From the editors at Irrigation & Green Industry magazine, “Every indication is that the industry is optimistic about business and the majority are experiencing growth.” That about sums it up.
An Eye on the Markets
The leading indicators for the construction trades are almost unanimous that 2019 will be a good construction year. There are some warning lights in the near future, however those negative indicators are not yet conclusive or bothersome for 2019. 2020 is the year many are questioning. Watching the leading indicators will clue us in over the next several months.
Of course there is always a coming slowdown or recession. Happens every 7 to 11 years. The question is, are you going to participate? You might be wondering what I mean by that. If you are ready for a slowdown or even minor recession, you are capable of making market share gains, hiring some really great people, and setting the stage for a rocketing growth phase.
Those who are not building efficient operations, reducing debt, increasing cash, and having a clear strategic plan are the ones who bleed during a slowdown. None of the above conditions can be reached over night, so it is wise to be preparing now and always.
Cash is King
If your operating cash reserves are good then you can muscle your way through a slowdown without ever having a cash problem. If your cash position is great, you can buy weakened competitors or invest in new business when costs are lower. Slowdowns are when you can pick up some wonderful staff as others are shedding them or cutting back their pay. But your cash position must be very good.
How do you improve your cash position?
- Keep money in the company
- Pay-off debt
- Avoid unnecessary cash expenditures and debt
Amazing how many contractors strip out all the cash in their company by yearend. Either because they don’t know any better or think they are saving money on taxes it doesn’t matter. Your company must have a good operating cash condition.
Taking on debt should be reserved for growth. The best position is to have enough operating cash that you can pay cash for needed assets.
Build Your Ratios
Sometimes during a long slowdown or recession you might need to add a Line of Credit or fixed loan. When the economy is tight the banks are tight. If your balance sheet ratios are not good you will not get a loan, at least with terms you can live with.
Talk with your banker and accountant to identify the ratios they look at when considering loan worthiness. Then make a plan to improve them and track your performance every month.
Even if you never need to go to the bank for a loan, strong financials will help you live at ease and increase the value of your business. Running a good company is always easier and more enjoyable than not.
- Sell assets no longer needed.
- Sell or trade-in assets that cost more than they benefit to maintain.
- Don’t buy an asset unless you have a short earn-back window.
One asset that can be scary is materials inventory. Without a good inventory management system and controls, stock piles of things tend to shrink. In other words they go somewhere, but are never billed for. There tends to be a growing stock of stuff every year. And there tends to be a growing pile of “dead” stock because of obsolescence or being replaced by more desirable items. Inventory is generally a cash loser for a contractor, avoid investing in inventory.
-Scott Knowles, President
Article based on information from the January Irrigation & Green Industry magazine survey.