The Light Is On Us; For Once It's Not a Train - On the Numbers
Construction Equipment Distribution magazine is published by the Associated Equipment Distributors, a nonprofit trade association founded in 1919, whose membership is primarily comprised of the leading equipment dealerships and rental companies in the U.S. and Canada. AED membership also includes equipment manufacturers and industry-service firms. CED magazine has been published continuously since 1920. Associated Equipment Distributors
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The Light Is On Us; For Once It's Not a Train

Written By Garry Bartecki

Article Date: 06-01-2004
Copyright (C) 2004 Associated Equipment Distributors. All Rights Reserved.


It's time to get back to making a buck!

In my travels and discussions with dealers and manufacturers representing various durable goods industries, it’s apparent that sales are increasing at better than average rates, and all concerned are more than happy with current growth projections and the backlogs. Knowing each of you must be excited about the balance of the year and the near future, now is the time to remind you to keep some reserves in your back pocket. In other words, keep it under control and don’t do things you normally wouldn’t do. Your reserves and capital base have been depleted and will take some time to replenish. Prosperity, defined as free cash flow, will not happen overnight. I guess the message is “Don’t spend your ‘new’ profits until they’re in the bank.“ While it’s true business is coming back, delivery dates are another matter. More than one manufacturer has expressed concerns about delivery dates. It appears current inventory levels are going fast, and manufacturers are having trouble replacing units at historical production schedules. Their parts vendors are behind the curve in getting parts to manufacturers. It appears the same can be said for parts you need for repair orders. What this translates into is a demand and supply problem, whereby your sales may not be realized as quickly as you think. Delay the sale and those “new “ profits take longer to hit the bank. So what should a prudent dealer do at this point?
  • Review the budget to determine what you have in terms of resources, what you are going to need, and how you are going to fund it.
  • Convert the revised budget to a cash flow model to see if you can do what you are planning.
  • Assess customer needs to see what makes and models are in demand in your area and find out what you can get.
  • Review the used inventory list to see what you can do to spiff up the units because used equipment prices are sure to firm up and generate better margins. Don’t give used units away until you assess the market.
  • Be selective with parts discounts.
  • Consider a re-rent program if that will help your customers get over the hump.
  • Tell your bankers the market is opening up and find out how they plan to help you.
  • Get technicians trained to do the low tech jobs.
You have a lot of work to do. But somehow, I think you’ll be smiling while your working. And don’t forget, the financial products that AED developed as part of the new Cost of Doing Business Report will help you through the planning process. The sales mix models and shareholder value analysis can be used for planning and projection purposes. In addition, the shareholder value model includes the balance sheet, which should help you draft a preliminary cash flow projection. Just a reminder: The bonus depreciation and Section 79 benefits are still available for 2004. Get you sales people geared up to present these benefits. If customers don’t use them this year, they can use them next year as a carryover. If they don’t buy this year, they may not have the bonus provision available another year. I can’t believe there is anyone in the construction industry that would not like to defer paying taxes for a few years. Don’t forget, if you had a zero tax bill last year and owe money this year, not only do you have to pay the current tax, you also have to make estimated tax payments. In short, you have to double up on your tax payments to catch up. Not good. Now go out there and attack the market, and avoid spending the profits before you have them. Garry Bartecki (gbartecki@aednet.org) is director of distributor services in the Chicago office of BDO Seidman, an international consulting and accounting firm. Excerpted from June 2004 Construction Equipment Distribution. To subscribe, CLICK HERE.
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