32 l ROOFINGBC l FALL 2018 FEATURE H istorically it has been shown that 80 per cent of the time when businesses get into trouble, the reasons are internal. The business is not really focused on all the key elements it needs to be successful. Only one time out of five is it due to external factors such as natural disasters, economic condi- tions and inflation, which are influences outside the control of the business. Is it any different today? There are a lot of things going on in the market that we have no control over. The major one at present is around NAFTA and the worldwide trade wars that have been initiated by the U.S. and responses from other countries, including Canada, and now Saudi Arabia doesn’t like us anymore. Whether or not these issues will prove successful for the U.S. is not important in our ongoing business; what is important is that we are braced for the various outcomes that could happen. Maybe, in this current economic climate, the external factors will have a greater impact on our ability to succeed. We need to prepare for the external forces that are with us. Due to the tariffs that have been imposed by the U.S., we are facing unprecedented changes. Canada has retaliated and who knows where it will end? This level of uncertainty is impacting every HVAC and plumbing contractor. The tariffs may cause shortage of supply of equipment and materials and, likely, rising prices. This, in turn, will likely slow down sales and profit margins. Although these factors are outside our control, we must protect ourselves from the negative outcomes, and ascertain if we can gain any advan- tages. We need to continuously eval- uate what is happening, how we should respond and how we can be proactive. Cost of material and equipment could become very volatile. Labour costs are under pressure because of the shortage of skilled labour across Canada. We all must deal with the labour issues that have been present for the past several years, and will likely continue for the foreseeable future, so let’s focus on the cost of procurement and equipment. Generally, businesses have been cutting back on inventory because suppliers have been very good at providing a quick turnaround, reducing the need for storage and materials handling. This in turn has reduced the need for working capital to finance inventory. Stockpiling on inventory can be costly, but if prices increase signifi- cantly, the business with the inventory will have the opportunity to make very large profits. In June, one of my Vancouver clients saw a 25 per cent increase in the cost of their raw material (steel). Due to their foresight they had some $3 million of inventory in stock and much of that will be sold at the higher price. They also found one of their suppliers refusing to provide inventory because of the uncer- tainty around the tariffs. Without their inventory stockpile they would have been out of business. So, your first choice is to stock- pile inventory if you can afford it and if your suppliers will supply you. A second option might be to get your suppliers to provide you with inven- tory on consignment. Some provinces have a Personal Property Securities Act that will give suppliers security against consignment inventory. A third option is to negotiate long-term contracts with suppliers, say, covering a period of six months or more. A difficult decision is how many furnaces and air conditioning units to order for next year. There is a real danger in ordering too much, and significant potential losses if you can’t supply product. The downside of too much inventory is that you may have to carry it for longer periods than normal, but if you make higher profit margins the trade-off could work in your favour. It is important to remember that your competitors are facing the same dilemmas you are. That means you won’t be any worse off in competitive terms unless they have managed to achieve some of the foregoing strategies that you haven’t. If you can’t get product to sell at competitive prices, your sales are going to reduce. This means that unless you reduce your overhead you are going to lose money. You need to develop some “what if” strategies for breakeven sales. Divide your overhead by the percentage gross profit and that will identify how much you need in sales at STAY SAFE By RONALD COLEMAN Take a leadership role and protect your business