Issue link: http://read.dmtmag.com/i/236097
On the Numbers Great Expectations Learn as much as you can about new tax policy, and count costs carefully before hiring this year. BY GARRY BARTECKI I asked Kim Phelan what month my next column was for, and she replied "January – and please include something upbeat." "No problem," I laughed. As some of you know I spend a lot of time reading and studying economic and industry-specific data, talking to our banker members, talking to dealers and vendors, and I always ask, "How's business?" As a result of listening to people and doing my homework I arrive at my ideas of how I would plan out 2014 for the market I am in. From the standpoint of available business or market opportunity, I suggest that there is more business available but not enough to soften up the competitive environment to the point where the dealers are once again in the driver's seat. Yes, I know there are various hot areas in the marketplace where business stays hot and heavy and with profits measuring in the top tier. But these dealers also have to manage their business to stay in the top tier. It is not surprising to find more and more competition in a given territory if above-average business opportunities prevail. In short, it is not easy no matter where you work. So the good news is, there is more business to be had, but it is business from contractors who still find themselves in very competitive environments. Even though there is sales potential no matter what market you are in, there are headwinds to be considered that could make the difference between a profitable or not-soprofitable year. Consider: Both new and used equipment costs are increasing. This is both good and bad – bad especially if you can't pass on the increases to your customers. If equipment costs increase, rental rates should increase as well, but will they? With the Tier-4 units, it may be tough to generate the same dollar utilization as you do with older units. Hopefully the higher used equipment prices you can get for your own used rental units will cover any shortfall from Tier-4 rental rate discounts. Employee costs are increasing for any number of reasons. There is still a need to consider your options before hiring on another employee. Federal, state and local compliance issues take more time and effort than ever before, with the risk of serious consequences rising every day. My banker friends tell me interest rates are going up no matter what the Fed chief does. If this happens it is sure to put a damper on construction and equipment purchases. Any quantitative easing most likely will cause a market slump, which should trickle down through the entire economy. The new tax proposals will drive more taxable income through flowthrough entities. Isn't this great – more taxable income without any additional revenue. Those are the risks as I see them for 2014, some not unexpected, but some new issues that we have to work through sooner rather than later. Employee cost is certainly one area that needs attention. As "Big Al" Bates says, your revenue increases have to keep up with payroll increases if you hope to maintain your margins. If you estimate your total compensation dollars for 2014, is your projected revenue expected to keep pace? The tax changes, if they become law, will be another cash-killer that requires attention. In an attempt to reduce the corporate rate to 23 percent, and paying for it by eliminating loopholes and deductions, the lawmakers seem to have forgotten that most corporations are flowthough entities in which individual taxpayers are in much higher brackets. When all is said and done, I would avoid highly leveraged expansion plans or acquisitions in 2014 until we have a clearer picture of what lies ahead. We don't want to miss revenue growth opportunities, but don't lose sight of the fact that those with the cash will be the kings of the hill should the economy continue to muddle along or slump once again into recession territory. We will have some examples of how these new tax laws will impact your business at the Summit on Jan. 17 at the CONDEX Centerstage. As it turns out, the phasing out of personal deductions, increase in payroll taxes and the elimination of business deductions increase a dealer's taxable income substantially. The more you make, the higher your tax percentage will be. I admit this hasn't been too upbeat, but I will add: Our AED members are some of the best business operators in the world and will work through these trials and tribulations as they historically have done – and come out the better for it. See you at Summit. GARRY BARTECKI (gbartecki@ aednet.org) is AED's vice president of Finance. January 2014 | Construction Equipment Distribution | www.cedmag.com | 63