As we embark on 2023, I’m sure I’m not alone in hoping that we finally put COVID-19 in the rearview mirror. Its impact has been unprecedented. In 2022, we faced challenges with inflation, rising interest rates, supply chain issues, a shortage of employment candidates and general unrest.
Turning the page to a successful 2023 will require a new level of focus and a strong game plan in some key areas while also managing all aspects of the business.
When I ask business owners what their goals are for the new year, many of them put up the percentage of growth they expect from the previous year. This isn’t surprising, as many people look to the recent past when setting future goals. While this is a good benchmark, I suggest looking back to 2019 for another comparison. For most companies, a true recovery from the pandemic will be indicated by a return to revenue at or above 2019 levels.
Be sure to look at revenue categories individually, as I’ve found service revenue to be the best gauge of recovery. Equipment revenue, while critical to the business model, can easily be skewed by large deals or supply chain issues. I’ve found it helpful to analyze equipment revenue by recalculating what it should have been if the equipment was available as sold. This is a simple recast that moves the revenue to the time the equipment should have been delivered and invoiced.
Of course, this is an offline exercise; I don’t suggest making these changes in your live system. But this recast will give you a much better idea of how well your business is recovering from the pandemic as it will remove artificial rises and drops caused by supply chain timing.
The next step is to set specific goals for 2023. We do this by creating a budget with expectations set out for all revenues, costs of goods sold, expenses and net income. It’s most easily done by mirroring your income statement, ensuring that you consider all financial accounts in the business. The process involves setting specific targets for each general ledger account in your income statement.
Going through this process often proves to be eye opening, as it requires you to look closely at each individual account with greater scrutiny. You’ll uncover past expenses of which you weren’t aware. This budget becomes the road map and 2023 scorecard for the business, and is one of the most important management tools a business owner can employ. This is magnified by the desire to truly bring the business beyond the effects of the pandemic.
Most manufacturers told us that their supply chain issues should be solved by the end of 2022. It would be great if this turns out to be the case. However, I suggest planning for ongoing issues. The underlying causes aren’t completely handled; we’re still seeing COVID lockdowns in China, the U.S. narrowly escaped a railway strike and finding qualified employees is still a challenge.
If you have strategies in place to bridge the gap of equipment shortages, don’t abandon them just yet. For example, it may prove helpful to have a good supply of used equipment or to create/continue programs to release units to customers when new units aren’t available. And they won’t cause any harm if the supply chain issues truly are behind us. At the end of the day, the key is to have plans in place that allow you to have control of your customer base and not be at the mercy of a supplier or leasing company for your success.
When speaking with dealership owners and managers throughout 2022, their biggest concern was the inability to find and hire qualified employees. This isn’t a problem unique to our industry. Restaurants are cutting operating hours for the lack of servers, hotels aren’t able to find housekeepers and front desk help, and New York State has resorted to advertising for snowplow drivers on programmable street signs. Combined with unemployment rates below 4%, this is a recipe for continued struggles.
Building your business will require stronger and more creative recruiting plans. You’ll need to use all avenues available—advertising, recruiters, employee referrals, personal contact, etc. Today’s market also requires a nimble approach, and the hiring process needs to move more quickly. But don’t mistake this for a reason to shortcut the process. Moving quickly doesn’t mean cutting out steps. Properly vetting candidates through your interview and evaluation has a renewed importance, so the full process must remain in place. But if your process takes a couple of weeks to complete, you run the risk of losing good candidates to more aggressive employers.
Unless you’ve been living under a rock, you’re aware of the shift to subscription-based product and service sales. I expect this trend to continue to grow. If you haven’t embraced this model and begun to navigate its impact on your business model, I suggest you make 2023 the year to start. Whether it’s hardware-as-a-service, subscription-based service or software agreements, or managed service offerings, there will be challenges to making the shift.
When you put off learning how to implement these strategies successfully, you could see significant consequences. You’ll need to understand how to sell and price these programs, how to commission salespeople and how to manage overall profitability. Starting small will provide a valuable education that can pay big dividends in the future, allowing you to make mistakes when the stakes aren’t at their highest.
The final area I want to touch on relates to the government stimulus programs, particularly the Employee Retention Credit program. Many companies qualify but haven’t bothered to investigate the program. However, it’s not too late. Those that qualify can expect credits in the tens if not hundreds of thousands of dollars. Yes, you read that correctly. We just ran numbers for a dealership in the Midwest, and the company qualified for these credits for one quarter in 2021 and will be receiving a refund from the IRS for $169,731.
As the old saying goes, no one plans to fail, but some fail to plan. Success rarely happens by accident. It requires strong strategic plans and stronger execution. I wish you a successful and prosperous 2023. As always, if there is anything I can help with, don’t hesitate to reach out.
