Real Issues. Real Answers. Planning for the unknown

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While not all businesses have long-term strategic plans, most smart companies have a plan for the year, or at least the next coming months. But how do you plan for what’s to come when economic and public health uncertainties make the future harder than ever to predict? That question, posed by an LBM Journal reader, is at the heart of this month’s Real Issues survey, entitled… Planning for the Unknown.

This month’s question came from a reader whose company is experiencing strong sales even during the COVID-19 pandemic—but the question lies in how long those sales will last, and how to best prepare for whatever the future may hold. Thank you to the LBM Journal readers who responded to the survey and took the time to share insights from their business that can help all in the industry come out of the COVID-19 pandemic stronger and smarter.

Question 1

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Real Issue Planning for the unknown

Question 2

How would you advise this dealer? 

“Every year during the fourth quarter, our company leaders get together to revisit our strategic plan. While we never know exactly what the future holds, this is the first time since the Great Recession that we feel like we’re flying blind. Despite the pandemic, 2020 has turned out to be very strong for us—which we could never have predicted. If business will remain strong, we’d like to invest in our delivery trucks and technology platform, but what if it doesn’t? How are other companies handling the planning process in today’s reality?”

“I tend to try and lean to the most conservative option. Plan for the worst financially, but also consider your customers’ needs during this busy time. If you need a new delivery truck, consider buying something versatile. Maybe buy a few automatic, non-CDL dump trucks instead of buying another Moffett rig. They tend to cost less to purchase and maintain. Also, the pay rate for a driver for those trucks is generally less than a CDL/ Moffett driver. Other needs can be met with this same method. Try to find a less expensive alternative to meet your company’s needs. Also consider, if building falls back into recession, what other ways you would be able to use this equipment as a source of income.”

“We are still doing an annual strategic plan based on the information we have available at the time. We have adjusted the plan for unpredictable items such as the pandemic.”

“We are sticking with our plan to add the resources we feel we need now and for our future. We believe it will do more harm than good to be behind the eight ball when the pandemic ends. The supply chain limitations, along with rising material costs, could dampen the building market. Fortunately, money is cheap, and the lack of housing inventory in our area should carry us through.”

“We are only investing in what is absolutely essential to operate now.”

“Get out of debt and don’t take on new debt. This is a time to get free from encumberment. We need agility in the coming months.”

“Your financial person should advise you if you need the depreciation.”

“Don’t take the bump in growth as permanent, rather as an opportunistic advance on the next year. The pie is not larger because of COVID-19. Rather, customers have bought forward what they might have planned. Plan on a good next year, but not at today’s sustained levels. Plan for a flat 2021. If that justifies infrastructure, go for it!”

“I’ve never entered the budgeting process feeling as clueless as today. We’ve had an all-time record year-to-date, which seems impossible. We’re all convinced it will crash and burn but every week prices are higher, and product is harder to procure. I think the answer to this question is how well did you do? If you have excess cash, spend it just knowing that we’ll see housing slow quickly, maybe in August, when these record high prices hit the street. Business has to back up substantially at some point, and who knows when? Keep enough cash to know you can make it to the other side of the toilet when it does flush.”

“We think you have to believe that, as a country before COVID-19, we had not recovered from the 2008 drop in construction. We, as a country, need to rebuild more homes. While the likelihood of another year like 2020 is hard to predict, as an industry we should be planning for busy years.”

“Hard to plan until after elections.”

“Invest in adding value to your customers’ business. If that means delivery truck upgrades to get material to your customers more efficiently, that’s a good investment. If a technology platform helps your customer, that’s a good investment. If you help your customers, your business will still be around on the other side of this pandemic.”

“Remain cautious…keep cash in bank… were not through this yet…but thankfully our industry has flourished compared to many others!”

“It is all a leap of faith. Talk to your major customers to learn how they see their work going. Gather all the info you can and go with your gut!”

“Go ahead with the investments in trucks and tech. If the current levels of activity stay strong in the near term, then great—you’ve got more assets in place to handle the volume. If these new assets are managed well, you will likely save some labor dollars and increase your capacity. It’s a win/win. If, on the other hand, activity falls, you still have the assets in place for the future. However, if you spent the same dollars to maintain your current workforce through the slow-down, those dollars are gone forever. Appropriate capex dollars spent for the long game are always better than spending for expenses like labor.”

“Keep your people employed and watch expenses. We’ll also looking for more Installed sales to help our contractors working as subcontractors.”

“Start by identifying your core business and expected rate of growth based on historical data, industry expert forecasts, and known specific opportunities. This is your baseline. If you experience a bump this year, analyze that growth to determine what new business can be retained. What new resources are needed to retain and grow these new opportunities? You may be able to negotiate third-party delivery for less than the expense of owning a truck. Technology is key as consumers and commercial customers are investigating and buying online at all hours.”

“Fortunately, we have the financial stability to keep a long-term view. That is, we are replacing and updating equipment and systems that have long-term benefits. However, we are working hard to control daily operating overhead. Usual merit raises were replaced by a flat cost of living increase for all employees in 2020.”

“I believe that this is the year to proceed with caution. There are too many unknowns for the next 12 to 18 months (the virus, the election, unemployment, and credit/debt issues). While the building industry should continue to be a strong sector of our economy, I think it will be more competitive, meaning lower margins. Moving forward with new technology will be a longer term, worthy investment. Trucks and other heavy industrial equipment can wait for us to see further into the future.”

“There will still be market share available and you’ll want to capture your fair share of it. Invest in items that help to build competitive advantages in the marketplace.”

“When the pandemic started, we didn’t know what to expect. We immediately cut our capex budget for 2020 in half to conserve cash and investment. Our business took off and as a result we added back the capex we deducted and added much more to the amount for this year. Our thought was that we don’t know who will be elected next year and today we get 100% depreciation on most equipment. We are not sure if that benefit will remain. Also, our profits will be stronger in 2020 and we wanted to offset with these investment deductions. We will prepare an operational plan for 2021 in the fall, but we have already spent our capex for next year.”

“We are in the same scenario. Our approach to the unknown future is to be a bit more fiscally conservative than usual yet continue to address equipment and facility needs so we will not fall behind on our ability and capacity to service our market.”

“Our planning tends to be more short term than long term during these times.”

“Tread slowly as there is still too much unknown about Covid-19 and the potential long-term effects to our economy. Until we have a vaccine and actually see the results from this, stay the course and bank the profits for a cautious return to normal. Remember the exuberance of 2006.”

“Growing your business in the future is hard to figure. Number one, is your growth this year because of changes you made to your marketing, or because of Covid-19 customers doing more home projects? If sales are in departments that represent large increases, such as in paint, by consumers, that would more than likely be because of Covid-19. I would suggest you look into departments of increase, and if this is consumer-driven, don’t spend improvement dollars chasing a false increase.”

“One of the advantages independent LBM dealers have over publicly-held companies is that they can consistently invest for the future without having to perform every quarter. With regard to equipment, remember that it’s hard to catch up when business improves… which it always does. Investing in technology is wise in both good and challenging business environments. Capital investments are also good for employee morale and help recruit and retain high caliber people.”

“Create two budgets—one conservative and the other what we call a ‘stretch goal.’”

“With the unknown, we will have two budgets this year. One will be aggressive, based on what is currently happening, and the second will be a soft plan. The first quarter will be identical for both plans and then the aggressive plan ramps up for the following three quarters while the soft plan just maintains, similar to the first quarter. Most companies know what their day in and day out expenses are so that wouldn’t change for either budget. It’s the updating of equipment, expansions, and hiring levels that the aggressive budget plans for.”

“We are in the same situation. Our business was down in March and has now recovered. We are presently ahead of 2019. We are being cautious about equipment acquisitions. We used manufacturer financing to complete a recent purchase in order to keep availability on our LOC. It can be paid off if sales remain steady through 2020.”

“Man plans, God laughs! Never truer than now, especially because in parts of the country construction is defying nearly all early bets. What you are describing sounds like necessities, not wants. Investing in those may save enough money that even if we do slow down, you can compensate longer than your competitors could if they would have to do the same investment later. Besides, if you survived the building recession before, you will be attuned to getting leaner quicker which is what got most of us in trouble then. Good luck and be safe!”

“Keep your eyes on your long-term vision (you have one, right?). Then, meet at least quarterly on it during this time instead of annually. In a way, planning for long term right now is a bit like running a marathon with crutches, but we have to guard against anything keeping from accomplishing our mission. Will it look different? Sure, but acting proactively will ensure that we have control over as much as possible.”

“I would look into better safety and health.”

“Interest rates remain low and there are shortages in the inventory of houses available in many markets. DIY and home renovation projects continue to be strong. Improving your relationships with vendors that supply you with inventory items in high demand is a good idea. You might also consider increasing inventory levels of those high demand items to help weather any shortage storms.”

“Plan for the country to stay strong and expand. We will get past this.”

“All the leading indicators suggest that 2021 will be huge year. We are moving forward with capex expenditures in order to be better prepared to increase our capacity and service our customers at the highest level.”

“First of all, invest in your delivery trucks how? Are you talking new trucks or fresh paint job? Remember that those are moving billboards and should always be kept looking fresh, no matter what.”

“Delivery trucks, fleet maintenance and replacement should be part of every year and budgeted and planned for accordingly. Get back on the annual program as soon as business allows if you miss a year of replacing older vehicles. We handle technology in the same fashion. Accrue throughout the year for vehicle and technology repairs, purchases, enhancements, etc. You should know the life of your delivery vehicles (age, mileage, etc.) as well as anticipated life of servers and technology platforms. Define the cycles and schedule accordingly.”

“Your company’s image and efficiency are only as good as your rolling stock. Always plan to keep the product moving.”

“Keep your eye on the long game. Don’t abandon your long-term strategic plans, but given the unknown future our country and our world is facing right now, consider postponing any large capital expenditures unless they relate to technology that will bring you closer to your customers and make you easier to do business with. Take comfort in knowing that no one else knows what the future holds either so we are all facing the unknown together. My advice is to remain lean and mean!”

“We’re planning for the short term only right now. No heavy expenses, unless it absolutely necessary. Like you, we have had a very good year. But I am being very conservative with the business. Right now, I think cash flow and reserves are very important, so we are watching our turns and receivables very closely. With higher inventory cost we also are paying close attention to our margins.”

“I’m optimistic that the demand will slide into winter as products are back in stock by fall, but cautious that a re-emerging Covid-19 could put a halt on consumer optimism and spending.”

“We are still making the day-to-day business decisions that we need to make to keep our business current and up to date. We are still spending money on equipment upgrades and replacements, but we are being somewhat cautious when making the expense. We feel that we do not want to put off necessary expenses as if we let them get too far behind it will be difficult to play catch up at a later date. Again, the most important thing to remember is to be cautious when making large expenses or purchases.”

“We are in the same situation. We are taking a ‘cautiously optimistic’ approach after seeing the building industry (in our area) continue to strive despite the ongoing pandemic. We are expanding our sales regions and trying to gain more market share while being more stringent on extending credit to new customers (not an easy balance when trying to gain new customers).”

“Bank the money and use the zero-budget method where you do not budget for improvements, only pay for needed repairs. As for technology, consider upgrading where it will improve productivity/sales. Besides Corona, don’t forget we have an election coming up that can upend your business model. Be cautious.”

“We have invested in delivery trucks and technology.”

“In the uncertain economic climate we are currently facing, it is becoming abundantly clear that our federal, state, and local governments are going to be very creative with the ways they make up for the budget shortfalls they face. In particular, state legislatures will be looking at new tax options in the form of sales taxes and payroll taxes. It is vitally important now more than ever that you reach out to your state representative and state senator in your district. Go beyond just reaching out to them, invite them to your facility and show them what you do, show them your business and show them how vital you are to the community. Let them see firsthand what it is you do and who you sell to and that you are the linchpin of the home-building, contracting, and remodeling industry in your area. Develop a relationship with your representative and senator. Make sure they know who you are, make sure you have each other’s cellphone numbers. The better you all know each other, and the more important they know you are, the safer you will be. But MAKE THESE CONTACTS! Reach out to your state building materials association and they will help you contact your state reps and senators to make appointments. If you are not at the table, you will be on the table as a meal option. It is that simple.”

“Due to the uncertainty that is the COVID-19 pandemic, we have chosen to leave our fall 2019 plan in place, unchanged. We’d rather play it conservatively rather than extend ourselves in the face of the unknown. If our projections are not adequate, we do have the ability to act quickly and re-adjust our strategy.”

“Cautiously optimistic. Like our customers, we are hanging on to cash and only spending when we deem prudent. It shouldn’t hurt your business to take a wait and see attitude.”

“Our company is struggling with the same thoughts. Our plan as we have done several times here in south Louisiana is to add this new and different disaster plan to our bucket of other disaster plans: hurricanes, floods, tornados, and many others. Our long-term plan will be similar to what has been the norm and the disaster plans can be added and removed as necessary. Looking forward to others’ ideas.”

“We are actually re-budgeting the next five months as material costs have skyrocketed. We’re concerned and need to address this issue monthly as we’re in uncharted water right now. With regards to major products and capital investments, I believe we will be addressing as usual.”

“The best advice is what we’re telling ourselves, and that is to enjoy the business today, but plan and expect that it will be short-lived. Bank what you can today as there is much uncertainty around every corner. The only thing that is certain, is material shortages, extended lead times and winter looming in the distance.”

“We are using our unexpected successes to build new stores and increase capex spending.”

“Continue with the business remaining strong for 2021, but have another plan with things changing downward.”

Hundreds of readers share their insights for this every-issue feature. Have a Real Issue? Contact Rick@LBMJournal.com.

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