Stay alert, stay focused, and stay informed while taking one day at a time.
By Gary Shawver, MGWC
While I personally have been out of the day-to-day operations of a water well business since 2012, I stay in touch with the general manager of my former company as well as some other contractors I personally know.
In recent conversations with them, here’s what I have gleaned from them:
- Getting some types of inventory is either difficult or has extended wait times. Pumps over 5 hp are very difficult to get.
- Casing, especially steel, has skyrocketed in the past year.
- Some repair parts are difficult to get, and one contractor had to peruse the internet to find a machine shop that was willing to build a part for him on short notice. He had to end up flying the part down on a private plane to get it built. As a result, he got two built—one to replace the worn-out part and one on the shelf for future use.
- Buying pickups is a real challenge due to a computer chip shortage. The general manager of my former company has two on order and has no idea when he will get them. He ordered two due to the unknown of truck buying in the future.
- A transfer case went out of one of the drill rigs at my former company, but fortunately there was one in inventory and the rig was going again fairly soon. The staff no more got the transfer case sent off to be rebuilt when a second identical rig started having transfer case problems, but not to the point the rig was shutting down. Fingers are crossed that the transfer case will get rebuilt and back in time to ensure they can keep the second rig operating.
- While labor has been an issue for many years, it is now compounded by stimulus checks being paid out by the federal government. However, this could change with mandatory vaccinations being required by some companies. That may open up a lot of people looking for a new job, but it could be a double-edged sword too. If there are a lot of people out of work, then the demand for your services may drop dramatically. Only time will tell.
These are just a few of the comments I have been told. That coupled with everything is going up in price non-stop makes it difficult to stay on top of pricing out your jobs to your customers.
In addition, one of the contractors mentioned the amount of inventory his company is having to order to make sure it has enough product to keep production going is taking a toll on his cash flow. He eventually expects things to even out, but that’s assuming the materials he is purchasing now do not go down in value like lumber.
Operating and Planning for the Future
At the same time, all of the contractors have reported that business is brisk, and backlogs are strong.
So, let’s delve into how an owner of a business formulates a method of operating and planning for the future. It’s tough to do.
To begin, I believe the shortage of materials and rising prices are not going to go away for the foreseeable future. This is due to the complications from the COVID-19 coronavirus pandemic and related issues surrounding COVID-19.
While I am writing this column on September 13, things can change dramatically by the time in November when you read this. So it will be interesting to see how this all plays out. The apparent resurgence of COVID-related illnesses has further hamstringed business from doing business as they did pre-COVID, so don’t expect the shortages to abate any time soon.
This, then, will require you to inventory more and more—both materials for construction of wells and water systems as well as replacement pumps and parts for water systems. In addition, you will need to inventory more spare parts for your equipment to be sure you can keep your equipment running.
Both increases in inventory are going to affect your operating capital. If your business tends to be seasonal, as it typically is in the northern half of the United States, this can cause some financial pain through the winter months.
You will need to plan accordingly for this and potentially look for a longer line of credit to cover your increases in inventory. You may want to look at getting a lender to be creative with you and allow for repayment times that coincide your higher cash flow months with your busy months.
With all the increases in costs to you as an owner/operator, there is also increased costs for the consumer. That, coupled with labor shortages, is leading to reports that wage inflation is going to start to kick in.
You need to watch for signs of this and network with other business owners as to what they are seeing and stay on top of this issue. I have repeatedly suggested through the years in this column that you need to find reliable websites to glean information from that help you stay alert to what is going on in the business world. Many of those websites I use are not mainstream sites. If you wish to know more, email me at email@example.com.
- Stay with the companies you have regularly purchased from. If you do this and you are a good customer, they will most likely do their best to take care of you.
If you are having difficulty getting inventory, then you obviously need to keep looking at other suppliers. Don’t assume just because your main supplier is out that another supplier won’t have it. They may be doing the same thing you are doing and that is stocking up so they can make a sale. If you don’t have inventory, you can’t make sales.
- You need to really stay focused on preventive maintenance with your equipment. If you don’t have it up and running, you can’t produce revenue.
If you can increase your spare parts inventory on parts that you know regularly fail within one to two years, do so. I often had that philosophy when I was in business and there weren’t any shortages. I did that so I didn’t have to scramble when I needed parts. I rarely had to wait.
- Stay focused on your costs. This can be difficult to do when you are simply trying to stay on top of everything else, but this is vital. If you are busy and have a good workload, it is easy to work yourself into bankruptcy by failing to charge accordingly.
You need to have someone in your bookkeeping/accounting area monitor constantly. If you don’t have someone doing this now, find someone tomorrow.
- Also be sure to stay on top of your accounts receivable if you work with accounts receivable. Given the precarious financial situation in the country, this is more vital than ever. With higher inventories and higher costs, you can ill afford to be short of cash.
- Lastly, be sure to monitor your wages with other comparable businesses. The last thing you need is to lose valuable employees who cannot be replaced easily.
Today’s business environment is one of the most difficult I have seen for operating a business. Only the early 1980s compares to anything I’ve seen in my lifetime.
While the workload and backlog appear to be there in many parts of the country, be aware that could change on a dime. The rapid inflation going on right now is reminiscent of the late 1970s that followed with a horrific recession of the early 1980s. We went from running four rigs in 1979 to two rigs in the spring of 1980 and for five years after that!
Stay alert, stay focused, and stay informed of things going on around you and take one day at a time.
Gary Shawver, MGWC, is vice president of Shawver Well Co. Inc. in Fredericksburg, Iowa. He has been in the water well industry for more than 40 years and is a Master Groundwater Contractor. He served on the NGWA Board of Directors. Shawver is semi-retired, having sold his business to his employees. He can be reached at firstname.lastname@example.org.