I don’t think anyone will argue the fact that 2020 and 2021 weren’t exactly the best years we’ve had recently. Between the pandemic and its lingering effects, supply chain issues, vaccination concerns and political and social unrest, there were certainly many issues to be handled. The good news is that 2021 is over and we can focus on making 2022 a better year.
Nelson Mandela said, “No matter what the past has dealt you, don’t let it destroy your future.” As bad as the last two years may have been, they pale in comparison to what Mandela endured. By being proactive and taking the right steps, you can have a strong year in 2022 and beyond. It’s all about planning and execution.
The first thing I recommend is a revenue prediction for 2022, as this is the benchmark against which all other financial considerations must be measured and assessed. I’ve heard industry pundits talk about how much revenue has declined and how much it will drop going forward. However, many of these predictions are based on a gut feeling. I suggest you brush aside other people’s guesses and predictions and dig into your own facts and data. You can analyze your customer base to better understand where revenues have been and where they’re likely headed. Look at revenue by customer and further break it down by product or service offering (equipment, software, IT, maintenance agreements, chargeable service, supplies, etc.). Also, review trends in different vertical markets. For example, how have the revenues from schools changed as we’ve moved through the pandemic? By digging into this, you give yourself the ability to best predict where your future revenues will go.
Higher costs will impact other areas of the business such as general supplies, services, utilities, taxes, interest, etc. The better you predict your expenses for 2022, the better you can manage your business to handle them.
On the financial front, examine what your expenses will look like. Unless you’ve been living under a rock or in a bunker somewhere, you’ve seen how inflation is impacting our economy. Costs are going up and will likely continue to increase. Fuel prices are higher than they’ve been in almost a decade. Regardless of what you believe caused this, the reality can’t be denied. And like it or not, you’ll be laying out more cash for fuel—and just about everything else—since it is a key resource in the distribution of the goods we consume.
Increased payroll is another factor for which you need to plan. The labor landscape has undergone dramatic changes in a short period of time. Some political circles are under pressure to increase wages, but we’re seeing significant changes in compensation policies driven more by market pressure than by legislation. A smaller pool of available candidates has forced employers to pay more today than they did in the past, and many have had to offer broader benefit packages to lure potential employees.
Higher costs will impact other areas of the business such as general supplies, services, utilities, taxes, interest, etc. The better you predict your expenses for 2022, the better you can manage your business to handle them. If you’re expecting revenues to be flat or down, an increase to expenses simply isn’t workable. It will erode profit quickly, and that will leave many dealerships posting losses instead of profits.
I would also take a close look at any used and off-lease equipment you have. This has been a real lifesaver for many dealerships. Selling used equipment has prevented customers from being picked off by competitors while providing much needed cash flow and profit.
Another key area to look at and plan for is your cost of goods sold. With the costs of materials, labor and transportation going up, you can expect to see higher prices from your vendors. I expect this will impact all product categories. While you may offset price increases for things such as equipment, software and managed services by passing them along to your customers, costs for parts and supplies that are included in a contract may not be as easy to recapture. This could require a creative approach. Some dealers and resellers have added fuel surcharges, delivery charges and other miscellaneous fees. Though no one likes to pay these charges, they’re one way to recoup some of the increased expenses. An alternative is to raise your contract costs more than you have in the past.
A 2022 budget can bring all these financial considerations into focus. I work with many of our clients to put together an annual budget that outlines the targets and expectations for every revenue, cost of goods and expense line item (or general ledger account) on their income statement. It’s an eye-opening exercise that gives you tremendous insight and provides an invaluable planning and management tool. If you haven’t put together a budget in the past, this is a good year to start.
Let’s go beyond the financial realm. As previously mentioned, supply chain issues have been a real challenge throughout the industry. This problem likely won’t go away anytime soon. So, a proactive approach immediately comes to mind. Take the time to analyze your usage for parts and supplies, and consider increasing orders to build stock. This is a little more difficult with machines, but getting orders in the queue for at least mainframe units could be helpful. Accessories are harder to predict, so be careful about ordering them for stock; you don’t want to be stuck with accessories that haven’t been sold because their mainframe units are being sunset.
Since global supply chain issues are so commonplace, customers may appreciate having a mainframe unit when needed, even if they have to wait for an accessory or two. I would also take a close look at any used and off-lease equipment you have. This has been a real lifesaver for many dealerships. Selling used equipment has prevented customers from being picked off by competitors while providing much needed cash flow and profit.
The landscape in the recruiting and hiring world has changed markedly in the past two years. I was among those who believed wholeheartedly that once the federal unemployment stipends went away in September 2021, the floodgates would open and there would be plenty of quality candidates. Unfortunately, the pool of candidates didn’t change much, if at all. This indicates that the hiring dilemma won’t change anytime soon.
If so, businesses looking to hire are going to have to change their strategy. This could mean rethinking where and how to look for employees, how to compensate them and what benefits to offer. Along that line, one area that seems to have shifted is the need or desire for more free time. When putting your plans together consider offering more time off as a part of your benefits package.
The final area I want to touch on relates to the government stimulus programs and taxes. Many businesses took advantage of one or two rounds of the Paycheck Protection Program. Others benefited from the Employee Retention Tax Credit Program. As a side note, if you haven’t investigated this program for 2021, it’s not too late. There are many companies that qualify but never bothered to look into the program. If you experienced a reduction in revenue of more than 20% for any quarter in 2021 when compared to the same quarter in 2019, you qualify. It’s also possible to qualify for more than one quarter. Those that qualify can expect credits in the tens (if not hundreds) of thousands of dollars. Yes, you read that correctly. We helped a small dealership file for credits in December, and the owners were shocked to realize they were going to get a $150,000 check from the IRS under the program.
If you’ve used these or other government stimulus programs, be sure you understand the tax treatment. Paycheck Protection Program loans that were forgiven are treated as tax-free income at the federal level, but not for all states. Employee Retention Credits and other government stimulus program funds are fully taxable. Plan for this now so you aren’t surprised with a big tax bill in April.
While 2022 may have some complications that we haven’t experienced in the past, there’s no reason we can’t navigate them. Proper planning and, more importantly, good execution on your plans will ensure that 2022 is a good year. I wish you nothing but success. As always, if there is anything I can help with, don’t hesitate to reach out.
