Position your company for economic expansion
By Alan Beaulieu
For many in the material handling industry, the past few years have seen strong growth. In the first quarter 2014 issue of The MHEDA Journal, many MHEDA distributors reported seeing record sales in 2013. Many more expected to eclipse those sales records in 2014. And while we expect a bit of a soft spot in the second half of this year, there is no reason to believe that that the positive trend won’t continue in 2015.
At last year’s MHEDA Convention, we warned that the economy would see a slight dip this year. However, given the proper precautions, this could be seen as nearly a non-event for MHEDA members. Among the steps that can be taken to protect yourself are borrowing and locking down the lowest interest rates possible. Another thing that every MHEDA member should be doing is forecasting. We should all be watching the leading indicators and benchmarking our companies accordingly.
At this year’s Convention (May 3-7, 2014, at the Loews Portofino Bay Hotel at Universal Orlando, Orlando, FL) our message is to get aggressive!
Getting Aggressive While Staying Protected
We know there will be a soft spot in the second half of 2014. However, we also anticipate that 2015 will be a year of favorable economic expansion, especially in the second half of the year. The trick is positioning ourselves so that we are insulated against the downturn but also poised to pounce on the way up.
An important thing to realize is that “getting aggressive” is something that takes time. You can’t wait until after the downturn to order capital equipment and expect it to pay dividends all at once. Likewise, you don’t just hire people to push into new territories and have it all happen in six months. It requires planning. So take this year and start getting the pieces in place to capitalize on the upswing in 2015.
In the second quarter 2013 issue of The MHEDA Journal, we wrote, “Ultimately, your success boils down to how much cash do you need to grow vs. how much cash do you need to survive? And it actually takes more cash to grow than people think. You can go out of business by not having enough cash when the growth period comes. You will just continue to grow and end up growing beyond your cash reserves. If you grow beyond your working capital requirements, you can very easily find yourself strapped for cash and behind with your creditors. It really takes meticulous planning.”
One way to manage the cash flow is to take advantage of the optimism and opportunities in the first half of 2014. You may want to consider purposefully thinning your margins a bit in the first half of the year in order to ensure you have the orders and backlog to carry you well into 20 15. You will stay profitable and concurrently not have to dramatically thin your margins in a scramble to bring in work later in the year.
The overall message of our presentation is that with an expanding economy over the next four years, do what you need to do in order to grow your business. That could be adding personnel, more space, more equipment, or a number of other things, but those are things that can be done now.
One thing companies must be doing to protect themselves from potential downturns is forecasting. There are several things to look at to get the pulse of the economy. The first thing to do is to compute your rate of change and then find industry indicators you can relate to. Also, be aware of lead indicators such as the Conference Board’s U.S. Leading Indicator and the ISM Purchasing Managers Index for Trends. Nondefense Capital Goods New Orders is a great measure of B-to-B activity. Taking this general economic information and applying it to your business is what we here at lTR call Trendcasting. This is a service we offer to businesses, and we feel it is one of the most important things companies can do.
Another important resource that MHEDA members can take advantage of is the DiSC Report. This complementary member benefit gives information specific to your business and can be used as a guide in future financial planning. Each report displays the financial information of average, median and high-performing dealers in each of the segments of the material handling industry. This information can be utilized in your own forecasting and benchmarking efforts.
Trends to Watch
ITR Economics is the most accurate forecaster in the United States with a proven 94.7-percent accuracy rate over our 65 years. We’re very confident in our projections. However, there are some trends we both will have to keep an eye on because they could impact future projections. The first one of these trends is the situation in Europe. A sluggish economy is one thing, but a return to recession is quite another. The la test figures are not encouraging; we seem to be at a point in time where the EU could easily slip into another mild downturn. A recession in Europe could unsettle investors and businesses globally given the sheer size of the EU-28. So we will continue to watch Europe carefully and keep you posted of any developments through the ITR Trends Report.
Another thing that could impact the economy is the Murray-Ryan Budget deal that replaces the sequester cuts with other savings and non-tax revenues. Members from both parties are unhappy with aspects of the deal, which is generally a good indication that both sides made compromises. We’re encouraged by this deal.
Finally, we are seeing real indications that manufacturing is making a comeback in the United States, which is encouraging for MHEDA members. The prospects of re-shoring are good, and though the rate of growth may not be as robust as the figures reported on the nightly news, the growth is real and that is exciting.
America is proving to be a very good place to do business. People are coming here to do business, and that bodes well for everyone. We expect real growth in the next few years, so protect yourself from the hiccup coming later this year but get aggressive to take advantage of that ensuing growth.