Get Started on Designing Your New Business Model - 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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SECTION: On the Numbers

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Get Started on Designing Your New Business Model

By Garry Bartecki

Article Date: 10-01-2009
Copyright(C) 2009 Associated Equipment Distributors. All Rights Reserved.

Change is not simply in the wind; it’s the new air we breathe. Time to rethink what the new ‘you’ is going to look like.

It is Friday, Sept. 11, 2009, and I am leaving AED’s annual Executive Forum, which really raised a lot of questions about the current and future state of our industry. It was an intense 1.5-day program that hopefully provided each dealer participant with additional insight into future business transactions.

There were 10 sessions in all, and the moderator asked us to write down three takeaways from each session. Let’s review my Top Three from the entire event.

No. 1: Get Out a Clean Sheet of Paper.

The message here is that we are not in a recession; in this industry it is a depression, which will take more time than usual to work itself out. In short, the business models you have been using may not be applicable anymore, needing to be replaced with a new model that delivers cash flow for less cost, especially fixed costs.

So you need that clean sheet of paper to draw up what your new company will look like, how it will market product and services, how it will be staffed, and how it will generate cash flow. Some of the questions you may consider are:

Inventory levels –
Since sales are expected to be soft for the near future, how much can you afford to carry? If contractors see more opportunity in buying late-model used equipment, will you have it to sell? And if you decide to sell more used equipment, how will you finance it? What do you think your vendors will do in these future markets?

Service –
The new dealer model (in my estimation) will require 100 percent absorption. It will be more of a service center than an equipment warehouse, and thus will require a qualified staff of trained technicians.

Rental –
If rental becomes more predominant, do you have the means to finance and manage a true rental fleet?

I am sure you can list another 10 issues to consider, but the bottom line is: A slow recovery, less demand for new equipment, more demand for used equipment, more true rental opportunities, more service and maintenance opportunities, and the need to operate with a much lower cost base.

In terms of market recovery, road building and other government-related projects are moving along. Housing is bottoming out, and commercial construction is the worst of the bunch. Stimulus money is out there, but who knows where.

What we need from here on out are new ideas to service the needs of equipment users in the marketplace. Remember the Zero Based Budgeting theory? You start with zero cost and work your way backwards for the services and products you need and their related cost, and hopefully you wind up with less than you are spending now.

No. 2: Communication and Financing

Financing, of course, was a big issue at Forum. We are not only talking new financing but refinancing and restructuring. After listening to the bankers and other members of the credit panel, I believe you are best off staying with your current banker and working something out – and communicating clearly at all times.

Of course, that new business model, along with your cash flow projections, will be of immense help. There is no doubt about it: Realistic, supportable cash flow projections are key to working with your banker, especially if you need to rearrange the terms of your loan agreements. I have to think bankers really don’t want your assets, and would prefer to have you continue in business.

Your customers are in the same boat when they need equipment financing. Presenting a clean balance sheet and other financial data is a must. Financing is there for companies that quality; it’s the qualifying that’s tough.

No. 3: Partnering with Customers

The members of Forum’s contractor panel recognize the need for new business practices and that they need help to optimize their financial returns. What was interesting is that service, support and parts availability were higher on their priority list than price when it came to deciding who to do business with.

Contractors are looking for partners to make them look better and be more efficient and more profitable. Dealers can do this through many deliverables:

  • Fleet management
  • Preventive maintenance programs
  • Training
  • Financing assistance
  • General support to keep them up and running at peak efficiency.

So, how does that clean sheet of paper look now? Hopefully it contains your new model for doing business in the future.
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