Prospering in an Economic Downturn

Posted on June 1, 2001 by LCT Staff - Also by this author

It’s no secret that making money is a lot tougher for companies these days. With the economy softer than an over-ripe tomato, analysts say the profit pinch isn’t likely to end anytime soon. Also, analysts argue over whether it’s a recession, downturn, slowdown, adjustment or something else. No matter what you call it, the demand for limousine industry services has slowed.

Charles Tenney and Associates surveyed its clients for results from the first quarter of this year and found some surprising numbers. Fifty percent of the companies surveyed produced less revenue in the first quarter of 2001 than in the first quarter of 2000. Seventy-five percent of clients surveyed reported that profits were less in 2001 than the first quarter of 2000. Results also showed that trip counts were down, and new business inquiries were weaker than last year. However, on the bright side, the survey showed that chauffeurs and other personnel needs have been easier to fill this year.

Learn from the Past

Do you remember what happened the last time that we had a major economic slowdown? Operators kept hoping beyond hope that things would change. They made bad decisions about equipment, personnel, costs, etc. They made changes too late. Some operators never made any adjustments and are not here today.

This economic swing is another opportunity to embrace change and make it work for you. Because of it, there are hundreds of actions that you might take to make your business better. However, you need to plan the right actions and act quickly.

You should use the examples set by all those that we have read about in The Wall Street Journal, USA Today and your local papers. Companies like First Union, J.C. Penney, Charles Schwab and Hewlett-Packard are all making decisions and taking the necessary actions to ensure that their businesses are meeting the challenges and opportunities that will arise over the next several months.

Make sure to think long term. After all, the economy will cycle through and become strong again. Operators need to make timely and economically sound decisions today that will allow them to continue tomorrow. The following are a few suggestions to consider.

Live by Your Financials

Insist on profit-and-loss statements by the 10th of each month, and study (not review) them monthly. You should study the quarters to make intermediate range decisions. Sometimes the months are too erratic. If you make decisions based on the profit-and-loss statement and the balance sheet, it will take a lot of the emotion out of your decisions.

Compare this year to the last one by both month and year-to-date. Benchmark key areas, such as your revenue-per-vehicle for last year, and compare it to the current month and year-to-date. A minimal expectation for average revenue-per-vehicle for even small companies should be between $6,000 and $7,000 per month. Divide total company revenue for a month by the total number of vehicles at the beginning of the month. This equals the average revenue-per-vehicle/month. If this average number starts dropping significantly, make immediate fleet adjustments.

Also, keep a close eye on your accounts receivable. It is bad enough to have weakened sales, but to let customers string you out only magnifies a difficult cash flow period. If you have to allocate more hours to collection efforts, do it. This is not the area to cut back on.

Cut the Fat

Our industry has had a wonderful five years. It seemed that anybody could make money. Sales increased with minimal effort. Customers were willing to pay better than fair prices. Demand was high. Corporations were not paying a lot of attention to costs. That’s not so today. Corporations are regularly putting out mandates to cut all costs by 20 percent, and our industry is a primary target for those costs.

We all have fat in our businesses. It is easy to accumulate it during good times. However, you must be skillful and use good judgment in making decisions about trimming fat.

Can you do without the third shift? Can others fill in? Do you really need that last reservationist? Can you really afford raises? Can you afford that $700-per-month car for your spouse? You can really cut some serious dollars if you spend the time. The politically correct term today is “right sizing.” Whatever you call it, if the downturn continues, just do it. If you find this difficult, and most human beings do, get some support and accountability in place immediately.

Cancel Orders

This may not be a favorite among the coachbuilders, but the fact is, you may have to cancel some orders for equipment. Sometimes it is more prudent to lose a deposit than not be able to sell the services of a new vehicle. Our government cancels orders for new fighter planes, major airlines cancel airplane orders, and cities cancel buses. Sometimes it is the right thing to do. In the long run, vendors would rather lose an order today than lose a good customer forever.

Don’t Follow Competitors

Most of your competitors will be looking for someone else to follow or someone to make the first move. Don’t join this group. Decide to be proactive. Do what your financials dictate. Do what you and your advisors understand is necessary. Do what your gut and heart say is right for the long haul, and do it promptly.

Improve Productivity

All operators can benefit by improving the processes for reservations, dispatch, billing, collections, fleet management and many other areas.

I have met only one limousine operator in 20 years of consulting who was using his computer system at what I determined to be almost 100 percent of its potential. Every other client of our firm has been able to save hundreds to thousands of labor hours annually by utilizing their computer system more effectively. The problem is not difficult to correct. It usually involves a one-day, on-site visit to discover the opportunities. Within a matter of a few weeks, new labor-saving actions are developed and implemented. Rest assured that this fact is not a reflection on your computer system or the person who sold you the system.

It doesn’t matter how good the system is if it is not used properly. You are spending money that you shouldn’t be. Personnel changes, improper training, efforts to provide additional fail-safe systems and other good intentions all work against improving efficiency and productivity in the computer area of limousine companies.

There are occasions, even in poor economic times, when it is prudent to spend money. Improving efficiency and productivity are two of the best items to spend money on in any economic condition.

There are literally hundreds of ways to improve productivity and efficiency in a limousine operation ranging from sales performance, vehicle production and efficiency, to dispatching, reservations, accounting, cash flow and even senior management and owners. You just have to take a hard look at where you can improve.

Buy a Limousine Company

Why are people buying and selling during these times? People sell because ... for more on this topic, see the June issue of LCT magazine.

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