Lancer Insurance
Friday, May 24, 2024

BY KEN LUCCI

Those in the know have been prognosticating about the uncertainty of the economy and how volatile 2023 and 2024 were going to be since before we emerged from the pandemic. At the beginning of 2023, there were dire predictions of an economic downturn by mid-year or Q3 that by most accounts have not materialized.

Ken Lucci Finances As we prepare for 2024, an election year here in the US with wars in two economically critical areas of the world, the question is, will this long-lamented recession finally appear?

We asked operators from around the world about trends they were experiencing in their businesses, so prior to writing this article, Chauffeur Driven posed a benchmark question to operators about whether they are seeing signs of a recession. Here are excerpts of the responses by region (you can read the full article here: bit.ly/3MQNBMX):

West Coast:
❱ Things are definitely getting more expensive, but we are not seeing signs of a recession ...
❱ We are not seeing any signs of a looming recession ...
❱ We aren’t seeing direct signs of recession where clients cut budgets or limit travel, but we are seeing many groups and events booking last minute ...

East Coast:
❱ Yes, we have observed a few visible signs that may indicate a recession’s impact on our business ...
❱ 2023 has been another record year for our business but I am concerned about 2024 ...

Midwest:
❱ While our business has not experienced a revenue reduction, we’ve noticed shifts in corporate travel and retail spending ...

South:
❱ I’m not seeing any signs of a slowdown ...

North of the border:
❱ For now, we do not see any signs of a slowdown caused by a recession ...

International:
❱ We have not been affected by the looming recession in Italy ...

The overwhelming sentiment of these operators is that 2023 has been another good year for the chauffeured transportation industry. This dovetails with most of the financial results we've observed as we review the financial trends of businesses in this industry every month. However, while revenue is flowing, fears of a recession persist, so we’ve been advising all operators to hope for the best while preparing for the worst. History has proven that cash strong and financially healthy businesses can thrive in virtually any economy, so this is our advice to prepare our businesses for the unknown that 2024 brings.

1. Create a healthy cash reserve. We recommend keeping enough cash liquidity to sustain business operations for about six months if there was a significant downturn. Basically, add up your fixed expenses and multiply by six and that is the amount of cash you should set aside for your just-in-case moments.

2. Watch your cash flow. Mind the cash coming in and going out of your business. Communicate often and clearly with people who owe you money. Make sure they adhere to your billing practices and consider offering them incentives to pay early or pay the day of the trip. Keep invoicing and accounts receivable to a bare minimum.

3. Minimize balance sheet debt. We have been shocked recently by the amount of debt sitting on company balance sheets, where one or two bad months in a row could result in the business not being able to pay its bills. Along with maintaining cash liquidity, work to lower debt and resist the urge to add new debt unless the result is an immediate and permanent cash improvement to the business.

4. Establish business creditworthiness. Pay your bills on time or early if possible and foster local banking relationships that will entertain extending a line of credit if you bank exclusively with them. Having good credit in place before there’s an economic event is the best way to be prepared for rough times.

5. Lower your operating costs. Reduce your expenses—but do so wisely. Renegotiate every vendor agreement you have, find less expensive alternatives, and reevaluate the basic services your business really needs to survive. If you decide to cut staff, make that happen before a recession. Make sure layoffs are done with care and thought—you don’t want to damage company morale (especially with many experiencing this in 2020) or shrink staff so much you won’t be able to properly service customers.

6. Manage fleet assets carefully. Every vehicle in your fleet should be generating enough revenue to contribute profits to your business. Review revenue and trip production every month and if you have vehicles that go two or three months without producing adequate profits, sell them off and either hold the cash or buy a vehicle that will bring in more revenue and more profits.

Ken Lucci Finances

“Dig where you know the gold is. Now is the time to take giant steps closer to your existing and past customers to gauge their financial health...”

7. Manage by monthly financial metrics. The financial health of your business can only be found in accurate monthly financial statements tailored for our industry. Are you making enough money on every trip to pay your overhead? Are your costs increasing too much, or do you have too much debt? Are you making a net profit every month? How do this month’s financials compare to the same month last year? The answers to these and most other financial health questions can only be found on your monthly financial statements. They are the keys to making all business decisions based on positive or negative trends instead of a spur-of-the-moment decision or spontaneous purchase.

8. Always be marketing. You might think that one way to cut costs is to decrease your marketing budget. However, history has shown that the smarter play is to keep promoting your business while assuring you are receiving a positive return on each dollar invested. Continuing your advertising through bad times also projects strength and shows your customers they are in good hands, while giving new companies confidence to do business with you.

9. Strengthen trusted partnerships.Look around your region and the industry and choose to do business with operators who will help you (and pay you) in times of need. If you’ve neglected rebuilding your network after the pandemic, it’s critical to do so since many businesses have changed or closed entirely. Form or rekindle those alliances where you can share resources and assets and have each other’s back. Don’t go out and buy more vehicles if a partner you trust can provide them at an hourly rate that allows you to make an acceptable profit, and be sure to reciprocate when they need vehicles or chauffeurs. Remember: A rising tide will lift all boats.

10. Dig where you know the gold is. Now is the time to take giant steps closer to your existing and past customers to gauge their financial health and project if they will be maintaining the amount of work they give you. Reach out to your top 50 clients and ask them how their business is doing and whether they have upcoming travel needs or are planning any group, meetings, or events you can assist them with. Be proactive and show them you are interested in serving all their transportation needs now and into the future.

Louis Pasteur, the 19th century chemist, famously said, “Fortune favors the prepared mind,” which is very appropriate in this business climate. Recessions will come and go, but the businesses that will thrive in any economy are those that prepare for any eventuality.   [CD1223]


Ken Lucci is the Principal Business Analyst and Founder of advisory firm Drivingtransactions, as well as the author of the industry-specific financial management course, Driving Financial Success. He can be reached at klucci@drivingyourincome.com.