Business Forecast for 2012

by Tom Stimson

I know some of you are planning your budgets for next year, because I am being asked what I think the 2012 outlook is like. Between the world economic news, an irrational stock market, and an election year in the U.S., I can understand being cautious about 2012. I won't speak to the macro-economic situation but I can tell you what I think are significant trends.

• I am not hearing about any specific industry, channel, or segment that is in a downturn with the exception of K-12 markets.

• I am not hearing of any regions that are still depressed (other than the usual laggards), but I do hear about regional AV companies that are suffering. At the same time I often hear about AV companies that are thriving in the same region. (Not all problems are economic or regional.)

• The capital markets seem to be full of money looking for places to invest.

• Private equity is quietly moving again. M&A activity is up. Right now some private companies are selling because they can't fix their problems by themselves. Soon we should see good mergers showing up (a good merger is 1+1=3). The funding is there, but private equity either wants a bargain or home run.

• We have had a few major bankruptcies and I expect more. Why? Because companies with poor cash flow and unprofitable business models simply can't find any more financing.

• Margins generally remain down especially in the contract bid world where there seems to be no bottom. Some companies are buying revenue at negative returns. Why? I have no idea.

• Direct relationship selling is yielding improving margins, but much of this work is still being shopped around by the customer. Still, the smart money is on enterprise and relationship sales methods.

• Lead times are increasing on low-margin projects and shrinking on others (more time to shop for desperate contractors). Time to make short lead time projects more profitable!

If I were developing revenue budgets for 2012, I would lean towards the assumption of 6-10% growth even without any major initiatives. At the same time, I would increase the percentage of my expenses that are scalable. Procure more sub-contractors sooner rather than adding personnel to my business. If revenue growth exceeds 10 percent, then I might add personnel.

Net profits seem to have stabilized for most companies I talk to, so in 2012 I would strive to reduce overhead, improve efficiency, and turn away less than optimum projects in order to increase net profit by 2-3 basis points.

On capital budgets, I would invest heavily in anything that would reduce my labor costs over time. Software systems for project management and cost tracking fall into this category. Also, computer hardware prices are quite low. I would replace any computer over three years old and take advantage of faster, more reliable hardware and the latest OS version.

If 2011 was your sales growth and infrastructure investment year, then in 2012 I would focus on cost control and minimizing capital investments. Pay close attention to right-sizing personnel in 2012. Often I find that adding FTE's will reduce overall costs by spreading work around, reducing mistakes, and adding flexibility. By the same token, being overstaffed can be costly because it creates silos, which reduce flexibility and leads to mistakes. There is a correct headcount for every company, but it all depends on your business model, internal strengths, and state of your infrastructure.

I hope this adds something to your discussion. Happy planning!

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