are more than willing to analyze your equipment costs and usage and offer suggestions to make your operation more efficient and profitable.
As business prospects improve, business owners must concentrate on getting new business and, more importantly, controlling the business on hand and in process. Getting your business in shape to allow you to do that needs to be a priority.
Garry Bartecki is director of dealer/distributor services at BDO Seidman, LLP of Chicago, IL, as well as a consultant to the AED. He has also worked as an independent CPA and consultant to equipment dealers. He can be reached at (312) 616-4677.