This is a First Look at a column to appear in the May issue
of Water Well Journal
Get the best information you can to help you make decisions on what direction to take your business.
By Gary Shawver, MGWC
Making business decisions in today’s world is much more difficult than it was just a dozen years ago. Since the Great Recession—which lasted from December 2007 to June 2009—figuring out what to do in long-term planning for your business has been extremely difficult.
Case in point: I recently had an inquiry by a young drilling contractor on whether he should buy a good used rig or fix up his old drill rig. It’s not an easy decision, but more on that later. First, some thoughts on today’s business world.
Knowing the Business Climate
In our country’s free market system, it was typical during the 20th century for there to be business cycles with times of prosperity and times of sluggishness. Slow times often recovered, and a new run of good times followed. Most of the slow times lasted only a few years.
While many say the business cycles haven’t changed much in the 21st century, the reality is there has been a great deal of uncertainty since the Great Recession. The fact interest rates are significantly lower compared to the last half of the 20th century is, in my opinion, a huge red flag.
Interest rates are unrealistically low, and I think the Federal Reserve, which regulates interest rates, is keeping them there to prop up the business environment. Ideally, when the business environment is doing well, interest rates return to normal. But interest rates haven’t been normal for more than 10 years.
Many small drilling and pump contractors cater to the new home market as well as homeowners who own a second summer home. Others cater to the farm and ranch market. The new home market has fallen significantly in the last six months and sales of existing homes has also fallen.
Let’s also keep in mind the many millennials who are loaded with debt and not buying new homes, much less building new ones. Therefore, the market of home buyers and builders has changed dramatically. While the stock market appears to be rolling along, the upcoming generation is not finding things good economically.
In the farm sector, bankruptcies in the Midwest are at the highest they have been in 10 years. Dairy prices are poor and the number of dairies closing in the last year is alarming.
I raise these points to make you aware this is the current reality of our times. Making business decisions is not easy in such a climate. As a small business owner, our livelihoods depend on how well various sections of the economy are doing around us. You must be attentive to the overall economy, especially your local economy.
You must be attentive to the overall economy, especially your local economy.
When I was operating my business, I subscribed to a weekly newsletter from a well-respected firm tracking what was taking place and forecasting what they expected for the overall economic health of the country. My dad subscribed to the newsletter, and I continued to do so.
I still follow some specific websites today which have an array of respected individuals whose business it is to monitor what is happening, not necessarily what politicians would like us to hear. It’s your responsibility to get the best information you can to help you make decisions on what direction to take your business. Take time each day to read and follow what is going on in the world around you.
About That Rig . . .
Back to the young contractor who was debating what to do for a drill rig. If this decision was mine 15 to 20 years ago, it would have been a no-brainer. I felt strongly on how the economy was doing and the economic climate in my area. I would have opted to either buy a new rig or a good used one.
But today is different. Prices are increasing on good used equipment as well as new equipment, and many contractors are not keeping up on what it takes to replace equipment. Jumping into long-term debt when the economic environment is good can be fine. Jumping into long-term debt when there is an ongoing uneasiness in the overall economy is different.
If one has the money to go out and buy a new rig or a good used rig with not much debt, that is one thing. Opting to buy a rig with 75% to 80% of the debt financed is another. If markets take a downturn, you will be upside down on your investment.
So, what can one do? Here are my suggestions:
- Take care of the equipment you have. Keep it in good operating condition and well maintained. This is good for operating safety as well.
- Keep attentive to the business world around you. Read various websites and economists you can trust.
- Network with your local business area—chamber of commerce, bankers, industry suppliers. This all takes time, but it could reap valuable information.
- If the economy begins to take a downturn, don’t be afraid to unload equipment that is not needed or is used very little. I once had a consultant tell me, “One of the biggest problems our industry has is hugging their iron.” In other words, he said some people are not willing to part with equipment when things slow down. He added you can always buy new or good used equipment when things turn around. The money obtained from this is money in the bank.
- Stay positive. Keeping a good attitude when things are tough is paramount. If being in business was easy, everyone would be in it.
Gary Shawver, MGWC, is 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 email@example.com.