It’s time to take the crystal ball off the shelf, clean it off (if you haven’t done so already) and review the factors that will be part of your business plan for the next 12 to 18 months. I have to confess, however, that no matter where your market is, there will be a lot of “noise” to think about in order to come up with a reasonable game plan for 2014.
It doesn’t make any difference if you’re in one of the construction hot spots or a stalled market. Many of these hard and soft issues must be considered by every contractor in assessing the risk of the decisions you contemplate in regards to 2014 business activities.
I spend a lot of time every month analyzing numerous economic and financial data; reading both industry specific and general economic publications; talking to bankers and equipment vendors on a regular basis; and fulfilling my CFO duties for construction-related entities. After digesting all of this material and going through my own planning process, I can’t get too excited about 2014, because I see expenses increasing no matter where you work without much assurance that these cost increases can be passed on to customers.
Will there be more business available in 2014? My guess is there will be, but not enough to soften up the competitive nature of the market. It will still be a tough bidding environment requiring contractors to be at the top of their game from a management perspective.
This is nothing new, but when you start to believe the hype of how great things are and will be, there could be a tendency to drop your guard and wind up with a black eye. I suggest you take steps to avoid this trap and think through any risk factors that could produce negative cash flow if the year doesn’t go as planned.
What headwinds do I see in 2014?
- Equipment costs increasing, both used and new
- Rental rates increasing
- Employee costs increasing for a number of reasons
- Federal, state and local compliance issues costing time and money
- Interest rates heading up no matter what the Fed does
- Quantitative easing (QE), creating a market slump that will trickle down through the entire economy
- Challenges finding good people
- Proposed tax changes directly affecting your business and cash flow
If you want to argue with me about a couple of these items, I guess we can do that. However, overall I think we have to agree that cash will still be king in 2014, with maintaining a healthy cash balance your major goal. In other words, I don’t believe it’s in your best interest to take on additional cash requirements in 2014 unless you are absolutely sure those decisions will not bite you in the butt.
Take Control to Manage Risk
If you’re going to stick your neck out, it’s imperative that you have complete control over your business and cash flow. This means your system provides the means to measure historical performance against actual results. This has to happen within a timeframe in which you have the ability to adjust your course of action to avoid “expensive” results before they become material in nature.
Specifically, I recommend the following:
- Avoid additional debt service resulting from equipment purchases.
- Review your equipment list to see if there is anything to sell.
- Make a deal with a rental company or two for rate discounts in exchange for volume.
- Personnel costs are nuts. Keep the core. Update the core as needed and sub out the rest.
- Compliance issues go hand in hand with personnel costs. Consider ways to get these time-consuming requirements off your back.
- My banker friends tell me rates are going up. Check when your loan renewals come due and find out where you stand.
- Is there any doubt the market will slump and take the rest of the economy with it once QE is eased? Be prepared for a slowdown.
- Get some good people and educate them.
- The new tax proposals on the table are almost too silly to discuss, but are all pointing to more taxable income for you without any additional revenue. It’s important to plan ahead.
Bottom line? Watch your back; benchmark with peers to reinforce your policies; keep your “Cash is King” mentality; measure performance each step of the way; stay out of the Fed’s bullseye; and know your tax position.