Bottom Line Archives - Material Handling Wholesaler

Account for your most important account balance

Sun, 20 Jul 2025 05:00:08 +0000

Last month, I opened a discussion changing the way a dealer accounts for daily, monthly, and annual financial activity, switching from GAAP accounting to Pre-Tax Profit to a Free Cash Flow model, which reports actual Free Cash Flow available to spend as you see fit. The bottom line here is that GAAP is geared to help report readers understand how a company conducts its business through GAAP Internal Statements. As you know, GAAP accrues transactions, defers expenses and income, and amortizes expenses over an estimated useful life. Most GAAP rules are understandable, which I agree with, but I have to say that the LEASE ACCOUNTING RULES can drive a person nuts. Most business owners I know will tell you they have a tough time explaining how their cash flow changes and what amount is available to invest, reduce debt, or pay other liabilities. An FCF statement will provide better input along these lines to help understand cash flow movement. We will spend more time on this topic and how it may help manage your business. To get started, I created an FCF Template for you to review and gain a better understanding of actual cash flows. The FCF Template has three sections. The internal GAAP Income Statement. The Conversion of the GAAP Income Statement into Operating Cash Flow. Account for Working Capital changes and CapX items paid for. When we finalize the three sections, we have a balance that includes both balance sheet and income statement adjustments, which make up Free Cash Flow. This helps avoid overspending and, at the same time, indicates what you have available to spend without developing a cash flow problem. Information every CEO needs to know. Review the CAPX notes. Most companies will not include long-term note payments in these calculations. Instead, you have an ending figure that indicates what is available to make long-term note payments. Items actually purchased during the year are included in the calculation, as you can see in Section 3. Companies are starting to use this method because FCF is becoming the standard for valuing an M&A target, rather than using EBITDA multiples. The other topic I plan to explore is converting management reports using FCF data instead of GAAP results. It should be fun. About the Columnist: Garry Bartecki is a CPA and MBA with GB Financial Services LLC, and a Wholesaler columnist since August 1993. E-mail editorial@mhwmag.com to contact Garry.

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GAAP out—Free Cash Flow in

Fri, 20 Jun 2025 05:00:18 +0000

I know I am as guilty as anyone of stating that CASH IS KING. Must have included that statement at least once or twice a year. Then someone added that “cash flow is king,” which is hard to argue with. I am going to take it a step further and state that FREE CASH FLOW means more to your business than either of the other two titles. Those of you who follow the stock market noticed the FCF line item when disclosing operating results for the year. So, what is it and why is it so important? I began conducting my own research after seeing numerous references to FCF and subsequently published a book on Amazon, authored by George Christy, CFA. George explains how to calculate FCF and why the data you receive from FCF is better than the GAAP statements you received from your accounting firm and the internal statements, which mirror the GAAP statements you paid for. You may want to purchase a dozen of these books for your internal financial staff, the sales department, the C suite, and your Board Members. I would even suggest that you instruct your outside accounting firm to present an FCF instead of the GAAP statement they usually send. Informing your banker about this change should be received positively. If not, provide them with a copy of the book as well. Just so you know, EBITDA is not part of this FCF process. Neither is the GAAP Statement of Cash Flows. FCF captures all cash flows in and out of the company, is not distorted by accrual items, and includes changes in working capital and cap-X investments. A formal FCF definition = Revenues MINUS cash expenses PLUS non-revenue cash receipts PLUS or MINUS cash changes in working capital MINUS Cap-X expenditures. If you have prepared cash flow statements for a bank, you are close to preparing an FCF statement. The conversion from your GAAP statement to a cash flow statement is a three-step process. Start with your GAAP Income Statement Convert the Income Statement to Operating Cash Flow. Reflect the Cash Impact of the Working Capital Change and Cap-X. You start with the Operating Income in Step One, make changes to convert to Operating Cash Flow, and reflect the cash impact of Working Capital Change and Cap-x. In the end, you wind up with FREE CASH FLOW. So, what helps management manage the business and, as a result, improve the value of the company? Working with GAAP statements or FREE CASH FLOW. FCF is the correct answer. And when you can convert your internal GAAP statements to an FCF statement, the decision process becomes easier to use and corrective steps easier to make and follow up on. George Christy notes how Warren Buffett made his money by determining the value of a target company by calculating discounted cash flow. I have seen this discounted cash flow calculation many times. Current thinking is that older financial types were brought up using GAAP and will continue to do so. On the other hand, recent accounting graduates and Certified Financial Analysts (CFAs) are switching to a FREE CASH FLOW because every executive out there wants to know their FREE CASH FLOW position, which in turn converts into a company valuation. So, is GAAP out? Perhaps not entirely, but for the ability to stay on top of your company’s value and, at the same time, utilize free cash flow data to manage sales, customer activity, corporate reports, peer group analysis, and M&A activities, GAAP cannot compare to the FCF analysis. I am going to set up a template to use for determining FCF and to guide the use of the report in improving results. Interested in participating, give me a shout …sounds like fun and will be interesting to see how the reports turn out. You can make your request through Dean. His email address is dmillius@MHWmag.com. Also, I am going to ask Dean if we can get us a deal on the book purchase. About the Columnist: Garry Bartecki is a CPA and MBA with GB Financial Services LLC, and a Wholesaler columnist since August 1993. E-mail editorial@mhwmag.com to contact Garry.

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Think before you buy: The hidden cost of tariffs

Tue, 20 May 2025 05:00:33 +0000

I talked with Jim Margner (my state and local tax expert), who prepared notes for the Illinois Equipment Dealers Association presentation. I attended one of Jim’s prior sessions for this group, and he did a very nice job related to a highly complex topic. Illinois changed the rental equipment use tax collected when rental equipment is purchased to one based on rental billings starting January 1, 2025. The tax is not only based on rental billing but also on rental rates for the city where the equipment is being used. In other words, rental coordinators must have access to a rental rate list by city or town to estimate or prepare a billing invoice. As we discussed the potential problems associated with a rental tax using various rates, I started thinking how tariffs could complicate matters even more. Since rental rates are related to the cost of equipment, one must assume a unit that generates a tariff will have a different rental rate than a similar unit without a tariff. On the other hand, it could be tough to explain to a customer why one unit’s rate is 50-100% higher than that of a similar unit. So, based on this discussion with Jim, I decided to prepare a discussion paper this month to help you understand how tariffs will impact your financial statements and cash flow. After just playing around with this topic for 30 minutes or so, I came up with about 20 questions and a transaction tree to demonstrate options dealers must account for regarding tariffs. And from what I can tell, it will be very easy to mess up your financial and cash flow if tariff purchases are material. ACCOUNTING FOR TARIFF ON EQUIPMENT PURCHASES When a U.S. company purchases equipment from a Chinese vendor with a 50% tariff, the tariff impacts the overall cost of the equipment. The tariff is included in the equipment’s purchase price and capitalized on the Balance Sheet for accounting purposes. This increased capital cost is then depreciated using your standard book depreciation rate. The immediate cash outflow includes the purchase price plus the tariff, representing a significant financial commitment compared to a pre-tariff transaction. IMPACT ON EQUIPMENT RENTAL TRANSACTIONS For equipment rental transactions, the 50% tariff increases the cost basis of the rental equipment, affecting rental pricing. Higher acquisition costs necessitate higher rental rates to maintain profitability on the “tariff” units. Dollar utilization is typically profitable in the 35-40% range. 35% of $100,000 is quite a bit different from a similar unit costing $150,000. And the issues do not stop there. What about financing that $150,000 unit? What would the OLV (Orderly Liquidation Value) be on such a unit? But no matter how you slice it, a dealer must recover cost plus profit or risk damaging financial performance metrics. Do not forget that the interest cost of financing tariff units will be 50% higher than financing a non-tariff unit. Also, consider any cost increases related to parts purchases with a tariff tagged on to them. Another issue that blew me away was the pricing for rent-to-sell units and the potential higher parts costs incurred to maintain the unit before any purchase occurs. Good luck explaining this type of deal. CASH FLOW Additional tariff cost before the unit can be released to the buyer. Additional maintenance costs if parts are subject to tariffs. Higher interest cost for both inventory and rental units. Higher potential sales proceeds from both new and used rental units. Lower department margins if the cost of tariffs is not covered by sales prices that ensure profitability. MY THOUGHTS Avoid tariff purchases. Buy used units to support the rental fleet. Avoid RTS transactions using tariff units. Find ways to recover the tariff tax to avoid a cash crunch. Refurbished customer units instead of selling new tariff units to them. Watch the time between when the tariff is paid and subsequent cash receipts from sales. Adjust budgets and cash flow models as tariff units and transactions increase. Business Owner and department heads: GET A HANDLE ON THIS ASAP OR OUTSOURCE AS NECESSARY. The tariffs will eat into your equity position if you take a wrong turn. About the Columnist: Garry Bartecki is a CPA and MBA with GB Financial Services LLC, and a Wholesaler columnist since August 1993. E-mail editorial@mhwmag.com to contact Garry.

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Economic decisions in an uncertain business climate

Sun, 20 Apr 2025 05:00:14 +0000

Our financial world seems out of whack and will probably continue to be for the rest of the year. This leaves dealers and their customers to generate two or three business plans for the rest of the year, hoping that the plan they decide to use generates positive cash flow and at least a decent gross profit margin for the full year. I included your customers in this process because their decisions will impact both your top and bottom lines. Consequently, you will want to have discussion points to discuss with them, including thoughts on the economy and pricing expectations should costs increase due to tariffs and/or inflation. However, dealers who purchase new units produced in the USA will be exempt from any tariff costs but may still feel the impact of inflation. Dealers who receive units or parts with a tariff cost will have to decide whether to pass on the cost, not pass on the cost and thus reduce margins, or defer the tariff cost hit to a future date when there is an opportunity to pass it on to a customer: many options, and a headache for your CFO and Sales Staff. Considering this a critical topic for dealers, I have read at least twenty-five expert reports on both inflation and tariff revenues and costs to customers and, thus, consumers. Does it surprise you that many of the expert reports were 180 degrees apart? Some made sense, and others you are saying to yourself, “What the hell are they talking about?” I had notes, charts, and diagrams all pointing in different directions. However, as I suspected, my March 15 publication of John Mauldin’s Thoughts from the Front Line delved into the topic with nine pages of financial data and comments about inflation and tariffs. And this was only Part 1 of the report. Part 2 was part of the March 22 report, which contained numerous charts and discussion points that led to a reasonable conclusion, enabling you to have a meaningful conversation with customers and staff. I sent Dean both digital issues and asked if we could provide access to their reports. He gladly agreed. Danielle DeMartino Booth is the author of both reports. She used eighteen million data points and analyzed each component of the equation to ensure that all data was normalized and up to date when the analysis was completed. The conclusion reads as follows: Tariffs will raise the cost for the initial buyers. Initially, the decision will be whether to increase the price or not. We are at the start of a recession where demand is slowing. Lower demand will result in lower prices, enabling steady sales. Inflation was 1.3 % in the last 12 months (March 24-25). To 1.5 % shortly. Recessions are deflationary. It will take you an hour or so to get through the two reports. To support the soft demand, have the shopper in the house note how many discounts and specials they see at the store. Now you should be able to plan the rest of 2025. You may want to sign up for Danielle’s daily newsletter. You will find it in the March 22nd report. The good news about this report is that you can expect at least a 0.25% cut in interest rates, but more likely a 0.50% reduction. It would be a good idea to defer renewal discussions with your bank. This information should also be helpful when explaining financing terms with potential or existing customers. And, of course, something may blow up the entire expectation. What is the caveat investment companies use after giving some advice? Whatever it is, use it here. Back to Robots for a few minutes. In his most recent column about the future of robot technicians, Jeff Brown, the Editor of The Bleeding Edge, was asked a question by a reader who stated that he could not find any technical or trade schools that teach servicing, maintaining, and modifying industrial, manufacturing, and logistics robots and robotic systems. Jeff responded by saying this is the perfect time to consider a career path in this field. He suggested that you contact the ARM Institute, which has a website at ROBITICSCAREER.ORG and offers tech training programs nationwide. Other sources were also listed. I plead with the Dean to include Jeff’s column as well so you can find as many sources as possible to address this area of expertise. These may be the sources you need to extend your level of expertise to current and new customers. The schools will know who produces and installs robotic components. I believe this will become a substantial part of your future income.” In another report, I came across an article about China’s dark manufacturing operations being up and running, with plans for many more. After reading the title, I asked myself, “What the hell is this all about?” As it turns out, these facilities are 100% without light in the factory. Do you know why? BECAUSE THERE IS NO ONE INSIDE THAT NEEDS TO SEE! YIKES! Time to sign off. About the Columnist: Garry Bartecki is a CPA MBA with GB Financial Services LLC and a Wholesaler columnist since August 1993. E-mail editorial@mhwmag.com to contact Garry.

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AI and Robots are aiming for dealers. Are you prepared?

Thu, 20 Mar 2025 05:00:32 +0000

Last month, we covered performance gaps and how to avoid them because if you cannot prevent them, there is a very high percentage that the company’s value will be less than it is today. Even though management would like to avoid performance gaps, doing so is a significant cost. And who wants to invest $100,000 + to do the “fix” and then find out it will not work as intended, which includes a negative return on the initial investment, which depletes company value? I believe the performance caps will provide a negative return on investment, so it was suggested that dealers planning to sell within ten years may want to do so now and avoid both the performance gap and the potential negative technology investments. I am mentioning this again because I am finding additional issues and problems, and opportunities that will cause dealers to rethink how they will be doing business five years from now and how the dealer revenue silos cash flows could change from what they are today. For example, what types of equipment will you see on either a manufacturer or distributor floor? Is it the equipment you sold them? If not, will you be able to service any new types of equipment they have for moving objects and inventory? I am referring to using robots in the manufacturing and/or distribution process. Over the last month, I have read many emails and articles about the use of AI (in its many forms) and robots. To help accelerate this process, I read an article suggesting that robots cost about forty cents an hour to operate. They can work all day, seven days a week, if necessary. In other words, they are invading your market sooner rather than later. So, what happens to the fleet in the field, the short-term fleet, the used equipment for sale and the new units on order? I expect that at some point, not too distant in the future, the demand for lift truck purchases as we know them today will decrease as robots take over more and more of the manufacturing and distribution functions. Assume that your OEMs recognize this new opportunity and can collaborate with companies installing the latest systems and procedures associated with this evolution. If so, dealers will benefit from participating in the changes taking place by providing maintenance for the new equipment and even the robots if necessary. Who else would be best suited to do this work, especially if you participated in the transition? Is there any doubt that customers are looking for ways to use AI et al., along with robots, to reduce costs and increase productivity? Not a chance. That being the case, dealers should get acquainted with providers of AI services and robot installations using some form of partnership arrangement that benefits both parties. Then, as current customers show interest, you are there to assist with the transition and maintenance requirements. And, if things work out right, new customers may result from introductions from the system/robot team, a win-win situation. Training your techs to work with the new systems would be required, and your partners selling and installing systems, equipment, and robots would provide it. Knowing how tight the tech market is right now, your partners will be more than glad to have you take on the maintenance. Should these programs start as discussed above, dealers must plan how to redistribute the number of fleet units to keep on hand for sale and rental purposes. Remember that customers will need your assistance to sell the units they own and have on long-term rental. Methods to assist customers should be finalized and presented using a formal worksheet. As the transition moves alone, dealers will carry less inventory, new, used, and parts. I thought I would bring this up because robots are coming, and if you have seen how the Tesla plants work, you will not see any lift trucks on the floor. So, you will start hearing stories about employee reductions on shop floors and warehouses. If you hear of any, make it a point to visit the site. Other topics to bring up this month are as follows: Make sure you are not overpaying for tariffs. There is no decision yet regarding the business tax situation. Interest rates should come down mid-year. Equipment Watch shows reductions in equipment values. Doing refurbs should be under consideration. You can assume that your bank will take more interest in your company, its collateral values, the date your loan matures, your coverage requirements, and your free cash flow. Once they get a hint that your balance sheet is moving around because of customers’ technology programs, you will be asked for more financial data to show how you will manage the change. Enough for today…. About the Columnist: Garry Bartecki is a CPA MBA with GB Financial Services LLC and a Wholesaler columnist since August 1993. E-mail editorial@mhwmag.com to contact Garry.

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AI and Robots are aiming for dealers. Are you prepared?

Wed, 19 Mar 2025 05:00:32 +0000

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Does your dealership have a performance gap?

Thu, 20 Feb 2025 06:00:12 +0000

As you know, I love to review business and industry data daily. I probably read 100 emails daily and receive various industry and financial magazines monthly. I find it notable how the content today compares to what I read five years ago. Even with my financial mind, I see some of this new data requires a new level of understanding, especially if a dealer wants to keep their current competitive edge. Companies must adapt to new costs and procedures to stay competitive today and into the future to improve productivity and efficiency. This keeps the company competitive even though competitors are going through similar exercises. Management will need to decide what changes they can afford and assess their ability to have the tech personnel in-house to monitor the installation of the new technology. But even more critical will be to determine the expected ROI on this investment and how to measure it. Dealers that take a long-term approach to their business will most likely do what needs to be done to protect their market and customer relationships, as well as have the ability to attract new customers. However, dealers may decide not to incur the costs of new technology because the company’s size would not allow them to absorb the expenses, which would negatively impact profits and cash flow. Dealers may also plan to sell the business within the next five years and do not believe that the tech expense will provide adequate returns over the next five years. This would probably reduce the company’s value because of the tech cost incurred. For the dealers who, for whatever reason, decide not to upgrade their technology, there is a problem that could prove to be very costly, and it has to do with their performance gap and the speed with which it will increase over the next five years. In other words, your company’s value could be worth X today but be worth much less five years from now because the performance gap has increased over the five years to a point where your company’s worth declined dramatically compared to what it is worth today. A performance gap is defined as the difference between the decided performance level and the company’s actual performance. I suggest that this gap should also be calculated against your competitors because a company could meet its internal goals but still fall behind competitors who are taking steps to improve productivity and efficiency to the point where they are more price-competitive without missing profit and cash flow requirements. In one of the emails I read, it was suggested that those planning to sell in five years should sell now when the performance gap is at a level where a buyer can upgrade the technology with a reasonable ROI. Selling now may even be more beneficial because of the potential new customers anticipated because of the new USA policies wanting to bring back manufacturing. What makes this so different now is the speed at which changes occur. This sudden change in activity could very quickly affect a company’s value over five years. Those that adapted get better results, and those that didn’t adopt have the exact numbers they had five years earlier. It appears this would cause lower values for companies that did not embrace it. Let’s review what can cause a performance gap. Technological Advancements- Invest or fall behind. Talent and Skill Development – Improve or fall behind. Process Optimization – Better efficiency and resource utilization or fall behind. Innovation – Stay ahead of the market or fall behind. Customer Focus – Meet customer needs or fall behind. Leadership and Strategy – You either have it or not. Addressing these factors proactively can close a performance gap and improve long-term success. BUT THEY REQUIRE CAPITAL AND EFFECTIVE LEADERSHIP. This capital requirement could be substantial for many dealers. Assuming you have a borrowing capacity, it may require a capital contribution from the shareholders or a new bank loan. If I were facing a widening performance gap and there was no funding available, I would determine the company’s market value and review the dealer agreement to see your options. When considering the options, the early sale is probably the safest option. Making significant investments now would not be high on my list. I would take my money now at these lower tax rates or work out an installment sale so you can keep working if that is what you want to do. Those dealers in for the long-term should look into getting some outside help to create a plan of action, determine if there is adequate tech horsepower in-house, oversee negotiations for the purchase of new technology, manage the installation of the latest tech, estimate an ROI on the investment, train the staff how to use the new tech, and track company performance against industry metrics and the ROI estimate. There are people out there who provide these types of services. Do you have a performance gap? Are you planning on selling out in the next five years? Are you able to work through the performance gap factors listed above? How are you performing against MHEDA stats? If you have concerns, get some help. About the Columnist: Garry Bartecki is a CPA MBA with GB Financial Services LLC and a Wholesaler columnist since August 1993. E-mail editorial@mhwmag.com to contact Garry.

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You know what they say…..

Mon, 20 Jan 2025 06:00:19 +0000

I hope you had a splendid holiday week! There certainly were plenty of football games to watch. Besides a wicked hockey schedule related to my grandson’s two players, which is tough to handle when you have two players on different teams, it was a fun weekend and a relaxing Christmas week. I spent a lot of time thinking about all the issues I mentioned in last month’s column and how they will impact the markets I follow, including lift truck dealers, construction equipment dealers, equipment rental operations, and contractors and/or customers who use the types of equipment noted. It certainly keeps me off the streets. I go through many, many, many emails a day related to topics of interest. I also use YouTube to find issues related to my topics of interest. Doing so last week, I noticed comments about the auto industry that were a bit disturbing because they tied in with one of the email reports titled THE AUTO INDUSTRY WILL NEVER BE THE SAME. When I combined the two information sources, I was forced to concentrate on how this data could relate to the lift truck industry. Thus, the title for this month’s column because what happens in the auto industry will eventually work its way into your dealer operations. The Auto Industry comments were in a report from the Bleeding Edge, for which Jeff Brown provided the content. It is a great tech financial and investment publication that I follow religiously. My other sources for this month came from YouTube, from programs that cover the cost and value of new and used vehicles. A summary of Jeff Brown’s comments is as follows: The U.S. auto manufacturers felt a need to become more of a tech company to increase their share values, like how Tesla is valued. To become more “technical,” they invested BILLIONS of dollars with little to show for it. Google and Tesla will provide autonomous driving software in 20 cities in 2025. Any car company without offering autonomous technology, like Tesla, will face financial issues and falling share prices. Car companies could license autonomous technology from Google or a major competitor, Tesla. It’s not a pretty picture for U.S. manufacturers and their dealers. Great for Tesla! The YouTube contribution summary is as follows: Dealers have a lot of inventory to clear out to allow the 25 models to ship. Customers are not buying the high-priced models. The EV models are not selling as expected. CarMax is selling cars for lower prices than last year and making more money. CarMax is paying dealers less than they were last year. Dealers lowering trade-in values on used vehicles. The quality of foreign vehicles over the last 10 years has improved. There are many foreign models that can deliver 300,000 miles following a normal maintenance program. After initial depreciation, you can purchase a high-quality foreign model and still get 250,000 miles out of it. Why buy new, overpriced vehicles when you can purchase high-end models for much less money? Both dealers and OEMs are in trouble, more so for some brands than others. So, the big issues to ponder are: How do the brands you sell compare tech-wise against competitors? Can you deliver your product along with tech value-added products, such as warehouse systems and manufacturing processes? Can you be competitive with price and produce more profit than in the previous year? Can you use your trade-ins and transform them into a refurbished unit? Are you providing a maintenance program that will stretch out the unit’s useful life? There is no doubt customers will catch on to what is going on in the market. Their job, just like yours, is to stay a step ahead of them regarding technology, productivity, and efficiency. In short, more for less. OEMs will find themselves in the same situation regarding inventory and new models. However, they do not have a CarMax to sell units to or have dealers sell units to who can, in turn, sell to other dealers or end users. The way I see it now is that the most tech-advanced lift trucks will take market share. In terms of dealers, the most advanced tech dealers will take market share. If you happen to be a dealer who represents a high-tech brand and delivers high-tech information and services, you should be improving market share in 25 and beyond, Another piece of information I picked up is that CEOs and CFOs plan to invest substantial time and money into systems and AI to make them efficient and easy to do business with. These events are happening much faster than anticipated. OEMs and dealers should work together to take advantage of these new opportunities. About the Columnist: Garry Bartecki is a CPA MBA with GB Financial Services LLC and a Wholesaler columnist since August 1993. E-mail editorial@mhwmag.com to contact Garry.

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Tune up time

Sun, 20 Oct 2024 05:00:44 +0000

It is time once again to figure out how you did compared to last year, against budget, against cash flow budgets, and against your peers. We review the overall results and then dive into each department. Finally, you review personnel in each department in terms of “sales per employee,” gross profit per employee, and then sales and gross profits per employee for each department. Good for you if you find yourself in the top 25 % of the peer group. If you did not, there is a ton of $ available waiting for you and your team to harvest them. And really, there is no excuse not to make strides every year to close the gap between the Top 25 and your results. Get the SEC documents from the public companies in your SIC code to make this study even more interesting. They make it interesting reading when they explain market fluctuations, supply chain issues, changes in customer demands and expectations, and the sales per employee stats that most of them provide. Your internal review and a public company financial report would be great topics for your 2025 strategic planning meeting. Many companies also have their “ANNUAL” meeting around this time to discuss the current year against the planned expectations and to approve the plan for the following year. The Board typically approves cap-X costs and related financing decisions at this meeting. A critical topic for the remainder of this year and next year will be inflation and how the fed rate reduction affected inflation going forward. The essential points are as follows: REDUCING INFLATION DOES NOT MEAN PRICES DECLINE. IT MEANS THE ANNUAL INCREASE WAS REDUCED. AND THERE STILL IS INFLATION BECAUSE THE GOAL WAS TO REDUCE IT TO 2% PER YEAR. SO, YOU STILL HAVE INFLATED COSTS, BUT THEY ARE NOT INCREASING AS THEY HAVE IN THE LAST FOUR YEARS. THE COST OF PRODUCTS COULD DECREASE BECAUSE OF DEMAND AND SUPPLY ISSUES. LET’S ASSUME YOU AND YOUR OEM ARE STUCK WITH UNITS THAT COST OUT AT THE HIGH END OF THE RANGE. IF YOU NEED TO TAKE A HIT ON THESE UNITS TO MOVE THEM, THEN THERE WILL BE A PRICE REDUCTION UNTIL THE MARKET IS IN BALANCE ONCE AGAIN. BUT THIS DOES NOT MEAN THE PRICES WILL FALL BY ANY SUBSTANTIAL AMOUNT AND STAY THAT WAY. PRICE REDUCTIONS, TO ANY GREAT EXTENT, WILL CAUSE DEFLATION, WHERE PRICES WILL, IN FACT, DECREASE UNTIL THE DEMAND EQUATION IS IN BALANCE AGAIN. DEFLATION IS USUALLY CAUSED BY RECESSIONS OR DEPRESSIONS, WHICH PRODUCES A WHOLE OTHER SET OF ISSUES TO DEAL WITH. IN THIS DAY AND AGE, AN OEM OR DEALER CAN PRODUCE DEFLATION AND, AS A RESULT, BE MORE COMPETITIVE IN THEIR MARKETS. YOU CAN ACHIEVE THIS GOAL BY DEVELOPING A PROGRAM COMPRISED OF INNOVATION-PRODUCTIVITY IMPROVEMENT- AND AUTOMATION. BY REDUCING COSTS AND SPEEDING UP PROCESSING A COMPANY CAN OFFER MORE EFFECTIVE PRICES AND CREATE THEIR OWN DEFLATION, WHICH FLOATS DOWN TO CUSTOMERS. One last point on inflation: It contains two indices: one for products and services and one for payroll. The payroll results may not decrease as much because of a shortage of help in most industries. Keep this in mind when planning for 2025. The experts are expecting payroll increases in the 3.5-4.0% range. Another reason to do more with less is to keep costs in check. Your financial arrangements also need review. Bank terms and rates to see if you can renegotiate your loans to reduce interest costs or to spread out payments in some way to reduce cash outflow. I would not hesitate to shop my loan package to reduce my rate and/or to push out the payment schedule. And what about customer financing? Customers would also like to reduce their rates and spread out the payments. Can you or your OEM do anything to reduce their cash flow burden? Insurance has also been costly. Shop your program with at least three carriers. Work with an experienced broker who can read and suggest upgrades or changes needed in the policy. Please pay special attention to cyber coverage because it will require internal upgrades on your part before it begins. I would ask my IT folks to review the Cyber policy to ascertain that you can provide the IT coverage required to support and protect your systems and information. And how can any tune-up not discuss local, state, and Federal taxes? I suggest you take advantage of the current tax programs before year end because many of the current breaks are set to expire in 25. And it goes without saying that customers should consider doing the same if it fits into their current financial plan. Have your tax folks make your sales department knowledgeable about these opportunities. There is, of course, a possibility that the current tax breaks will be extended, but that will depend on who wins in November. You have heard a lot about FREE CASH FLOW, which is next month’s topic. I would like to know if any of you have had the opportunity to discuss AI, etc., with Connor Group. If so, please let me know how it went. HAPPY PLANNING! About the Columnist: Garry Bartecki is a CPA MBA with GB Financial Services LLC and a Wholesaler columnist since August 1993. E-mail editorial@mhwmag.com to contact Garry.

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Must read: Dealers, we have an opportunity for you

Fri, 20 Sep 2024 05:00:39 +0000

Another year-end is approaching. But I’m not sure what to expect for next year. Before we do anything further, I wanted to review the AI program we have made available to you. Some of you must be thinking, WHAT IS BARTECKI UP TO NOW? Well, let me tell you. The goal is to produce a dealer standard for investigating AI, to determine if your system and data can provide meaningful data to assist customers and improve internal processes and knowledge to do more with less, to determine how long it will take to implement a workable program, and finally, how much investment is required over what period, along with an estimated ROI to expect from this investment. Can you see the benefit here? What you do with Connor Corp will become an industry-specific dealer program where you will find industry-specific answers and suggestions about using AI in a dealership. Since this is a no-cost program until you decide to move forward, you can contact Connor, and they will compile a file based on what they hear from dealers and address it in their monthly column in MHW. And don’t worry; no specific dealer will be identified in the column or during conversations with dealers. I suppose dealers representing a particular brand could assemble an AI group to discuss how their group could benefit from AI and, if so, have the OEM participate in the AI planning. All participants in the process are on the same page. So please take advantage of this benefit for two reasons: 1. It will benefit your operation internally and externally when dealing with customers. 2. Going through this process will provide you with a path to assist customers who are going through the same process. In short, this would be a value-added benefit on your part. So please give this a shot if you are investigating AI or have decided to move ahead based on your work to date. In either case, industry-specific findings will help reduce the cost of implementing AI and the time it takes to install it. I hope readers will provide input into the process so that other readers can benefit from their conclusions and findings. To me, having a process to help me through this type of expenditure geared to my kind of business would be at the top of my list. I want nothing better than to be able to compare notes with other dealers to avoid costly mistakes. So please use Connor Corp, and let’s get the program going because it will make your life a lot easier regarding AI decisions. On to another subject. How about we review where we stand regarding inflation and deflation? Inflation is moving downward for certain products and services but is still above the 2% rate the Fed is looking for. In terms of inflation, James Altucher states we are suffering from a case of EconCovid because 40% of all money printed in the history of the US was printed in the six months after COVID-19 started in March 2020. Now you know where the inflation originated from. To contain and lower inflation, the Fed increased interest rates to reduce the funds and move them into banks to earn interest while slowing down borrowing to keep borrowed funds out of the money supply. Let me say that again: BORROWED MONEY CAN CAUSE INFLATION. I HOPE OUR RESIDENTS IN DC UNDERSTAND THAT. Deflation is also something to consider because if we have a slowdown that causes increases in inventory levels, prices will fall, and margins will take a hit. These deflation hits will have to be offset with payroll reductions and general cost-cutting to try and make ends meet. However, another cause of deflation could pop up even if we avoid a recession. This deflation will result from new forms of technology that will produce INNOVATION, BETTER PRODUCTION, AND AUTOMATION that will lower costs and thus pricing while maintaining margins. How about that…. a good deflation. With all that is happening, you can expect to deal with many variables in 2025 when planning for CAP-X, which contains technology, AI, and general production spending, no matter what industry you are in. My brother was in the machine tool manufacturing business until they opened the gates to China. You can guess the rest. In any event, he always told me that YOUR COMPETITOR IS YOUR BEST ENGINEER. FIND OUT WHAT THEY ARE DOING AND DO IT BETTER. In other words, who is considered to have a better operation than yours? Then, do your homework to find out why customers feel that way, and “poof,” you have a list of issues to work with to catch up and overtake them in your market. One last thing. I just finished reading Masters of the Air by Donald L.Miller. It covers the air war in WW2. This is an outstanding piece of writing, about 500 pages, that will personally impact you. It will make you cry, lose sleep, and maybe even come up with a nightmare or two. What we put those kids through is unbelievable. And they were kids…. flying B-17s. Give it a try….you will not forget it. About the Columnist: Garry Bartecki is a CPA MBA with GB Financial Services LLC and a Wholesaler columnist since August 1993. E-mail editorial@mhwmag.com to contact Garry.

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Help is on the way

Sat, 20 Jul 2024 05:00:17 +0000

According to a PwC Pulse Survey ….40% of Executives plan to implement significant reorganization, including layoffs. That is up from 23% a year ago. The changes will focus on productivity boosts and top-line growth, with technological changes leading the way to achieve the goals planned. It appears that margin compression is the key driver of the reorganization. If you cannot pass on costs to customers and remain competitive, actions need to be taken to reduce costs and find ways to increase revenue. Of course, artificial intelligence (AI) will be part of this program. A. McKinsey from McKinsey & Company has also reported that its latest Global Survey reflected that 65% of the respondents are using Gen AI regularly, double the percentage from their last survey ten months ago. WOW! And 75% of the respondents predicted that gen AI would significantly change their industries in the years ahead. The benefits of AI use relate to both cost decreases and revenue increases in the business units adopting AI technology. Many are using AI in multiple functions, meaning their analysis indicated that it would work in this function and provide a positive ROI. This is all valuable information, but we must consider that these McKinsey respondents are large companies with IT departments and managers who can spend to get the “learning” they need to make decisions about AI. Can smaller companies do the same thing? Not so sure they can, but if they do not, they will find the larger companies nipping at their heels in terms of supplying services to customers. It is no secret that large company reps attend conventions and shows to learn how to steal gross profits from smaller companies. Does anybody know Amazon? I have probably read about 100 AI-related articles to figure out what I would do if I were sitting in your office and decided that the company needs to take AI seriously or find ways to offset threats from competitors. So, what did I do next? I read another twenty-five articles and made fifteen phone calls to find a source to help me with my problem. One call I made was to my granddaughter, who happens to work in the system installation world, and told me why we can do this now. when I asked her for a referral, she responded, “Hell, we do that and are very good at it.” She works for a CPA firm that specializes in high-end financial management and, along those lines, has an IT department with a particular unit that helps companies of all sizes with AI implementation. The firm is Connor Group. I asked my granddaughter to send me the section from their website regarding AI, and after going through every page of the website material and related articles, I said to myself, “Self, this is what you have been looking for.” I say that because any small to medium-sized company could use this material to get a very good understanding of what is available, what choices need to be made, how to go about implementing the system, and how to measure the results from the standpoint of return on your investment (ROI). Not only did I send Dean a copy of this material to make it available to you, but I also called the managing partner of Connor Group and asked him if he would be willing to set up contact with our readers to address questions about how to set up AI, provide a range of the cost to do that and help you determine if your data can give the “answers” you are looking in terms of decreasing costs or increasing sales. Dean jumped on board and suggested we make this a part of the monthly Wholesaler publication you receive. This way, we could answer readers’ questions and share the information with our print and electronic readers. Only the questions would appear; the sender’s name, rank, and serial numbers would not appear. In short, MHW is taking an active role in making your company more efficient and profitable and assisting you with your AI effort so you get it done right the first time. In addition, I could see this work for twenty groups or work for OEMs who need to keep their dealers competitive. I could see dealers helping customers relate to AI. If you helped a customer become more profitable, do you think you would lose the business any time soon? In the end, we wind up with systems designed for equipment dealers. And you may want to inform your OEM that this opportunity is available. They may even want to work out a deal geared to their brand. What is in it for Connor Group? Fees, of course, if you use them to assist you. The goal is to learn the industry and get to the point where they have the expertise to where dealers would go to them first before calling another vendor. I think you will like their AI materials and see what I mean by saying they are presented in an understandable format using the right sequence of events. What do you think? What else can I do for you? Let us hear from you. Send your comments to Dean. His email address is editorial@MHWmag.com. I made a deal with him to only forward the nice ones and toss the others. On another front, I sent Dean the last issue of John Mauldin’s Thoughts from the Front Lines, dated June 15, 2024. It will give you an understanding of what we are in for and who it will hurt. There is more reason to shoot for the moon regarding AI to keep your financial position in the top 20% of the market. About the Columnist: Garry Bartecki is a CPA MBA with GB Financial Services LLC and a Wholesaler columnist since August 1993. E-mail editorial@mhwmag.com to contact Garry.

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Ready–Get Set–Do Something

Thu, 20 Jun 2024 05:00:00 +0000

Technology Rules. Every business or industry publication you pick up states….IF YOU DO NOT START TAKING ACTION NOW YOU WILL QUICKLY FALL BEHIND. Makes sense. But once you are in GET SET mode you have serious issues to deal with. What should you do? Who should do it? Can you fund it? Will the results improve profitability and cash flow? If you take steps to improve the business and it does not work, you may be in worse shape had you done nothing. Nothing is easy these days. Interestingly, those three books I referred to you last month deal with the doing and measuring side of the project. As a reminder the books were BUSINESS WEALTH WITHOUT RISK, HOW TO LISTEN WHEN MARKETS SPEAK AND NOT HOW BUT WHO. The Wealth Without Risk book covers ways to find and buy businesses and how to increase the size of your business with minimum risk. Buy small businesses because the multiples are MUCH smaller. Buy two or three small businesses and suddenly you have a large business that provides much higher multiples. Not interested in buying a business then enter joint ventures or partnerships where different businesses can bring added value to the table for minimum cost. In other words, what else could your customers buy from you? You can sell it directly or via a referral program. I always liked the “menu” approach to help customers where I share in the profits resulting from my referral program. And the menu is a great way to lock in your relationship. One more comment about the Wealth-Risk book. If you have someone living in your basement that needs to go out and make a living, I would provide them with the book and tell them to find something to buy that can be paid for out of the seller’s cash flow. A lot of targets exist. How many times have you heard that Joe or Mary is giving up the business because their “kids” do not want to work there? So, do you think Joe or Mary just want to walk away and sell off the hardware, or would they prefer a sale for one year’s profits and not have to deal with the liquidation? If you want to find something to focus on, I suggest you sign up for all the Distributor Strategies Group presentations, which seem to pop up every other week. I participate in about everyone and find they can help distributors increase sales, margins, and profits. For example, they reviewed a customer survey program where they must see how customers relate to their products and services. They asked for input regarding direct contact, inventory levels and fill rates, logistics, relations with sales personnel, and how company technology impacts the customer experience. The survey covered all “touch points” with the customer, from the purchase dept to the CEO. What was interesting and probably an issue all of you should consider is that the lowest grade from every customer touch point was directed to the company website. After all the work companies put into their website this result was unexpected, which means you may want to evaluate your website to see where you stand. Be a shame if you lose business because of your website. I suggest you sign up for DSG and force yourself to listen in to their presentations. So let us assume you come up with a plan to update or create new revenue sources, or you decide to take your initial shot at AI. Now all you must do is get it done. We are assuming and you should know that this project you have in mind will produce a meaningful result when it is completed. But you are a busy person that is asking yourself “How am I going to get this project done?” This is where the NOT HOW, BUT WHO book comes into play. The premise of the book is that folks will procrastinate because they do not know what to do, and if they finally get around to it, the work will extend beyond the original due date. So, the author suggests you find a WHO to complete the project without constant interference from the person asking “HOW”. Have a team scout out an expert who is qualified to complete the project and let them go at it. Of course, you will have to pay that person, but if the project has provided the original goal, it should provide a reasonable ROI to justify the cost. I guess the bottom line here is that there is just too much discussion going on about how a company could lose customers because they cannot service their accounts like the dealer who upgraded their technology or value-added services to the point where they are a better option for the customer. This would be a good time to discuss ideas and challenges with your OEMs to find the WHO’s who can do the work or who can put together a program to improve dealer bottom lines using some of the cost-effective ideas found in the WEALTH WITHOUT RISK book. READY- GET SET- FIND SOME WHO’’s. About the Columnist: Garry Bartecki is a CPA MBA with GB Financial Services LLC and a Wholesaler columnist since August 1993. E-mail editorial@mhwmag.com to contact Garry.

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Programmed growth

Mon, 20 May 2024 05:00:19 +0000

Tracking the markets as I do, the April results left me wondering what the heck is going on, especially when META reported far lower-than-expected guidance. In addition, earning reports were soft in many cases with the industrial base reporting a lower confidence index. Adding in what you read about logistic companies leaves you thinking that a problem is brewing which could impact an industrial lift truck business. So, do we achieve growth via the GDP, do we have inflation under control, or do we not expect a cut or two in interest rates? I went into my files and found a chart titled Where Inflation Is and Isn’t. It covers 29 cost categories and when you put together all the increases and decreases in costs you wind up with an average inflation rate for the last twelve months of 3.5%, which is 75% above the rate the Fed is looking for. It is hard to believe we will get to the 2% level anytime soon. Even if we try our hardest to get that inflation rate down, the onshoring or re-shoring efforts will surely kick prices. New factories to build. More personnel are required. Higher financing costs. And if unions are involved you can bet that your costs will be higher. I believe we are in Stagflation … where we have inflation as well as shrinkflation….even though the economy is slowing. A tough place to be if you are a business owner. Shrinkflation is the twin of Inflation. Inflation is where you get higher prices for your standard volume. Shrinkflation, on the other hand, lets you keep the older price but removes the product to make up the difference. I don’t think you can do that with a lift truck …but dealers are probably paying for products that are now coming in smaller packages. Then add on the ever-increasing government regulations that will cost you more to comply with. They continue to tell you how to run your business, how much you must pay employees, and what is allowable regarding non-compete agreements. When you look at a chart covering the number of regulations that are in effect, it is overwhelming. Business and Industry organizations are now suing the government to reverse many of these costly regulations. And, on April 24th it was announced that the Trump tax mandates scheduled to end in 2025, will be allowed to expire. Get ready to write bigger tax checks and pay more for the utilities that provide energy to run your shops. You may have heard the new rule about Overtime that creates two separate increases to an employee’s minimum annual salary threshold in a year, leaving you to assess how best to comply. Here is the link to the article on this Overtime rule from ManufacturingDIVE. Be sure to sign up for this free newsletter while you are on the website. Nikole: Link: https://www.manufacturingdive.com/news/overtime-rule-2025-lawsuit-flsa-compliance/714435 And I am not to even mention AI … since you hear about it every single day. The last is a statement by an AI expert that companies that do not adopt and use AI will be out of business by the end of the decade because they will not be able to compete on either a cost or service basis. In past articles, I mentioned numerous times that dealers need to do more with less to reduce costs and improve efficiency. I believe that every business out there needs to perform at a more efficient level to generate the cash flow needed to pay the bills and provide an adequate ROI. So, how do you do this and retain your sanity? Since I brought this new business model to your attention, I thought I should provide some guidance on how to “make more with less” with not much investment on your part. I am going to give you a list of three books to read that will help with this process. The first is HOW TO LISTEN WHEN THE MARKETS SPEAK by Lawrence McDonald. This book will educate you about what is going to take place because of the disastrous policy decisions and artificial disinflationary forces in place. And how we are about to witness a new era of sustained inflation, corporate debt crises, and great shifts in wealth. In addition, the US is weakening the reserve currency status, while adding Russia, Iran, and Saudi’s because of our stance on oil and gas. READ THIS BECAUSE IT WILL HELP YOU UNDERSTAND WHAT YOU NEED TO DO TO MANAGE YOUR WEALTH. The second is BUSINESS WEALTH WITHOUT RISK by Roland Frasier and Jay Abraham. You will learn from these two gentlemen how to grow, scale, and exit your business. They provide a list and worksheets to help you improve your business, how to add more value to your customers for the products and services you provide, and how to then sell the business for a much higher multiple compared to the multiple you could currently get. Once you read this book, you will keep it on your desk and read parts repeatedly. Not only do the authors provide information. They will also assist you on your path to greater wealth. The third and last book to read is titled WHO NOT HOW by Dan Sullivan and Dr. Benjamin Hardy. Want to learn how to save time and money and add to your business value? Who doesn’t? Unfortunately, many of us have great ideas about what we need to do but do not know or have the time to develop or execute the plan. The authors suggest that if the idea is “real” then it pays to get the professional help you need to build the plan and get it implemented in a much shorter time compared to doing it internally or yourself. YOU FREE UP YOUR HOURS AND RUN THE BUSINESS. The hired hands take our ideas and get them put into place. Follow this program two or three times and the value of our business increases. To

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Future Business Silos

Sat, 20 Apr 2024 05:00:25 +0000

You have been following your standard business silos for many, many years. Let’s see, what do we have now: New sales Used sales Parts Service Short-term rentals Rentals with maintenance Rent to own (maybe) Other revenues and consulting I am not going to get into the GP Margins, since today’s numbers are all screwed up because of the pandemic and material and chip shortages that in turn increased your cost and thus your margin dollars even if you sold units below your expected margin percentage. And then the digital age hits you suggesting that you will have to modernize your systems and procedures to get more productive and thus improve your major KPIs. And then AI hits you and everybody telling you what you need to do to further improve the use of your data to increase sales, manage inventory, manage service and parts transactions, upsell other work and equipment, train and manage employee levels, and complete this upgrade while you are still managing to get back on track once inflation cools down to a level you can work with. Not only do you have to educate and plan for the future needs of your customers, OEMs, bankers, and employees, but your customers finding themselves in the same boat as you are going to expect guidance from you on how to upgrade their warehouse facilities whether they be a distributor or manufacturer. There are tons of emails and webinars to suggest how to adopt both the digital and AI worlds and receive financial results that will make you and them more profitable because of being more competitive in your markets. Competitive meaning your costs are lower, and your transactions are completed faster, with systems now available to customers to allow them to find, order, buy, receive, and pay for what they ordered when they need it. And, if possible, they would like this to happen without having to talk to anyone. Now you know what you must plan for. An example of what will be coming down the pike is provided by a company called Symbotic. They provide automation technology that reimagines the supply chain by developing technology that uses AI-powered robotics and software to provide the most efficient warehouse solution on the planet. Walmart, Target, and Albertsons are customers. Symbotic uses four steps to manage a warehouse. The Inbound Cell, where they process incoming pallets into storage. They can process 1700 cases per hour, compared to manual operations where 90-250 would be the norm. The Storage Structure, where products move at 25 miles per hour and are packed in ways that maximize vertical and horizontal storage density. As a result, customers can increase storage volume without increasing their real estate footprint. Case Retrieval comes next where orders are moved to outbound lifts and sequenced to Outbound Cells. Outbound Cells receive goods that have been ordered that are then palletized by density and stability at a cell rate of 1350 cases per hour. The ROI is outstanding because of LOWER OPERATING COSTS, 5-9x OUTBOUND EFFICIENCY IMPROVEMENT, 30-60% FOOTPRINT REDUCTION, INCREASED PALLET CAPICITY, LOWER TRANSPORT COSTS, FASTER INVENTORY TURNS AND 99.99% TASK ACCURACY. Sure, this is not cheap to do at present, but I can assure you that it will be available for more users sooner than you think. As your distributor or manufacturing warehouse customers read about results like this using robots and systems to reduce costs that would make them more competitive in their market, they will want data and input about these types of systems, which in many cases will fall into your lap for answers and suggestions. Now, knowing these changes are coming, let’s go back to your silos and see how they may change. The BIG change I see is in the CONSULTING AREA. Customers want more from their vendors. Customers will expect a lift truck dealer to provide ideas and suggestions on how to reduce costs and improve efficiency. If you cannot do that, they will find someone who can. Many dealers provide services regarding warehouse operations using internal staff or “partners’ that have more technical expertise to improve upon the systems and procedures currently being used. I assume OEMs would also want to participate in ways where their equipment could be used as more digital changes come into the marketplace. As far as the other silos are concerned, I can see new units that can provide robotic drivers would be in demand at much higher price levels. I can also see that the parts and service business would need to keep these units working and have a very high utilization rate. I don’t see these types of units being utilized through short-term rental but more in line with rental with full maintenance, priced at a premium because these units need to be working at maximum utilization. So, you need a very good group of techs. Maybe the warehouse consulting group has its own parts and service department. Your parts fill rate will also have to be close to 100%. Partnership arrangements of some sort would have to be made with warehouse system developers that could engineer a change in the AI world. There is going to be a lot of money to be made to help distributors and manufacturers reduce their overall material handling requirements. But these opportunities will cost the dealer as well and they develop the expertise to service their customers to a new level of profitability. About the Columnist: Garry Bartecki is a CPA MBA with GB Financial Services LLC and a Wholesaler columnist since August 1993. E-mail editorial@mhwmag.com to contact Garry.

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Changing landscape

Wed, 20 Mar 2024 05:00:38 +0000

And that is the problem. Inflation or no inflation. GDP growth or inadequate GDP growth. Job claims that help and worker shortfall that does not. Interest rates too high or not high enough. Consumer spending to slow because of increasing personal debt balances. Just what are economic factors telling us that provide comfort because you feel the “conclusions” our “guesses” are reasonable? As you know I read many economic reports and follow the markets closely to get a feel for the industries I follow. One of those is drafted by John Mauldin who I read religiously every Friday evening. It is a free publication, prepared for anybody who needs to get a feel for what is going on in the economy, which I hope then will assist with your ability to make both personal and business decisions. John’s February 17, 2024, letter is titled CHOOSE YOUR OWN ECONOMY, primarily to explain the complexities in today’s economic environment whereby economists are having a hard time deciding what data sets to select to be able to produce a meaningful forecast, which is almost impossible to do. In short, recent forecasts have not been close and thus leave us hanging from a planning perspective. I tell myself there must be a report that works better than most that explains where we are heading, and I find the CB Leading Economic Index dated February 24. The LEI is made up of several indicators that anticipate turning points in the business cycle, which then in turn can anticipate where the economy is headed. On average, there are usually 10.6 months between a peak and a recession. This report has been in place for many years with the last peak in 2021 and we are 12.8% off the 21 peak, which puts us 25 months off from the 21 peak without a recession. With 10.6 months being the average for a recession to follow a peak, 25 months from the last peak in 21 makes me think we are closer to a recession than we think. POINT #1 for this month is to plan thinking there is trouble on the way. The next issue I found interesting this month is the reshoring movement to bring more manufacturing back to the US and the rest of North America. GOOD NEWS for lift truck dealers because these shops will require lift trucks for both the manufacturing and warehousing of materials or finished products. POINT #2 for this month is to research the possibility of who may be coming into your territory to do this work. I would ask the sales team to question customers as well as OEMs about any activity coming your way. City officials would normally have leads related to permits or any approval process required to do the work in that City. Contractors may also have leads if properties need to be upgraded for a new tenant. Another important issue arising is the use of AI to better provide services and products for less cost than those not using AI. This topic was all over the February/March Forbes talk about AI and robots to do work for less cost compared to current methods being used. The important point is that larger firms are spending to accomplish this goal to better compete with firms that are not. Usually, a smaller firm has an advantage cost-wise. That may not be true any longer. AI is also being used to close the union versus non-union gap from a cost standpoint. POINT #3 for this month is to decide if your major customers are at risk because another major dealer can now compete on a product and service basis. After all, they are now more efficient and can reduce costs. I see this as a major threat for many dealers who do not have the time or funding available to produce AI to reduce costs and improve customer service. This is happening NOW and should be considered when you ponder what your company may be worth a year from now. There is, however, some good news that could help you mitigate these problems. I have a couple of sale deals working and in reviewing the M&A markets I see that Private Equity firms are moving into situations where they want to keep investments longer to set up platform companies and then acquire add-ons to grow the operation and increase the value to produce a healthy ROI. Sellers could sell 100% and be paid off. Or they could leave a piece of the deal and play the growth game for bigger returns when the deal is finally turned over. Or dealers with the financial ability could become a platform, take on add-ons, and sell to a PE firm. There are many options available. A shareholder could take a lifestyle approach and take as much out every year as possible. Or take an investment approach to grow the company and increase overall wealth. POINT #4 for this month is to spend some time to see how you fit into this CHANGING LANDSCAPE. Put in the time, effort, and funding to protect your investment or invest to grow wealth. There appears to be plenty of opportunity coming down the line stemming from the government programs and reshoring efforts being made by manufacturers to reduce costs. This potential business, however, will go to the most professional firms, with high levels of customer service and competitive cost, which may not be one of the smaller dealers in town. A lot to think about. About the Columnist: Garry Bartecki is a CPA MBA with GB Financial Services LLC and a Wholesaler columnist since August 1993. E-mail editorial@mhwmag.com to contact Garry.

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Potential $$ is coming your way

Tue, 20 Feb 2024 06:00:07 +0000

There are still plenty of questions and discussions taking place about what to expect in 2024. Management is really under the gun trying to properly budget profits and free cash flow, and at the same time trying to entice customers to buy units and parts and properly maintain equipment. Speaking of customers, seeing that they are in the same boat you are, are looking for ways to become more efficient through cost reductions and productivity gains, using help from vendors to help them do that. Hopefully, your management teams and OEMs are looking for answers to assist customers and are passing along those ideas for you to pass on to existing and prospective customers. Do you think customers would appreciate finding some potential cash that could be used for Cap-X purposes? Sure, they would. And would it not be great if you helped them find that cash? Believe it or not, some anticipated tax plays are coming about that I am assured will pass, and if they pass could provide immediate benefits in terms of tax payments. There are changes regarding: Bonus Depreciation Section 179 Interest Expense Limitation Contractor Employee Status The Tax Cuts and Jobs Act allowed 100% Bonus Depreciation starting September 27, 2017, and before January 1, 2023. So up through 2022. Starting in 23 the Bonus Depreciation would phase out at 20% per year until 2027. After that, it is back to normal tax depreciation methods. THE PROPOSED LAW EXTENDS 100% BONUS DEPRECIATION THROUGH JANUARY 1, 2026, WITH THE PHASEOUT BEGINNING THE YEAR AFTER. What is great about this is your ability to go back and use 100% for 2023. If you were basing your estimate payments using an 80% bonus to calculate taxable income, you can now adjust that annual result for the additional 20% you can adjust for. And of course, planning for 2024 would also include numbers using a 100% bonus. Of course, each company has its unique tax situation or position, and even with the changes, there are no general significant benefits. SECTION 179 is amended to increase the limit on Depreciable Business Asset expensing. For property placed in service after December 31, 2023, taxpayers can expense up to $1.29 million, reduced by the amount of cost of qualifying property over $3.22 million, adjusted for inflation. In terms of Business Interest, the proposal extends the use of EBITDA for purposes of regarding the limitation of the deduction for business interest. This amendment applies to tax years beginning after December 31, 2023 and will run through December 2025. These tax changes are positive for every dealer out there, but also very positive for customers who were not quite sure they wanted to invest in equipment in 2024. These unexpected funds could be used to buy, make a down payment, or just expand the business with the support of the new equipment. I suggest you put a plan together to discuss with customers to see where they stand on this issue. CONTRACT EMPLOYEE STATUS. This issue continues to tighten up because both tax and legal issues are involved to the point where not properly reporting payments for work could result in material taxes and penalties. We now have an economic reality test for determining workers’ status under FSLA. This new rule rescinds the 2021 Independent Contractor Rule and becomes effective March 11, 2024. There are now six factors to determine if a person is an employee or independent contractor: Any opportunity for profit or loss a worker might have. A financial stake or resources the worker has invested in the work. The degree of permanence of the work relationship. The degree of control an employer has over the person’s work. Work is essential to employers’ business. A factor regarding the worker’s skill and initiative. If the worker is an employee there are tax withholding requirements, as well as payroll taxes paid by both the worker and employer. Base pay and overtime, if earned, would also be included in the process. Then there are the Federal Unemployment Tax implications. And there could be benefits provided to employees. I am reminded that the contractor “payroll” may wind up being included for WC and General Liability insurance unless you notify the insurance company to not include the contractor expense. Contractors should supply an insurance certificate to the company. All I see here is a lot of exposure if you guess wrong. One other recent tax topic concern Limited Partner Status for SECA Tax (Self-employment tax). Since limited partnerships are popular these days, I thought I would throw this in to make you aware that if you participate as a limited partner the exemption requires a functional analysis of whether a partner was, in fact, active in the business of the partnership and a limited partner in name only. So, if you receive profit distributions from a limited partnership take steps to decide whether you are a limited partner or one active in the operation of the business. Document your functional analysis review. I believe a review of these topics with customers will be appreciated even though they have no additional funds coming. Will anyone else discuss these topics with them? About the Columnist: Garry Bartecki has been a CPA MBA with GB Financial Services LLC and a Wholesaler columnist since August 1993. E-mail editorial@mhwmag.com to contact Garry.

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Screwy numbers

Sat, 20 Jan 2024 06:00:09 +0000

I spend a good couple of hours each day reviewing stock markets and other investment commentary. Always loved investment adventures and even produced my MBA thesis discussing the merits associated with distressed long-term bonds. And guess what? For the period I was covering returns from buying distressed long-term bonds produced above average returns if you select bonds of companies that have a good chance of covering their debt service and paying off the bond on the original due date. As it turns out there is a service available to find the “good” distressed bonds if you are interested. During my daily review of the market, I keep hearing about this Company and that Company reporting earnings for the month or quarter. It seems the most important number is the sales number and how sales have increased consistently over the last couple of years. Thinking about that I say to myself, “If inflation hit 30% for inventory and other operating costs should I not have an increase in sales, even if unit sales took a hit?” HHHHHMMMM? Next question is: If sales increased, did I make more money? Next question is: How about additional cash flow? Considering that every $ of increased sales requires more capital to support it, how did I make out having a larger floor plan and higher AP balances. It is no secret that you need to spend money before you collect money, and thus the increase is working capital to cover the spread. Next Question is: Even if you believe you covered the price increases for new and used equipment, did you Increase margins enough to cover increases in operating expenses, payroll, and interest expense. It is also a time to compare actual activity along with sales dollars: Did you sell more new units and maintain margins? Did you sell more used units and maintain margins? Did you sell more parts and maintain margins? Did you sell more hours and maintain margins? Was your overall required gross margin attained? Does the total gross margin cover total operating expenses including interest? And when you consider that last question about covering total operating expenses and interest you must understand that this is a moving target since the monthly inflation rates keep jumping around, which means pricing may need to be adjusted throughout the year as expenses keep increasing. For example, if you have new units costing $20000 in your inventory and then received a delivery with a cost of $26000 and your goal is a minimum 13% gross margin on the sale, the selling price on the $20000 unit would be $23000 with a $3000 margin, with the newer more expensive unit requiring a $29900 price and $3887 margin at 13%. All in all, the cost, sales and gross profit all increased 30%, leaving you with an additional $887, some of which will cover increased expenses such as floor plan interest, insurance as well as contribute to expense increased operating expenses. You must go through this exercise for each profit silo to determine if the overall results and better than the previous year as well as the current year budget. If you are not careful this could turn into a full-time job. Maybe you can get AI to help you. If you are like the car dealers many of you are sitting on these high price units you ordered that you eventually received a year late, leaving you wonder what you are going to do with them. This is a BIG DEAL because Sally down the street avoided the high price unit problems and is now ready to sell units for less than you can. Now what? Do we give up the business? Do we take a hit on the sales? Do we buy Sally out? I guess you have some play with the pricing but wish to avoid giving up that $887 if you can help it. Do these enough times and the margin for the year will turn downward. And considering that new and used sales drive aftermarket sales, you do have to be careful not to upset the apple cart. What you do not want to do is sit on these higher priced units. The pricing will only get worse as time moves on. And I assure you that your banker will eventually ask you to pay down the units to an acceptable collateral number. So, it is better to find some kind of solution now to avoid a hit to the cash account. What to think about: Are there dealers who need inventory you can sell to at your cost to get it off your balance sheet? Can you work out a rental program using these units where you can transfer part of the risk to a future period? Can you sell off rental assets that are priced at the current levels and replace them with the new units to rent them out to pay down the units to a value where you can be competitive with pricing? Can you get the OEM to help? You also must consider these same issues with your parts department. You have parts at the old low cost mixed in with a good percentage of newer parts at the higher prices. If you’re using the first-in first-out method to account for parts costs, your current sales and going to look good but it will not look so good when the lower priced units are gone leaving you with a parts cost 30% higher when we are probably in a recession where business is slowing up at the same time. And consider that your customers will not what to pay the “higher” parts costs. It’s funny how they always have a handle on this sort of transaction. And if the economy does slow down with inflation following along, it probably means we are in a recession where you will start hearing the word “deflation” caused by vendors trying to unload excess inventory. Will it happen in your industry….

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It’s tax time! Are you prepared for what’s ahead?

Thu, 14 Dec 2023 20:50:41 +0000

Is there never a “TAX TIME” in the U.S.? Don’t think so. And I believe “TAX TIME” is going to increase dramatically. The PROBLEM being that the U.S. continues to spend more than it takes in, which we all know does not work in any way, shape, or form. And how do we fix this? By taking more money from you and your company. THERE IS NOT A CHANCE IN HELL THAT THIS WILL NOT HAPPEN, because in four years U.S. debt will be about $40 Trillion, carrying $1.2 Trillion of interest cost (at 3%) and $1.6 Trillion (at 4%). At the same time the annual debt to GDP ratio we are talking about exceeds 100%. The estimates for 2023 are $4,439 Trillion of tax revenues against outlays of $6,134 Trillion of spending, with the debt balance growing yearly without a game plan to reverse the situation. It will take both higher revenues and spending cuts to reduce the deficit, considering that a large portion of spending is fixed (Social Security, Medicare, Health benefits and interest expense), which all together add up to approximately $4.0 Trillion of outlays. Not a pretty picture. No matter how you look at our situation revenues need to increase, and outlays reduced to lower the total debt. I have suggested on many occasions that management spend time with their tax folks to fully understand what their tax position was for the past year, how it looks for the current year, planning for the current year with enough time to execute “tax” programs and to see what is on the horizon for the following year. I hope you have been doing this. If you followed this suggestion, you should have a pretty good feel for your tax position and the impact on that tax position should Congress take steps to increase all the forms of taxes you pay related to payroll, company taxable income and personal income. We find ourselves currently working with the 2017 TAX CUT and JOBS ACT that will expire in 2025. So, to start with let’s assume this ACT will be repealed. As a reminder of what the TAX CUT act provided here is a brief list of the benefits. Lower tax rates— higher standard deduction—Estate and Gift Tax exemptions —-bonus depreciation—a reduced deduction for mortgage interest and state taxes. Suggestions for raising revenue are as follows: Repeal the 2017 Tax Cut Act Raise the top income rate to 45%. Apply the 12.4% Social Security Tax on incomes over $250,000 Payroll taxes to cover all pass-through income Raise total payroll taxes by 1% Reduce estate tax exemption from $12.9 to $3.9 million Raise Corporate Tax rate from 21% to 28 % Capital gains and dividends taxed at ordinary rates Tax unrealized capital gains at death with a $4 million exemption Wealth Tax of 2% for net worth over $50 million and 3% for over $1 billion Further limiting or eliminating deductions A 5% value added tax Limit Charitable Donation deductions 4% on share buybacks Entitlement Program Reform- later access and higher cost 15 cent gas tax The income tax changes will only apply to those making over some set amount, with lower income tax brackets excluded. Cost reductions are not part of this list. Some of you may be wondering why Bartecki is talking about tax exposure 15-20 months out. I did this because the changes are significant and because it may take you a year+ to get your potential tax situation under control. Maybe the ESOP plan sounds better now? Should you gift your wealth to family members via a trust now instead of waiting for probate to do so? Should you accelerate your technology plan to reduce labor costs? Could a life insurance policy help with lowering tax costs? So many options to consider, so easy to make a mistake. But no matter what, there will be a substantial increase in tax costs for both the company and shareholders. Another situation to consider is the expected company cash flow under current conditions. Could you handle a substantial increase in tax spending? Do you know what your free cash flow position will be for 2024 and 2025. With changes in pricing and interest rates, it may wind up lower than what you are generating now. What would I do? If I am in the “sell” range I would look at selling in 2024 or 2025, understanding that at current interest rates the price may be lower than you like. If I am not in the “sell” range and the company is highly profitable, then the ESOP should be reviewed. If I have a substantial estate, I will investigate how to avoid any increase in the Estate Tax or the Wealth Tax. (With ESOP you do not own the company). I would investigate employment benefit plans to find out options for the Roth or IRA. I would find a tax attorney who knows how to use trusts to accomplish reduction of estate value and potential income taxes. I would investigate how to channel transactions through various entities or states to reduce tax. The bottom line here is all will pay more. How much more is up to you. There is not doubt that rates will increase, deductions eliminated, a VAT Tax added and Wealth Taxes in the form of taxable dividends and capital gains and well as a net-worth tax. I would also assume that deductions for IRA’s and 401K’s will be limited. Every time Congress makes these changes companies and individuals get caught with its guard down and pays a heavy price going forward. But you now have a jump start on the situation, especially where the high-priced changes are involved. What works here is you can plan, but you don’t have to execute until you are ready. Happy New Year! About the Columnist: Garry Bartecki is a CPA MBA with GB Financial Services LLC

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What happens in the auto industry…..

Thu, 16 Nov 2023 06:00:22 +0000

OEM’s and Lift Truck dealers have always been paying close attention to what is happening in the auto industry, thinking that these large major industrial players that also sell via dealer networks are a step ahead of the equipment industry, and that most of the current as well as any expected financial and economic changes incurred by the car industry will eventually wind up on the equipment dealer’s doorstep. And you know what, that is probably truer than you think. For example, let’s consider the latest auto industry adventure called the latest UAW contract renewal terms. They are asking for some substantial pay increases as well as benefit adjustments. The Ford contract asked for 25% increases over the term of the contract which will put the top rate up to $40 an hour, with a 68% increase for starting wages to over $28 an hour. That makes the top wage salary alone $83000, plus health and retirement benefits. All in, you are probably pushing $140,000 to $150,000 a year. This will not take place upon the agreement by the workers to accept the plan, but over the term of the new contract. So how will this new contract impact the auto industry? The PRICE of cars will increase, as if they haven’t already. The cost of REPAIRS will increase, as if they didn’t already. PARTS costs will increase for parts generated by the OEM. And my best guess is they will sell fewer cars annually compared to the past. OEM’s will reduce the number of employees by automating the build process along the lines of Tesla. Their stock prices will feel the negative impact of all the above. So, if what happens in the auto industry eventually winds up in your office, what can you expect and what can you do about it. I will bet you a cigar (Dean will provide them for you) that every manager reading this column will hear about the UAW deal from employees expecting to receive a comp adjustment starting January 1, 2024. Most of you have probably received these requests already. And since your techs, parts and rental folks drive your absorption factor, you probably will have to do something to keep them on board since we all know there is demand for experienced techs and parts personnel. So where does this leave you, the material handling dealer? Let’s compare the list above to your operation. If you increase your any fixed or variable costs (like payroll and benefits) you will have to sell more or INCREASE PRICING, thus increasing margin dollars to cover the new cost levels. The cost of your REPAIRS will have to be increased to maintain service margins, including work performed on maintenance contracts. Any PARTS department cost increases will also have to be covered via pricing upgrades. Seeing how all these factors impact new unit sales, I suspect customers will shop for the units and in the end your new unit sales will be lower than expected. Used sales and pure rental transactions should increase. Probably the biggest issue a dealer will have to investigate is how his/her competitors are doing regarding the same issues. If they hold to their current pricing, you have a problem. You will have to predict your competitor’s next move. You will need to find ways to improve productivity which will improve profit margins on a high percentage of your sales. To add to your problems, you will need to assist manufacturers and warehouse customers to improve productivity (this may come with a substantial cost component). Your CFO will need to play around with these various budget and cash flow implications. You could wind up with two or three versions to track, depending on how the sales numbers work out. Monthly and quarterly budgets are required along with the related cash flow analysis. We are talking about quite a bit of work here which may need to be outsourced. When you ponder your options long enough you come to realize that no matter what happens you need to take steps to improve productivity. Improve productivity and all the other problems become manageable because you have the flexibility to adjust as necessary without putting yourself in a bind financially. I also wanted to comment on last month’s column. In the Material Handling Wholesaler reader survey conducted in July you asked for more current info regarding ESOP’s. Consequently, I asked Nathan Perkins to provide some comments on the current state of the ESOP market and he produced a small book doing it. In any event it is a readable overview of the current ESOP market. If enough of you have questions, we can have a ZOOM meeting to discuss any questions you may have. So let us know if such a meeting would be beneficial and we will put it together. And, as mentioned before, there would be no disclosure of who is asking the questions. Next month, we will provide our annual tax report, current taxes as well as potential changes to the code. If you have any tax questions you would like addressed, please contact me and we will follow up and report next month. About the Columnist: Garry Bartecki is a CPA MBA with GB Financial Services LLC and a Wholesaler columnist since August 1993. E-mail editorial@mhwmag.com to contact Garry.

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Monetize your value Part 2

Fri, 20 Oct 2023 05:00:50 +0000

I am preparing an intro for this month’s topic, and then we will jump into material prepared by Nathan Hawkins asking him to update the readers about the status of ESOPs in today’s economic environment. I asked him five questions about the state of the ESOP (Employee Stock Option Plan) market, how ESOPs could help with recruiting and employee retention, what’s changed since the Pandemic, how interest rates and inflation have impacted ESOP transactions and what the future holds for ESOPs. I also asked for a recap of the tax benefits generated by an ESOP transaction (spelled additional cash flow). Hopefully, we can include all of this material in this month’s publication. I am afraid Dean is going to charge me for the additional space I am asking for. I am doing this because the annual readers’ survey indicated that readers wanted to know more about ESOPs. So, here you have it. I believe this is an important topic since I keep reading about markets consolidating through M&A transactions. In other words, you can sell it to an outsider or to your employees. With the ESOP you can sell 100% or 51% and get tax benefits. You can also use the ESOP and a platform to build a larger company. If there is any interest going forward, I am sure we could put together a ZOOM meeting to address questions readers may have. We, of course, would not disclose who is asking the questions. 1.What is the state of the ESOP market, and what are some of the key components impacting decisions today? Growing Popularity: ESOPs have been growing in popularity as a succession planning and employee retention tool for business owners. ESOPs can help owners sell their businesses to their employees, ensuring continuity and preserving the company culture. Regulatory Environment: The regulatory environment for ESOPs can influence their prevalence and structure. Changes in tax laws and regulations may impact the attractiveness of ESOPs as a business transition strategy. Financing: The ability of employees to finance the purchase of company shares can affect the feasibility of ESOP transactions. Companies may use a combination of debt, seller financing, and contributions from the business to fund the ESOP. Valuation: Determining the fair market value of a company’s shares for ESOP transactions is critical. Professional valuation firms are often involved to ensure fairness and compliance with regulations. Employee Benefits: ESOPs offer employees an opportunity to accumulate ownership in the company. Employees may become more engaged and motivated when they have a financial stake in the business’s success. Exit Strategy: For business owners looking to retire or exit their companies, ESOPs can provide an alternative to selling to external parties or competitors. Industry Variability: The prevalence of ESOPs can vary by industry. Some industries, such as manufacturing and construction, have a long history of using ESOPs, while others may be less common. Challenges: ESOP transactions can be complex and require careful planning and execution. Challenges may include financing, governance, and managing the transition from owner to employee ownership. 2. How do ESOPs help businesses attract and retain employees? Employee Stock Ownership Plans (ESOPs) can be effective tools for attracting and retaining employees for several reasons: Ownership Stake: ESOPs provide employees with a direct ownership stake in the company. When employees have a financial interest in the success of the organization, they are more likely to be motivated and committed to achieving the company’s goals. This sense of ownership can lead to increased loyalty and dedication to the company’s long-term success. Financial Incentive: ESOPs offer employees the opportunity to share in the company’s financial success. As the company performs well, the value of their ESOP shares increases. This can serve as a powerful financial incentive, aligning the interests of employees with those of the company and its shareholders. Long-Term Perspective: ESOPs encourage employees to think long-term rather than focusing solely on short-term gains. This can be especially valuable for companies that prioritize sustainable growth and stability over quick profits. Employees are more likely to stay with a company that emphasizes long-term success. Employee Engagement: When employees feel like owners, they are more likely to be engaged and committed to their work. They may be more willing to go above and beyond to contribute to the company’s success because they directly benefit from that success. Retention Incentive: ESOPs often have vesting schedules, which means that employees must stay with the company for a certain period of time to fully vest in their ESOP accounts. This serves as a retention incentive, as employees who leave the company before vesting forfeit some or all of their ESOP benefits. Retirement Benefits: ESOPs can serve as a valuable retirement savings vehicle for employees. Knowing that they are building a significant retirement nest egg through their ESOP participation can be a strong incentive for employees to stay with the company for the long term. Competitive Advantage: Offering an ESOP can be a competitive advantage when recruiting new talent. It can set a company apart from competitors and attract candidates who value the opportunity to become company owners. Positive Company Culture: ESOPs can contribute to a positive company culture. They promote transparency, open communication, and a sense of teamwork among employees, which can enhance the overall work environment. Tax Benefits: ESOPs can provide tax benefits to both the company and employees. Contributions to ESOPs are often tax-deductible for the company, and employees may receive favorable tax treatment on the distribution of their ESOP benefits. Succession Planning: For companies looking to transition ownership from one generation to the next, ESOPs offer a structured way to do so while retaining the company’s legacy and culture. Overall, ESOPs can be a powerful tool for attracting and retaining employees who value ownership, financial incentives, and a long-term commitment to the company’s success. However, it’s important for companies to communicate effectively about the benefits of ESOP participation and provide ongoing education to employees to ensure they fully understand and appreciate the value of their ESOP ownership.

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