Here we are in 2010 and we still aren’t sure if the light we see is a train or the end of the tunnel. What do you think?

Some good news, the number of dealer personnel attending meetings and conventions is increasing. For example, AED’s 2010 Summit in San Antonio, Texas, is probably going to exceed the 2008 attendance. Maybe there are more dealers out there doing well or feeling they will do better in 2010 then I thought. Seeing those numbers made me perk up a little bit.

I also am seeing positive signs that management is taking hold of the reins once again and getting back control of their companies. They are:

- Telling the sales staff to stop giving away the merchandise

- Firming up rental rates

- Upgrading staff

- Preparing realistic cash flow budgets

- Reviewing procedures to become more efficient

- Working with their banks

- Looking for “value added” opportunities

- Tightening customer credit terms

Through Dec. 31, 2009, many companies were giving away the store to get business, issuing credits for any reason and allowing payment terms into the next century. Guess what? They figured out they can’t do that any more because the reserves are running out.

I believe some leaders figured out they could make more money with less good business as opposed to chasing every dollar out there, increasing variable costs and then earning profits that don’t even cover the variable costs. More business, more inventory, more people, more equipment, more financing, more of everything except cash flow.

The folks chasing good business are doing just that. They have a marketing plan, know how they fit in, know they have the ability to service the business and go after their targets. They also know who they need to refer to their competition. Let’s face it, we all know of certain customers we would be better off without. The sales department just doesn’t want to give up the revenue dollars, do they? But if their comp plan was based on gross margin contribution, they might think otherwise.

A number of dealers have reviewed their sales comp plans and made changes with the incentives to get what they need in 2010. What they need in 2010 is new business, but new business from the type of customers they want. So you pay for new business and you pay for gross margin performance, and maybe you also throw in a cash receipts component, and all of a sudden you start getting more of that business. It’s amazing how that happens.

Credit terms also are being firmed up. No more sales of anything to a person or company that has not properly completed a credit application. Again, if the sales staff understands that the sale will not happen unless this is done, it will get done. The credit check process also is being reviewed, with many companies using one of the “instant” services to get ratings.

Wording in the invoice or rental contract also is being updated to contain personal guarantees (in appropriate circumstances) and stronger lien rights (if applicable) to increase the ability to collect outstanding receivables.

CEOs also are finding some very good sales and operational folks available in the market. With the right incentive plan that keeps fixed costs down, they are hiring the experienced salespeople to increase market share. Their primary job is to bring in new business that meets the criteria noted above. With the right incentive plan this is a risk worth taking.

I bet you have been seeing more “Lean” articles lately. I know I have, and they are very similar to what industry leaders have been promoting for the last year or so. Management is getting this message because they want to continue to operate with the lower cost base they have been using the last 18 months. Who wouldn’t? Hey, get more business and keep costs steady – sounds good to me. But to maintain appropriate service levels with smaller staff forces, management needs to review systems and procedures with a goal of doing things better.

And then we get to financing. Still a mess, but since you are still in business you must have been doing something right and are over the biggest hurdles. But, who knows? So it is still important to review cash flow on a daily basis against the cash flow budget to stay ahead of the game. If, for some reason, you anticipate a problem on the horizon it would be best to see what you can do to fix it before you talk to your banker. Let me give you a hint here – never use the word “restructure” in any conversation when your banker is in the room. In short, if you have not attempted to fix the problem to the point where you are feeling the pain, don’t expect any help from your bank.

2010 is still a bit scary and proactive dealers are going to kick it up a notch to gain market share, improve margins, improve cash flow, upgrade employees and learn to operate in a new environment. I’m not sure they have any other choice.

On a side note, if you receive this column before the elections, please make an effort to throw all the incumbents out at the federal and state levels. We can create our own term limit program – let’s do it! I think they call it cleaning house.

Garry Bartecki is a CPA MBA with BG Financial Services LLC. You may contact him by e-mailing editorial@mhwmag.com.

 

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