Winter is Coming
First Published 6/21/2017

“Did you teach him wisdom as well as valor, Ned! She wondered. Did you teach him how to Kneel! The grave yards of the Seven Kingdoms are full of brave men who had never learned that lesson” George RR Martin Winter Is ComingFor those of you who are fans of Game of Thrones you know this ominous refrain, for the rest of you, it means beware of the coming hard times. Yes, times have been good, but we are faced with many challenges. Margins are being squeezed as customers shop in online in showrooms and warehouses while expenses are increasing daily. Beyond the political noise, there are real economic drivers impacting the bottom line and you must be preparing for them today before they obliterate you tomorrow. Let’s look at some of them. Wages: While there has been little growth in real wages, replacement hires are costing more than the old employees. This is because in our full employment environment, people who are changing jobs are doing so for benefits and salary increases. In addition to the age-old reason of leaving their boss, not their job. As an employer not only do you have to be aware of the market, but you have to be aware of what your team members are thinking and how fulfilled they are both in their work and economically. Contracts: As contracts auto-renew, oh, how I hate that word “auto-renew”, one has to be extra careful of those built-in increases. Or in many cases, the multi-year contracts that have escalators in them. This is compound interest in favor of the supplier. Long term contracts can put a business in a particularly tight spot especially when they are not scalable for business volume. Supplies: Everyday supplies are going up in price. Yes, our old friend inflation is back and is putting the squeeze on everything we do. The price of fuel and all oil related products is up and that impacts virtually every product in every business. It also impacts all the supplies used to maintain the business in other words, every aspect of the business. Products: Now that we have looked at Wages and Overhead expenses, Inflation is impacting products too. On top of higher costs, and in spite of “consumer confidence”, margins are consistently being pressured by better informed consumers with another merchandiser either down the street or online ready to turn a custom product into a commodity and charge .25% less for it. And many of today’s consumers having no loyalty to the merchant, jump for that difference. Solutions Abound: As I said, “Winter is Coming” which means now is the time to prepare. It is time to embrace that feared acronym FP&A or Financial Planning and Analysis and develop a financial and operating plan to see you through the coming storms. To analyze what is working and what needs improvement and where opportunities for improvements in expense control exist.
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