Think CASH in ’25
Last month, I suggested that dealers compare their 24 results against their peers’ accounting and cash flow budgets. I also stated that the month’s topic would be free cash flow, which we will discuss after a few additional topics that need to be on your radar for ’25. Take a look at the markets that are used for your product line. How are the Fair Market Value (FMV) and Forced Liquidation Value (FLV) stats coming along? In some categories, they are sharply up and some sharply down. Some even show a surge in FLV as customers continue to purchase used equipment. Performing this exercise will assist with your pricing policies for 25. And what I hear on the street is there are deals to be had with the OEMs, which dealers will need as the used market pricing is softening up. Walter McDonald produced a 60-question form to help dealers review how they compare to Industry Dealer Fundamentals. These are questions for owners as well as department heads. And I would share it at department meetings and include all the employees who work in that department to help them understand the dealers’ game plan for 25. I assure you it is worth the read. If you do not score at least 90% after going through the questions with your sales, parts, service, and rental departments, I would figure out a way to decide which issues are most important and assign managers to report back with a program to correct the problem. I asked Walter If I could include the list in this month’s column, and he gave me an “OK.” The article is included in this issue or can be accessed by clicking this link. There is money to be made by performing this review of your dealership. Get it! Cybercrime is increasing and becoming more dangerous now that hackers can access AI. With AI, hackers can duplicate voices, photos, and documents to move money from corporate accounts to theirs. Unfortunately, even disgruntled employees could initiate a sophisticated cyberattack. You may want to review how money is transferred into and out of your accounts. Having more than one approval process is probably a wise thing. Work with your bank and IT folks to develop a program that works for you. Let’s discuss Cash Flow Management Some factors will surely get in your way of managing a cash flow that ensures stability. Let’s face it: goods and services remain costly. Those 4-5% wage hikes, higher insurance costs, and customer requests for lower-priced goods make it difficult to maintain adequate cash flows. A survey found that one in four finance leaders say they do not have enough cash to run the business for the next twelve months. Interestingly, using new ways to control and measure cash flow requires a new level of expertise in the Finance Department to accomplish this task. I know this since my Grandson does this for a living. Gather the data. Make sure it makes sense, determine a billing cycle, plan out costs per period, fold in payment and collection programs, and move on to Budgeting, Forecasting, and Analytics. In addition, new processes and technology are also required to ensure reliable results, which can be reviewed and analyzed as the process progresses. Talking to Grandson, I am learning that this is a very tough job if you cannot get correct and reliable input, especially if deadlines and reports are required for management and financing sources. This tells you that if you have a cash flow problem, ways are being developed to improve control over and maximize cash flow. We will discuss this further next month. Free Cash Flow Free cash flow refers to cash flow from Operating Activities minus one or two claims against the cash flow. You usually see it presented as: CASH FLOW FROM OPERATIONS minus CAPITAL EXPENDITURES equals FREE CASH FLOW If the result of this exercise is positive, you have cash flow that will cover the expenditures cost with something left over that you can use for other activities. In your business, however, Cap-x, including technology and rental fleet, probably exceeds the CF from Ops, thus telling you of a need to obtain capital to cover the cost of the rental and technology equipment. Wall Street loves FCF because they need to see stability moving forward, Before further discussing CASH FLOW, I suggest you purchase a few CASH FLOW for DUMMIES books and make them available to your department managers and finance department. Since CASH FLOW is KING you may as well get them thinking cash flow and not book profits or losses. We all know that you can be profitable and be short on cash. One positive note regarding this topic is having your entire management team on the same page regarding cash flow. And if you don’t seem to be getting anywhere, I will send my Grandson to teach you the ropes. 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.
Assessing Machinery Dealer Fundamentals – A Strategic Approach
Are you ready for 2025? Here is a 60-question assessment of how well your business has adopted those fundamental Best Practices essential to be competitive today. Enter a “Yes” or “No” for each question in the margin. Scoring is on the last page. DEALER OWNER AND EXECUTIVE ISSUES Have you considered your proper leadership role? Do you want to manage sales and customer relationships OR internal operations and financial administration? You can’t do both well. Is there an established set of Core Values for your company that guides and inspires your employees and helps ensure your organization is constantly aligned with these core values? Are there established quantitative “Big Hairy Audacious Goals” (BHAGs*) that are clear and compelling, stimulate your entire organization’s progress, and create immense team spirit? *BHAGs were first introduced by Jim Collins and Jerry Porras in their pivotal text, Built to Last. Are there mechanisms installed to create discomfort and dissatisfaction with current performance levels: to obliterate complacency, to stimulate change, and to improve before the external world demands it? Is the business making proper investments for the future in new technologies, human capital, technician recruitment, facilities and equipment, new management techniques, and innovative practices vs. waiting for the market and industry to force you to change? Is leadership and supervisory management a strategic training initiative? Are you developing your own personal management skills? Is there an annual Strategic Business Plan that helps management examine marketing and business operations by Revenue Center with statements on how to improve quantitative performance metrics? Does the annual Strategic Business Plan support your Annual Budget? Describe the strategic steps to be taken in each Revenue Center, Sales Territory, and each Key Account to achieve your financial goals for the year. Does planning receive the time and attention it deserves, making it specific and realistic? In addition to having goals and measurable objectives compatible with resources, does your management team evaluate new product and market opportunities? Do your sales reps establish specific new account penetration targets? Do you, the ownership/senior management, have a viable succession plan? Are the investments in a management information system adequate? Will the system provide support for all departments, including service and parts, and generate reports on critical performance metrics in each area? Are all your dealer management information system modules properly installed, and are employees being provided essential training? Are there challenging and meaningful goals for each employee, and structure performance-based incentive compensation for reaching those goals? Does the dealership review monthly financial statements, which include a balance sheet, profit and loss, and cash flow statements? Does the dealership review a daily “flash report” on sales and gross margin by department, cash position, and available line of credit? NOTE: Ask me to send you a useful example. Does the dealership practice “Open Book” management, providing each revenue center manager with monthly financial results and actual performance against budget? Does your management team review and discuss monthly variance from budgeted performance objectives in each revenue center? Is your management team properly managing cash and avoiding cash traps such as excessive obsolete parts, unsold new units, over-aged used machinery, and idle rental machinery? Does your management team have strong skills in utilizing key financial ratios, critical profit variables, and operations performance metrics daily, weekly, and monthly to help identify the causes of potential problems (low cash, poor gross margins, low labor productivity, weak parts sales, drop in field sales account contacts, etc.)? Is the dealer leadership team improving financial management skills by learning what to ask and where to look? Is the leadership team helping and coaching employees to understand how their actions affect the company’s ability to make money, how they can make decisions that support the company’s profit objectives, and how they will benefit if the company is successful? Does the dealership offer special recognition and incentives for employees who suggest practical ways to increase efficiency, reduce costs, increase revenue, and improve overall profitability? Do you set an absorption rate goal and monitor it monthly toward a long-term objective of over 100%? Do you review the scores of Absorption Rate components with your management team at least monthly? Can Revenue Center Managers give five reasons why achieving a 100% Absorption Rate is critical to the dealership’s future? Is the dealership making the proper investments in service and parts essential to succeeding in today’s market? Is the dealer website current, user-friendly, and a useful living catalog for the business? Is the dealership capturing website visitors with appropriate “Can I help you?” popups? When a major problem occurs, do your managers first look for a process issue before seeking to blame an individual employee? Does your dealership formally review work processes and procedures at least every 2 years to ensure they are meeting the needs of your growing organization? Do your managers understand the importance of your Cash Flow Cycle and the role their department plays in optimizing cash generation? Does the leadership team review critical OEM Sales and Service Agreements that drive the business at least annually and update new executives to avoid blunders that could end the business relationship? Does sales leadership track sales mix and profitability by major product line, including aftermarket revenue, and works toward improving overall margin contribution by each product line? Does the dealership conduct a formal annual product line revenue/cost analysis based on the operating profit generated by each line to determine where to invest and what line(s) to drop? Does management honestly evaluate new product and market opportunities as well as branch and/or acquisition options to maintain growth and competitiveness? NOTE: Manufacturer strengths, technology, and priorities change over time, and although they may not impact your business immediately, over time, these small changes can have a determining impact on your ability to be competitive. Senior management can’t afford to be caught off guard. Long-term success for a dealership is more than impacting current metrics. MACHINERY SALES AND RENTAL MANAGEMENT ISSUES Is there an effective process for identifying and capturing at least three large, never-before-conquest accounts each
Tune up time
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.
IRS provides Hurricane Milton relief; May 1 deadline now applies to individuals and businesses in all of Florida; many businesses qualify for deposit penalty relief
The Internal Revenue Service today announced relief for individuals and businesses in 51 counties in Florida due to Hurricane Milton. Individuals and businesses in six counties that previously did not qualify for relief under either Hurricane Debby or Hurricane Helene will receive disaster tax relief beginning Oct. 5, 2024, and concluding on May 1, 2025. They are Broward, Indian River, Martin, Miami-Dade, Palm Beach, and St. Lucie. In addition, individuals and businesses in 20 counties previously receiving relief under Debby but not Helene will receive disaster tax relief under Hurricane Milton from Aug. 1, 2024, through May 1, 2025. They are Baker, Brevard, Clay, DeSoto, Duval, Flagler, Glades, Hardee, Hendry, Highlands, Lake, Nassau, Okeechobee, Orange, Osceola, Polk, Putnam, Seminole, St. Johns, and Volusia counties. As a result, affected taxpayers in all of Florida now have until May 1, 2025, to file various federal individual and business tax returns and make tax payments, including 2024 individual and business returns normally due during March and April 2025 and 2023 individual and corporate returns with valid extensions and quarterly estimated tax payments. The IRS is offering relief to any area designated by the Federal Emergency Management Agency (FEMA). Individuals and households that reside or have a business in any one of the localities listed above qualify for tax relief. The current list of eligible localities is always available on IRS.gov’s Tax Relief in Disaster Situations page on IRS.gov. Filing and payment relief Hurricane Milton-related tax relief postpones various tax filing and payment deadlines that occurred beginning on Oct. 5, 2024, and ending on May 1, 2025 (postponement period). As a result, affected individuals and businesses will have until May 1, 2025, to file returns and pay any taxes that were originally due during this period. This means, for example, that the May 1, 2025, deadline now applies to: Any individual or business with a 2024 return is normally due in March or April 2025. Any individual, C corporation, or tax-exempt organization with a valid extension can file their calendar year 2023 federal return. The IRS noted, however, that payments on these returns are not eligible for the extra time because they were due last spring before the hurricane occurred. 2024 quarterly estimated tax payments are normally due on Jan. 15, 2025, and 2025 estimated tax payments are normally due on April 15, 2025. Quarterly payroll and excise tax returns are normally due on Oct. 31, 2024, Jan. 31, 2025, and April 30, 2025. In addition, for localities affected by Hurricane Milton, penalties for failing to make payroll and excise tax deposits due on or after Oct. 5, 2024, and before Oct. 21, 2024, will be abated as long as the deposits are made by Oct. 21, 2024. Localities eligible for this relief are Alachua, Baker, Bradford, Brevard, Broward, Charlotte, Citrus, Clay, Collier, Columbia, DeSoto, Dixie, Duval, Flagler, Gilchrist, Glades, Hamilton, Hardee, Hendry, Hernando, Highlands, Hillsborough, Indian River, Lafayette, Lake, Lee, Levy, Madison, Manatee, Marion, Martin, Miami-Dade, Monroe, Nassau, Okeechobee, Orange, Osceola, Palm Beach, Pasco, Pinellas, Polk, Putman, Sarasota, Seminole, St. Johns, St. Lucie, Sumter, Suwannee, Taylor, Union and Volusia counties. Deposit penalty relief and other relief were previously provided to taxpayers affected by Debby and Helene. For details, see the Florida page on IRS.gov. The Disaster Assistance and Emergency Relief for Individuals and Businesses page also has details and information on other returns, payments, and tax-related actions qualifying for relief during the postponement period. The IRS automatically provides filing and penalty relief to taxpayers with an IRS address of record in the disaster area. These taxpayers do not need to contact the agency to get this relief. It is possible that an affected taxpayer may not have an IRS address of record located in the disaster area because they moved to the disaster area after filing their return. In these unique circumstances, the affected taxpayer could receive a late filing or late payment penalty notice from the IRS for the postponement period. The taxpayer should call the number on the notice to have the penalty abated. In addition, the IRS will work with any taxpayer who lives outside the disaster area but whose records are necessary to meet a deadline occurring during the postponement period and are located in the affected area. Taxpayers qualifying for relief living outside the disaster area must contact the IRS at 866-562-5227. This also includes workers affiliated with a recognized government or philanthropic organization who assist in relief efforts. Disaster area tax preparers with clients outside the disaster area can choose to use the Bulk Requests from Practitioners for Disaster Relief option, described on IRS.gov. Additional tax relief Individuals and businesses in a federally declared disaster area who suffered uninsured or unreimbursed disaster-related losses can choose to claim them on either the return for the year the loss occurred (in this instance, the 2024 return normally filed next year) or the return for the prior year (the 2023 return filed this year). Taxpayers have extra time – up to six months after the due date of the taxpayer’s federal income tax return for the disaster year (without regard to any extension of time to file) – to make the election. For individual taxpayers, this means Oct. 15, 2025. Be sure to write the FEMA declaration number – 3622-EM – on any return claiming a loss. See Publication 547, Casualties, Disasters, and Thefts, for details. Qualified disaster relief payments are generally excluded from gross income. In general, this means that affected taxpayers can exclude from their gross income amounts received from a government agency for reasonable and necessary personal, family, living, or funeral expenses, as well as for the repair or rehabilitation of their home or for the repair or replacement of its contents. See Publication 525, Taxable and Nontaxable Income, for details. Additional relief may be available to affected taxpayers participating in a retirement plan or individual retirement arrangement (IRA). For example, a taxpayer may be eligible to take a special disaster distribution that would not be subject to the additional 10% early distribution tax, allowing the taxpayer to spread the income over three
As the rental, financial and technology markets change, is your dealership?
Much is going on that impacts OEMs, Equipment Dealers, Financing Sources, and Customers. Inflation, supply chain disruptions, and geopolitical tension lead to cautious customer behavior, thus creating new levels of management manipulation to keep the ships upright. In addition to these significant disruptive sources, you add the risk associated with technology decisions, not only for your company but also for a high percentage of your customer base familiar with emerging technologies. Here are just a few concerns dealers have on their minds: Revenue per employee Tariffs Tax opportunities Overtime Regs On-shoring Near-shoring AI and IT for manufacturers AI and IT for warehouse and distribution centers Having products and services to fit the needs of manufacturers and distributors Finding other programs and methods to increase sales. Providing consulting services to customers. Emerging Technology Electrification Hydrogen cells Inventory changes and management. Supply chain disruption Collateral value of equipment Planning for rental income to represent a higher % of sales. Resale value uncertainty Bank and Financial source education Programs to find and keep personnel Cybersecurity threats Supply chain management Need for more dealer consolidation Quarterly cash flow requirements Cap-X for AI, IT, and customer consulting And I am sure you are also trying to hire to fill talent needs throughout your organization. And how about those equipment prices? Used values are falling, leaving you with the problem of having high-priced pandemic units now dropping in price and a collateral problem with the banks. And let us not forget the new elephant in the room….AI. Making an AI decision can be high risk if you do not know what you are doing, so MHW is premiering a new column next month to help with the process. And as far as your sales silo is concerned, you will be adding new accounts to track new types of equipment, including automated guided vehicles, and different types of fuel sources being offered, such as electric trucks using lithium-ion batteries as well as hydrogen fuel cells. We can all agree that customers will look to YOU to provide insight into what type of unit best fits their needs. I have heard hydrogen is growing its market share because it is cheaper and avoids the “green costs” associated with mining and disposing of lithium. All these issues have produced some interesting discussions with bankers. CEO and shareholder anxiety must be the name of the game regarding the balance of 2024. As I have said in the past, if you are not ready or able to roll with the punches and make the investments necessary to stay in the game, it may be time to investigate transitioning out of the industry. Consolidation is taking place in all types of markets, with equipment dealers and rental companies appearing in every business publication I read. One final option before pulling the plug is to find and hire a manager prepared to deal with the issues at hand. On the FINANCING side of the business, banks and finance companies are having their own problems because many customers are experiencing cash flow challenges, resulting in payment delays to either the bank or dealer. Credit risks are also increasing because of economic uncertainty affecting dealers and customers. Having numerous financing sources available is a must for today’s markets. Financing sources are asked to finance unfamiliar new types of equipment for both the dealer and customers. Lenders must contend with the value of what is currently on their balance sheet instead of financing new equipment types with which they have zero history of working. Consequently, dealers should prepare examples of the expected values of the equipment over at least a five-year period. Dealers should prepare an annual equipment appraisal covering used equipment inventory and rental units. I also suggest you track the sales of your used equipment and compare the sales price to what appears in the valuation report. If you can show the bank that you are selling used equipment for more than what appears in the valuation report, the bank will rely more on the report when considering your credit requests. Remember that many buyers are waiting for interest rates to be reduced before purchasing new or used equipment. If so, sales will be deferred, reducing the cash flow to finance the business. I see that rental activity is increasing rather than purchasing units, eventually impacting dealer cash flow and borrowing capacity. Dealers will have little say in how all this works out. Changes in emerging technology and advancements in warehouse automation and shop floors will dictate what lift truck dealers must provide. The trick will be eliminating the old, bringing in the new, and becoming more efficient using the latest technology and AI (if it works for you). Cash flow schedules incorporating these changes should be adjusted and updated quarterly to stay ahead of the game—notice I said cash flow schedules, not budgeting worksheets. In the end, the revenue silos will produce less profits and cash flow, and dealers need to be prepared to deal with this situation. On the other hand, you may be selling more technical equipment and systems that make up for reductions in other sale categories. Change is coming faster than you think. Be prepared to produce a company ready to provide products and services and consulting to the ever-changing manufacturing and distribution world you will be living in. 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.
Help is on the way
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.
Programmed growth
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
Herc Holdings reports strong First Quarter 2024 and affirms 2024 full-year guidance
Record first quarter total revenues of $804 million, an increase of 9% Net income decreased 3% to $65 million, or $2.29 per diluted share Adjusted EBITDA of $339 million increased 10%; adjusted EBITDA margin increased to 42.2% Rental pricing increased 5.1% year-over-year Added 15 new locations through M&A and greenfield openings Corporate credit rating upgraded by S&P Global to BB Herc Holdings Inc. has reported financial results for the quarter ended March 31, 2024. “We are off to a strong start in 2024, achieving record first-quarter revenue and adjusted EBITDA margin as we continue to capitalize on key growth markets, like semiconductors, data centers, renewables, and public infrastructure, while also investing in our network scale through greenfields and acquisitions, and elevating our higher-return specialty product lines,” said Larry Silber, president and chief executive officer of Herc Rentals. “Once again, our teams are delivering for customers both in the local markets and at the national level, capitalizing on our broad geographic coverage and strong demand for our products and services. “We are making progress against each of our key 2024 priorities — enhancing our customer experience through our E3 business operating system, managing fleet efficiency and expenses with discipline, and scaling our network through greenfield locations and acquisitions in top 100 metropolitan markets,” said Silber. “Based on this strong performance and current line-of-sight to market trends, we are affirming our annual performance targets, excluding Cinelease, of 7-10% year-over-year equipment rental revenue growth and adjusted EBITDA of $1.55 billion to $1.60 billion for 2024.” 2024 First Quarter Financial Results Total revenues increased 9% to $804 million compared to $740 million in the prior-year period. The year-over-year increase of $64 million primarily related to an increase in equipment rental revenue of $65 million, reflecting positive pricing of 5.1% and increased volume of 8.0%, partially offset by unfavorable mix driven primarily by inflation. Sales of rental equipment decreased by $2 million during the period. Dollar utilization was 39.7% in the first quarter, flat over the prior-year period. Direct operating expenses were $307 million, or 42.7% of equipment rental revenue, compared to $281 million, or 43.0% in the prior-year period, reflecting better cost performance and fixed cost absorption on higher revenue despite increases related to additional headcount, facilities and maintenance expenses associated with strong rental activity and an expanding branch network. Depreciation of rental equipment increased 5% to $160 million due to higher year-over-year average fleet size. Non-rental depreciation and amortization increased 12% to $29 million primarily due to amortization of acquisition intangible assets. Selling, general and administrative expenses was $115 million, or 16.0% of equipment rental revenue, compared to $106 million, or 16.2% in the prior-year period due to continued focus on improving operating leverage while expanding revenues. Interest expense increased to $61 million compared with $48 million in the prior-year period due to increased borrowings on the ABL Credit Facility primarily to fund acquisition growth and invest in rental equipment and higher interest rates on floating-rate debt. Net income was $65 million compared to $67 million in the prior-year period. Adjusted net income decreased 3% to $67 million, or $2.36 per diluted share, compared to $69 million, or $2.35 per diluted share, in the prior-year period. The effective tax rate was 20% compared to 11% in the prior-year period. Adjusted EBITDA increased 10% to $339 million compared to $308 million in the prior-year period and adjusted EBITDA margin was 42.2% compared to 41.6% in the prior-year period. Continued focus on improving operating leverage while expanding revenues resulted in the improvement in margin year-over-year. Rental Fleet Net rental equipment capital expenditures were as follows (in millions): Three Months Ended March 31, 2024 2023 Rental equipment expenditures $ 181 $ 332 Proceeds from disposal of rental equipment (61) (49) Net rental equipment capital expenditures $ 120 $ 283 As of March 31, 2024, the Company’s total fleet was approximately $6.4 billion at OEC. Average fleet at OEC in the first quarter increased 10% compared to the prior-year period. Average fleet age was 47 months as of March 31, 2024 and 2023. Disciplined Capital Management The Company completed 4 acquisitions with a total of 11 locations and opened 4 new greenfield locations during the quarter. Net debt was $3.7 billion as of March 31, 2024, with net leverage of 2.5x which is unchanged from the same prior-year period. Cash and cash equivalents and unused commitments under the ABL Credit Facility contributed to $1.4 billion of liquidity as of March 31, 2024. The Company declared its quarterly dividend of $0.665, an increase of $0.0325 or 5%, paid to shareholders of record as of February 21, 2024 on March 7, 2024. Outlook The Company is affirming its full year 2024 equipment rental revenue growth, adjusted EBITDA, and gross and net rental capital expenditures guidance ranges presented below, excluding Cinelease studio entertainment and lighting and grip equipment rental business. The guidance range for the full year 2024 adjusted EBITDA reflects an increase of 6% to 9% compared to full year 2023 results, excluding Cinelease. The sale process for the Cinelease studio entertainment business is ongoing. Equipment rental revenue growth: 7% to 10% Adjusted EBITDA: $1.55 billion to $1.60 billion Net rental equipment capital expenditures after gross capex: $500 million to $700 million, after gross capex of $750 million to $1 billion As a provider in an industry where scale matters, the Company expects to continue to gain share by capturing an outsized position of the forecasted higher construction spending in 2024 by investing in its fleet, optimizing its existing fleet, capitalizing on strategic acquisitions and greenfield opportunities, and cross-selling a diversified product portfolio.
Changing landscape
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.
February 2024 jumps to a strong 150 new Industrial Manufacturing Planned Projects
Industrial SalesLeads has announced the February 2024 results for the new planned capital project spending report for the Industrial Manufacturing industry. The Firm tracks North American planned industrial capital project activity, including facility expansions, new plant construction, and significant equipment modernization projects. Research confirms 150 new projects in the Industrial Manufacturing sector as compared to 150 in January 2024. The following are selected highlights on new Industrial Manufacturing industry construction news. Industrial Manufacturing – By Project Type Manufacturing/Production Facilities – 134 New Projects Distribution and Industrial Warehouse – 61 New Projects Industrial Manufacturing – By Project Scope/Activity New Construction – 46 New Projects Expansion – 38 New Projects Renovations/Equipment Upgrades – 68 New Projects Plant Closings – 15 New Projects Industrial Manufacturing – By Project Location (Top 10 States) Ohio – 16 Indiana – 12 Georgia – 10 New York – 9 Texas – 8 Illinois – 7 Massachusetts – 7 Michigan – 7 North Carolina – 7 Quebec – 7 Largest Planned Project During the month of February, our research team identified 19 new Industrial Manufacturing facility construction projects with an estimated value of $100 million or more. The largest project is owned by Micron Technology Inc., which is planning to invest $100 billion for the construction of a 7.2 million sf manufacturing complex in CLAY, NY. They are currently seeking approval for the project. Construction will occur in phases, with completion slated for 2030. Top 10 Tracked Industrial Manufacturing Projects NEW YORK: Semiconductor MFR. is planning to invest $12 billion for the construction of a 358,000 SF manufacturing facility on their manufacturing campus in MALTA, NY. The project includes the expansion of their existing plant. Construction is expected to start in 2025. NORTH DAKOTA: A mining company is planning to invest $2 billion in the construction of an iron manufacturing facility in UNDERWOOD, ND. They have recently received approval for the project. NEW YORK: EV MFR. is planning to invest $500 million for the expansion of its manufacturing facility in BUFFALO, NY. They are currently seeking approval for the project. SOUTH CAROLINA: Battery MFR. is planning to invest $500 million for the construction of a 500,000 SF manufacturing facility in GREENVILLE, SC. They are currently seeking approval for the project. Construction is expected to start in early 2025, with completion slated for late 2027. FLORIDA: Clean hydrogen and solar technology company is planning to invest $450 million for the construction of a hydrogen processing and solar panel manufacturing facility in KISSIMMEE, FL. Construction is expected to start in Summer 2024, with completion slated for 2027. GEORGIA: Solar panel glass mfr. and recycling company is planning to invest $344 million for the construction of a manufacturing facility in CEDARTOWN, GA. They are currently seeking approval for the project. Completion is slated for 2026. WISCONSIN: Plumbing equipment MFR. is planning to invest $340 million in the construction of a manufacturing facility in DICKEYVILLE, WI. They have recently received approval for the project. Completion is slated for 2026. MARYLAND: Biopharmaceutical company is planning to invest $300 million for the renovation and equipment upgrades on a recently leased 84,000 SF processing facility at 9950 Medical Center Dr. in ROCKVILLE, MD. Completion is slated for 2026. WASHINGTON: Wood pellet MFR. is planning to invest $250 million for the construction of a manufacturing facility in PORT OF LONGVIEW, WA. They are currently seeking approval for the project. Construction is expected to start in Summer 2024, with completion slated for early 2025. INDIANA: Recycled paper products mfr. is planning to invest $130 million for the construction of a 350,000 SF manufacturing and warehouse facility on Park Rd. in ANDERSON, IN. They are currently seeking approval for the project. About Industrial SalesLeads, Inc. Since 1959, Industrial SalesLeads, based in Jacksonville, FL is a provider in delivering industrial capital project intelligence and prospecting services for sales and marketing teams to ensure a predictable and scalable pipeline. Our Industrial Market Intelligence, IMI identifies timely insights on companies planning significant capital investments such as new construction, expansion, relocation, equipment modernization, and plant closings in industrial facilities. The Outsourced Prospecting Services, an extension to your sales team, is designed to drive growth with qualified meetings and appointments for your internal sales team. Visit us at salesleadsinc.com.
Mitsubishi Logisnext Americas launches Logisnext Financial Services through partnership with DLL
Simplifies acquisition process, provides added flexibility Mitsubishi Logisnext Americas (Logisnext), a manufacturer and provider of material handling, automation, and fleet solutions, has announced the launch of Logisnext Financial Services, providing customers with one single point of contact for equipment purchasing and financing. The new service is offered through Logisnext’s strategic partnership with DLL, a global asset finance company for equipment and technology. Under Logisnext Financial Services, customers will have direct access to proven and reliable lease and purchase options across all Logisnext material handling and warehouse products in the United States, including Mitsubishi forklift trucks, Cat® lift trucks, Jungheinrich®, UniCarriers® Forklifts and Rocla AGVs. Customers will also have added flexibility and control of their business and capital requirements. This approach provides efficient and effective operating costs to meet business goals – all with the latest material handling technology. “DLL has had a longstanding history and close relationship with Logisnext for more than 15 years,” said Mike Kinka, president of Construction, Transportation and Industrial at DLL. “This, in combination with the experience of DLL in the materials handling market, will help bring Logisnext’s equipment financing solutions to the next level.” This collaboration further expands on Logisnext’s dedication to providing customers with a complete portfolio of solutions – from site-specific consultation and fleet management to financing and comprehensive product support. “The launch of Logisnext Financial Services, and our partnership with DLL, allows us to better serve our customers,” said Jerry Sytsma, executive vice president of sales and Aftermarket Services at Logisnext. “Through Logisnext Financial Services, customers will have one point of contact for managing their acquisition needs – from equipment purchasing to financing. Our goal is to help our customers succeed, and by offering a wide range of financing options, we make it easy for customers to get the right equipment when they need it most.”
Potential $$ is coming your way
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.
First Citizens Bank Equipment Finance names Shanks Head of Business Development
First Citizens Bank has announced that its Equipment Finance business has named Joy Shanks as senior vice president and head of business development dedicated to supporting and growing equipment finance vendor acquisition business. Shanks will be responsible for acquiring and cultivating new vendor relationships in key industries, as well as driving long-term business growth and generating meaningful end-user equipment financing transaction volume. She will also manage the internal sales cycle of the Equipment Finance business, including the advancement of key sales protocols. Shanks will lead a high-performing sales team and report directly to Ken Martin, a managing director at First Citizens Bank Equipment Finance. “Joy brings a wealth of knowledge and experience in driving sales growth, capturing new business development opportunities and promoting brand awareness for companies in the financial services and technology industries,” said Ken Martin. “We are excited to welcome Joy to our team and are confident her skillset and perspective will contribute to the success of First Citizens Bank Equipment Finance as we strive to be the best salesforce in America.” Shanks joins First Citizens Bank with over 30 years of experience in sales, business development, operations and marketing. She most recently served as senior director, Global Channel Leader at Hewlett-Packard Enterprise Financial Services where she led Global Business Development function and championed partner development, lead generation and sales enablement activities. Prior to that she held several roles at Dell in global marketing, strategy and sales. She also served in business development roles at Frost National Bank and HP Compaq. Shanks attended Oakland University. First Citizens Bank Equipment Finance works with manufacturers, franchisors, distributors, resellers, dealers and systems integrators to finance their equipment, software and services to commercial customers.
It’s tax time! Are you prepared for what’s ahead?
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
What happens in the auto industry…..
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.
Monetize your value Part 2
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.
Buy-Lease-Rent Financing status: You better sit down for this
At this time in our economic lives this topic has a lot of pros and cons to consider before deciding what dealers need to do, what customers want to do and how dealers need to assist customers meet their goals using proper financial options. When we consider the three variables involved (buy-rent-lease)…. the pandemic equipment pricing for both new and used equipment…..interest rates along with new bank loan agreements and covenants……the inability of customers to handle the monthly nut now required if a unit is purchased or part of a long-term rental program. And then there is the collateral risk associated with lease residuals as well as book values four or five years out where the book value or residual will not even be close to reasonable once the new and used markets get back to a “normal” status where new unit pricing has decreased and there is adequate supply of used units available causing used sales to return to a “normal” as some percentage of recent new unit cost. Let’s face it folks, someone must pay for these crazy new and used costs and still make a buck doing it. Check out the auto industry to see how this is working out for them. There are dealers taking new and used cars to auction to try to get rid of them, and they are not hitting the reserves to make a deal. Banks are doing the same thing with repos. What I saw today watching CNBC is that CarMax is doing better because the glut of used cars for sale is causing pricing to soften to the point where they are improving their bottom line. The commentator also noted that more car customers are keeping their rides longer and buying used cars because they cannot afford a new one. If this same scenario repeats itself for other types of financial assets, the players will wind up in the same situation be that an OEM, Dealer, Customer or Bank. And if you think this situation is going away any time soon, think again. The supply and demand situation may continue to lower the cost to build new units, but it may be accompanied by a recession as well as continued high interest rates. In other words, this scenario of tighter money with less financing availability will take years to play out a delay out causing the value of used units (including rental units) to decrease to where you are upside down on the residual and/or book value which converts to taking losses on units purchased at pandemic rates. Is there money available for purchasing or leasing a unit. Yes, there is, but at a cost customers may not want to deal with. Interest rates could be somewhere between 8-13% depending on the FICO score, years in business and the ability to establish that you are running a profitable business. To give you some perspective on this issue I found in the June 17th issue of John Mauldin’s THOUGHTS FROM THE FRONT LINE, specifically a comment by Peter Boockvar which is as follows: “The credit crunch is here, and this will take not quarters, but years to play out if the cost of capital remains high. Understand too that many small and medium businesses have to pay an interest rate on a loan that is above 10% if they can even get one. Things in the private economy worked ok at 3-4% interest rates, not so much at 10% as were on a whole new economic playing field that I don’t think is being fully appreciated.” To which John Mauldin added. “Read that quote two or three times. An entire generation of investors and business leaders has never known a capital-constrained economy. Can they adjust? Probably, but not easily or instantly.” Let’s assume that I am one of those younger folks going through this type of economy for the first time. I have a company to run and need to have my material handling equipment operating properly to keep my efficiency levels where they need to be generating a proper Gross Profit that converts to budgeted profit and cash flow. Keeping that GP % means keeping costs where they are at because I don’t have the ability to pass on cost increases to my customers. Let’s further assume that I stay up to date on economic matters and thus expect higher costs for materials, services and especially equipment, which are big ticket items. What will my thought process be under these circumstances? Do I need new units? Can I find a used unit if I need it? Do I have anything to trade-in at these aggressive values? What will it cost to finance a new or used unit? Can I afford it? Wonder what it would cost to refurb the units I have? Maybe I should lease them? But if I am leasing new units won’t the lease cost also rise due to the cost of the units? I wonder if I can get the OEM or Dealer to buy down the interest rate. Would an RPO work for me in this situation? Can I gain enough newfound efficiency to cover the higher cost of the units? I do not want to get stuck with a residual value or book value I can’t recover. How do I avoid this? Can I just do a rent-to-rent deal for the months in the year when I need more units? How will a purchase impact my loan covenants? For that matter how will a lease impact my loan covenants? Being that I have worked primarily in two equipment industries …. material handling and construction equipment, I am comfortable calculating what a rental rate should be to cover the cost with a “standard” level of usage over a five-year period, and what to expect the residual value to be assuming proper maintenance has been incurred. Having this knowledge would also cover budgeting for the purchase of new or
Internal audit
Back in the good old days I used to spend a lot of my professional life auditing equipment dealers and construction companies. Also did a lot of franchise work, which kind of ties in with the OEM-Dealer relationships. I was always fascinated with the full-service equipment dealers because of all the departments they had to manage to make the dealership work, keep the OEM and banks happy while also keeping the customer’s coming back. I was also lucky enough to get first-hand experience with the long-term lease (rental) with maintenance programs, which kind of locked in a relationship for 60 months or so. It was kind of pushing down the dealer management requirements down to the individual lease contracts because you were selling or renting equipment, buying and using parts, providing service, and hopefully in the end wind up with a rental unit for short-term purposes or part of the used equipment units held for sale. And in some ways the rental contracts could become even more complicated than the dealer management because of all the types of rental contracts offered. I just loved the entire program from start to finish. Though the dealer CEOs were exceptional business folks and still believe that to be true. So, I started thinking of how we used to audit these dealerships in order to complete a year end audit and give them a clean bill of health. Because of the nature of the dealer business the audit planning required some thought so that the end results were supported by the audit work performed and the documented audit results on file. Considering that we were dealing with both accounting and tax issues, planning could be more complex than expected. Listed below are the basic steps we took to audit your company. They are a bit different when compared to today’s digital techniques. We would review the prior year audit files, especially looking for the problem area for that period so we could see that the faulty issues were corrected and expected produce the correct data and conclusions in the year under audit. We would then prepare tests to determine that internal controls were working as planned, revenue and expenses are being reported in the right period and for the proper amounts, asset and related asset values are properly reported on the Balance Sheet. Bank loans and other financial contracts would all be reviewed to determine compliance with the documents. One big area was the accounting and value of fixed assets, which was primarily the fleet. What is the orderly liquidation value and what is it on the books for. This test covered both new units (and how long they have been sitting as part of the floor plan) used units and what they were on the books for compared to what they would sell for. The same questions applied to the rental units as well. IN TODAY’S ENVIRONMENT THIS WOULD BE ONE OF THE KEY TESTS GENERATED. There was also the question surrounding the maintenance contracts and how you record the maintenance revenues as part of the rental payments. I think we can all agree that recording the collection of the maintenance revenue on a straight- line basis is probably not the correct process to follow. Another questionable accounting practice was not backing out the inter-department profits, which generated higher than actual sales numbers. You are not supposed to do that, but I cannot remember more than 3-4 companies that followed this required accounting rule. And finally, the required practice of reporting current assets and current liabilities to be able to calculate working capital sometimes does not work for companies with large rental fleets. Large rental fleet assets are recorded as long-term assets, but when the current portion of the note payments are in the current liability section, you wind up with poor working capital position when in fact it may not be. This is why rental companies prepare unclassified balance sheets without the current assets and liabilities broken out. We also spent a lot of time analyzing financing agreements and bank loans, along with the required covenant calculations. Having the bankers question the accounting for their covenant calculations was to be avoided at all costs. And supporting the inventory (new and use) and rental unit values was a big part of this annual exercise. In the end our work was to determine that all the debits and credits were basically correct and recorded in the right accounting period. We also had to determine that adequate cash flows are being generated to cover debt service and other obligations. In short, that your company is a “going concern” and will not default in the near term or next 12 months. The auditors would then prepare a Management Letter spelling out suggestions for improvement and where a weakness in a control needs further review. The Department Heads were never happy with the Management Letter. Sometimes the banks weren’t either. I believe that the prior audit procedures pushed down the problems, discussions, and solutions to all levels of management to a greater degree compared to the current digital audits. Considering that all department heads had goals to meet to ensure operating results that meet the financial plan, the more they became aware of a problem along with the processes of devising solutions to mitigate the problem as well as implementing the solutions, the more chance there is to correct the problem, keep them from reappearing, and reaching the profit and cash flow goals planned for. As far as the important parts of the audit report are concerned, I find the Cash Flow report is the first page I look at. If the cash flow is adequate and there are no known potential stumbling blocks on the horizon, I am much more comfortable with the rest of the report. I guess my point this month is that there may be an opportunity available for dealers not required to provide a full audited set of financials to pick
29% increase in new Industrial Manufacturing Planned Projects in May 2023; Minnesota new to Top 10
IMI SalesLeads has announced the May 2023 results for the new planned capital project spending report for the Industrial Manufacturing industry. The Firm tracks North American planned industrial capital project activity; including facility expansions, new plant construction, and significant equipment modernization projects. Research confirms 184 new projects in May as compared to 143 in April in the Industrial Manufacturing sector. The following are selected highlights on new Industrial Manufacturing industry construction news. Industrial Manufacturing – By Project Type Manufacturing/Production Facilities – 167 New Projects Distribution and Industrial Warehouse – 66 New Projects Industrial Manufacturing – By Project Scope/Activity New Construction – 62 New Projects Expansion – 64 New Projects Renovations/Equipment Upgrades – 60 New Projects Plant Closings – 17 New Projects Industrial Manufacturing – By Project Location (Top 10 States) New York – 16 Texas – 15 Ohio – 13 Indiana – 12 Michigan – 9 Minnesota – 8 (New to List) Pennsylvania – 8 Georgia – 7 Ontario – 7 South Carolina – 7 Largest Planned Project During the month of May, our research team identified 12 new Industrial Manufacturing facility construction projects with an estimated value of $100 million or more. The largest project is owned by Applied Materials, Inc., which is planning to invest $4 billion for the construction of a manufacturing, laboratory, and office facility in SUNNYVALE, CA. They are currently seeking approval for the project. Completion is slated for 2026. Top 10 Tracked Industrial Manufacturing Projects GEORGIA: Graphite product mfr. is planning to invest $800 million in the construction of a manufacturing facility in BAINBRIDGE, GA. They are currently seeking approval for the project. Completion is slated for 2025. PENNSYLVANIA: A steel company is planning to invest $218 million in the construction of a manufacturing facility in ALIQUIPPA, PA. They are currently seeking approval for the project. Completion is slated for late 2025. TEXAS: Semiconductor mfr. is planning to invest $200 million for the expansion of its manufacturing facility in LUBBOCK, TX. They are currently seeking approval for the project. MICHIGAN: Automotive mfr. is planning to invest $200 million for the construction of a 1 million sf EV component manufacturing facility in AUBURN HILLS, MI. They are currently seeking approval for the project. Construction is expected to start in Summer 2023, with completion slated for late 2024. MISSISSIPPI: Wood products mfr. is investing $200 million in the construction of a manufacturing facility in BEAUMONT, MS. Construction is expected to start in the Summer of 2023, with completion slated for early 2025. TEXAS: Semiconductor component mfr. is planning to invest $185 million for the expansion, renovation, and equipment upgrades on their manufacturing facility in ROUND ROCK, TX. They are currently seeking approval for the project. OHIO: A steel company is planning to invest $145 million for an expansion of its manufacturing facility in MINGO JUNCTION, OH. They have recently received approval for the project. TENNESSEE: Industrial equipment mfr. is planning to invest $120 million for the renovation and equipment upgrades on their manufacturing facility in JEFFERSON CITY, TN. They are currently seeking approval for the project ARIZONA: Furniture mfr. is planning to invest $100 million for the construction of a 1-million SF manufacturing, distribution, showroom, and office campus on 107th Ave. in AVONDALE, AZ. They are currently seeking approval for the project. KANSAS: Tire mfr. is planning to invest $100 million for the expansion of its manufacturing facility in JUNCTION CITY, KS. They are currently seeking approval for the project. About IMI SalesLeads, Inc. Since 1959, IMI SalesLeads, based in Jacksonville, FL is a leader in delivering industrial capital project intelligence and prospecting services for sales and marketing teams to ensure a predictable and scalable pipeline. Our Industrial Market Intelligence, IMI identifies timely insights on companies planning significant capital investments such as new construction, expansion, relocation, equipment modernization, and plant closings in industrial facilities. The Outsourced Prospecting Services, an extension to your sales team, is designed to drive growth with qualified meetings and appointments for your internal sales team. Visit us at salesleadsinc.com.
Getting closer
I am sitting at my computer on May 14 wondering if my T Bills will be worth anything two weeks from now. I must tell you, on a financial front, we are in deep Dudu if we default on our debts. WHAT A MESS. And if I get bored, I run to YouTube to see what I can find out about where the EV (Electric Vehicle) vs ICE (Internal Combustible Engine) debate stands. Came across one program that was pretty good where they compared EV total cost against an ICE total cost over 125,000 miles. As it turns out the EV purchase cost is well in excess of a similar ICE model, but not as much if you take into account the $7,500 credit available on new EV’s. But let’s remember you must be able to “pay” for the EV and will not get the benefit of the if you don’t have at least $7,500 tax to pay. And it is probably safe to say that you need at least a $100,000 annual income to wind up with that type of tax. The bottom line is that the total cost (cost to purchase plus operating costs) over $125,000 was about the same at $65,000. The higher purchase price of the EV plus fueling was the same as the lower-priced ICE unit with the cost of gasoline and repairs. Thinking further ahead you would expect the EV cost to decrease as demand climbs, which could reduce total cost to the point where EV wins the cost game (if the demand for electricity does not get so high that cost increases get to the point where we once again wind up with a tie). Could happen. For me, I am thinking there are other alternatives that could provide similar climate benefits for less cost. Hydrogen in some form is that option. During my visit to ProMat I had a chance to spend some time with Plug Power while they were showing off how one of their units could be used with lift trucks. Less operating hassle compared to both acid and lithium batteries but similar overall run times per charge. And having H20 as the exhaust is not bad either. Toyota has developed an engine that operates along this line and concludes that EV is not necessary if buyers use the Toyota as an alternative to EV. Dealers, as far as lift trucks go, this is an option you have to keep in mind because customers are going to ask about it. As far as our financial picture is concerned, I believe it will be tougher than expected, mainly because of the banking crunch taking place. With BK’s increasing banks take steps to review their outstanding loan portfolio to see if they have any substantial risk to consider. Being in this frame of mind banks are cutting back on new financing requests or asking for tighter coverage on existing bank loans. We discussed this topic and reaction before, and I really cannot blame the banks if they decide they must cover their butts to stay solvent. But let’s not forget that these issues also concern your customers, especially those who constantly pay late or have known cash flow problems. In the end, the banking situation will slow the economy down to where we can prepare for a hard landing. To assist with your planning for any type of downfall that may appear, last month we went through a Balance Sheet (BS) exercise where I suggested you investigate cleaning up the BS with a goal to convert as many assets as possible into CASH because you are going to need it. The alternative is a balance sheet with assets decreasing in value once the recession goes into full swing, which, of course, are part of your bank collateral which the bank will be reviewing on an annual basis. Now, let’s discuss the Income Statement (IS) which, of course, represents how we did profit-wise over a segment of time. You all have an idea of how the IS works and understand that it is entirely possible, with all the changes taking place in BUSINESS these days, that Income Statement results could put a strain on the BS, your cash position, and the overall value of the company. Consequently, knowing what is likely around the bend I do not believe you can sit back and say there are no changes required in your business. You can, of course, come to that conclusion, but please do so after you have examined all your risk factors and find nothing out of order. And heck, I haven’t even mentioned AI yet! I expect a reduction in overall revenues (net of inflation) to soften up to the point where you will be glad that you have that extra cash available because of converting assets into cash. In other words, covering your fixed and variable costs will require both a more profitable business as well as cost reduction. I also do not see the negative impacts on your business reversing itself post-recession. Some items are just too sticky to do that. So, let’s go through an IS statement review this month using typical MHEDA numbers, and see what potential changes to anticipate and plan for. To help us focus I put together a brief review of a dealer’s potential sales mix and gross profit percentages and provide my thoughts on what to expect going forward. For comparison purposes, I also added similar data from the construction dealer side. My overall comments will be addressed to lift truck dealers and not so much to the construction side. I listed the dealer’s revenue and gross profit line items and then in the far-right column indicate what I expect each line item to do (net of inflation) based on my crystal ball to date. > representing an increase in the line item. < a decrease. New Sales I expect sales levels to fall as a result of both less demand and lower