The Right Playbook in a Soft Economy By Marti J. Smith
Article Date: 11-01-2008
Copyright(C) 2008 Associated Equipment Distributors. All Rights Reserved.
It's time to study the strategies that led to previous successes.
In recent months we’ve seen a rash of foreclosures, banks and businesses closing their doors and the creation of the Economic Stimulus Act of 2008 (ESA) to help keep Americans and American businesses afloat. Wall Street has been up and down more than your window shades. This is not only a concern for small businesses – it has shaken the foundation of mid-sized and large businesses, as well. What does this mean to those who are impacted by a slowing economy in a flat-to-down market?
First and foremost, the short-term fixes we’ve seen have repercussions. The ESA, for instance, provides an accelerated depreciation schedule (an additional 50 percent of “bonus depreciation” allowed for new assets put in service by Jan. 1, 2009), so companies can take a short-term reduction in tax burden. However, the benefit is only temporary: The piper must still be paid. In the heavy equipment world there’s a significant lifecycle benefit to most large new equipment purchases. The equipment value extends well beyond the depreciated value, whether a company takes advantage of the current economic stimulus depreciation schedule or not. Either you pay on the front end or you pay on the back end. This is a costly aspect of doing business in the world of heavy equipment sales and purchases, and it stymies business opportunity.Believe it or not, though, the news isn’t as bad as some people imagine. Successful people in all fields understand that crisis often represents opportunity for those with the insight and courage to capitalize on it. Our current economic condition is a perfect example. The best news of all, however, is that most people already have the formula for thriving in difficult times, even if they don’t realize it.The World Market
As we look at the world market, we see people like Warren Buffett, one of the richest and most successful men in America, making purchases and continuing to invest his cash to grow his current holdings. In a recent CNBC interview, Buffett shared the key elements of his playbook and his actions make clear that he’s walking the talk. He’s recently bought upwards of $7 billion of stock in other companies and increased his investments in a large U.S. financial interest. Buffett’s Berkshire Corp. is attempting to further reduce its cash by investing in distressed companies that need an infusion of cash.
Bill Gates, another incredibly successful entrepreneur, has emphasized in recent interviews that he also sees the glass as half full. Since his successes have resulted from innovation and technology, it’s probably not surprising that he advises American business to find innovative solutions and to continue the utilization of technology to drive their business plans forward.In many auction houses across the country we’re beginning to see U.S. companies slowing the pace of equipment purchasing and an increase in off-shore bidders snapping up both new and used equipment. As some companies hunker down and shy away from business growth, foreign markets are taking advantage of great equipment buys and are compressing the available new and used equipment from U.S. buyers. With U.S. companies taking their eyes off the ball and ignoring the opportunity to hold more cash for the purpose of equipment purchases, foreign buyers are quickly removing available assets from the U.S. market to foreign soil.Marketing 101 in a Soft Financial Climate
In a soft economy it’s important to take stock not only in the warning signs, but also to step back and remember what’s worked in the past – and to modify it for present conditions. A common practice in a soft economy is to embrace the fear, a reaction that further compresses company assets and starves the resources required to grow a business. The good marketing practices that have worked in the past are abandoned, now deemed inappropriate for more competitive market conditions. History teaches us that the result can be a death spiral, with the company step-by-step discarding the very assets it needs to survive and thrive.How do heavy equipment dealers withstand an uncertain market environment? The first recommendation: Remain actively connected with peers and association events where first-hand industry news, information and best practices are readily available.“Now is the time to strengthen relationships and be intimately involved with trade associations that create strong business forums and provide sound business counsel such as AED,” said Peter J. Blake, CEO and director of NYSE- and TSX-listed Ritchie Bros. Auctioneers Inc. (“RBA”), the world’s largest industrial auctioneer. “Whether in a soft or robust market, it is always wise to build a network of industry experts that provide the right data to make good business decisions.”Second, in an uncertain market environment, both you and your customers must go back to the playbook and study the pages that led to previous successes. Instead of walking away from investments in heavy equipment that have made them the company they are today, encourage your customers to review the current landscape and recommit their special teams for the new financial environment. When we look at the marketing guidelines for Buffett and Gates, two of the richest men in America, we see investment instead of “turtling.” By adapting a successful playbook, embracing innovation and the utilization of technology, you and your customers can utilize what has worked in the past: Embracing opportunity and reasonable risk. This means finding the cash through various means, such as sound tax strategies that allow you and your customers to continue to make equipment purchases that will keep both of you competitive and ready to step up as the market improves, as we know it will.Players who hunker down to weather the storm will, if we can extend the sports metaphor a little further, find themselves thrown for a loss and facing fourth and long once the dust clears. Put simply, there’s no room for timidity, and those who fear loss will experience it. In a bear market, always remember one thing: Bears can smell fear. If, on the other hand, you invest in your future, you’ll be well prepared to take advantage of new opportunities – and there will be opportunities. Innovative new ideas, the exploration of expanded business niches and utilization of cash-producing tax investment strategies will bolster your customers’ and your own wealth portfolio in the short- and long-term business environment.Code 1031: Back to the Future
There’s an innovative solution to purchasing heavy equipment that lets you and your customers utilize your own cash and minimize the tax burden. Oddly enough, an established stimulus for depreciated assets has been available since 1921. The Internal Revenue Code’s Section 1031 has historically been used predominantly for real estate and hasn’t been widely leveraged for equipment purchases. However, those who have utilized §1031 Like-Kind Exchanges in their equipment management tax strategies have continued to buy and sell equipment, both used and new, fully or partially depreciated, with significant benefit. It bolsters their ability to transform tax burden into cash for business growth. “There’s no doubt that we’re experiencing unusual business circumstances that are difficult to predict,” said Brent Abrahm, CEO of Accruit, a Qualified Intermediary in §1031 Like-Kind Exchanges and AED’s Preferred Provider of these services. “However, more than ever, it’s important to utilize our cash to continue to grow American business. Now is the time to nock all of the arrows in the quiver to keep our eyes fixed on business liquidity. “At Accruit,” he explained, “we have the only patented process and end-to-end software solution in the industry and this makes it easy to translate gains from depreciated assets into working capital. It allows both dealers and their customers to continue to purchase new equipment, and to stay current and viable in an ever changing economy.”Economic Stimulation
Companies that continue to buy and sell equipment to take advantage of business opportunities will stay ahead of the curve. Putting innovative ideas into play in your business practices, including strategies like §1031 Like-Kind Exchanges, reinvigorates your liquidity and growth prospects. Building trade association and peer alliances will strengthen decision-making in a volatile business environment. Minimizing your risk through continued investment and evolving the marketing practices that have worked in the past will strengthen your play book and increase your chances for success – now and in the future.
[ TOP ]