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After the usual January convention trips, I'm happy to say the outlook for construction in 2007 looks positive. There are exceptions in certain areas and segments of the market, but even those are not bad.
According to at least one major industry study, overall construction spending for 2007 is expected to increase just over 5%. Even though residential construction — which represents 50% of construction spending — is expected to remain flat, the anticipated increase in nonresidential and nonbuilding spending will more then offset residential's impact. Conversely, the overall increase in construction spending will be enough to keep material costs moving upward, and will put a strain on the cost and availability of skilled workers.
Contractors across the country — except for certain parts of the Midwest — report they expect business to be mostly above average, with the hottest markets in the Southwest. As far as equipment goes, it appears contractors will replace at least 10% of their fleets in 2007. Fewer contractors, however, plan to increase their fleet size.
Manage your fleet effectively
Overall, it looks like 2007 will be a good year for most contractors. Defining a "good year" assumes those contractors have done a good job managing their equipment fleets. Can you say that about your company? Can you say the person responsible has done a good job on your behalf this year? Do you get the information you need to determine whether your fleet is being effectively managed?
Let's face it, proper management of your equipment fleet — whether you own it or rent it — is one of the most important controls you need in place to manage costs and time schedules. Your equipment has to be available when and where you need it — with the appropriate attachments — and must be properly utilized while on site. It doesn't pay to have workers standing around because the equipment isn't there, or to have equipment unused because you are not ready for it. In either case, you are losing time and dollars.
Because of the expected construction activity in 2007, equipment values are holding up and the lead time for new units is longer than it should be.
On the other hand, units that are getting old, or are not getting proper time utilization, need to be evaluated for sale and converted to cash while the getting is good. Remember, if you wait until things start slowing down, you will be selling as prices are falling, and you will take a bigger loss on certain units than needed.
If you have under-utilized units, now is the time to release them for maximum benefit. You can always rent equipment if you need a similar unit on a short-term basis.
Check out financing options
On the equipment financing front, you can expect that banks and finance companies have plenty of cash available for financing purposes. In fact, each and every one of you should be "shopping" for terms, rates, covenants and guarantees.
If you haven't done this in a while, you will be surprised at what you get for proposals. If you have a well-run, well-capitalized company, don't be bashful about asking for very attractive terms and rates. And if you receive attractive proposals, don't be bashful about asking your current bank to meet those terms.
In summary, 2007 should be good for most of you. But that doesn't mean you can forget to follow proper business practices.
Garry Bartecki is director of dealer/distributor services at BDO Seidman, LLP of Chicago, as well as a consultant to the AED. He has also worked as an independent CPA and consultant to equipment dealers. He can be reached at (312) 616-4677 or gbartecki@bdo.com.
author: By Garry Bartecki