Variables aren’t variables if you count on them, so let’s lay out market factors to consider in strategic planning. Here are nine things integrators can be absolutely certain about in 2014.
1. Technology will continue to advance rapidly, making it more difficult to keep up with change. Integrators will need to be far more “engaged and informed,” and become experts at anticipating the next generation of product offerings they need to incorporate to remain relevant to clients. Industry expertise will become absolutely necessary to become or remain profitable.
2. Numbers and financial metrics will become your best source of information. With no room for error and with eroding margins, it will become a necessity to know the true cost of each and every project. You will have to know your labor utilization ratios and per-employee revenue numbers based on industry average versus actual. Identify and bid based upon the true cost of labor on projects, as well as what it costs to “roll a truck.” You will learn to determine whether your margins and markups are ahead of or behind industry averages. You will start to compare wages, benefits, and operating expenses with similar companies. (To benchmark yourself against the industry, find NSCA’s Labor Installation Standard on nsca.org.)
3. Health-care reform will not be repealed. Even if Republicans upset the pollsters and win both houses in November, they’ll never get the two-thirds majority in each house needed to overturn the Affordable Care law. They can defund it and chip away at it, but it’s not going away. It’s the law, so plan accordingly this year because the employer mandate will happen on Jan. 1, 2015. Be sure to consult experts who can not only help with the insurance issues, but also help identify your future cost model. Also, beware that even with the delay of the online SHOP enrollment, there are still avenues for small businesses to participate in Affordable Care if need be.
4. Interest rates will stay low, and then rise slightly. The federal funds rate, which is the rate the Federal Reserve uses to influence interest rates and the economy, is at 0.25 percent, a historic low. The Fed is beginning to taper its easing as the economy heats up. It has promised no rate increases while the U.S. unemployment rate remains above 6.5 percent. The economy will grow this year, which means that rates will not go down. To minimize inflation, the only effective way for the Fed to try to control the flow of money leaving its $4 trillion balance sheet is using interest rates. Interest rates could go up sooner if it’s not managed effectively. I doubt this will be significant, but it could be costly to business owners who don’t lock in rates soon.
CI’s Keys to Know in 2014
5. There will be no significant tax increases. I see no significant tax increases on the table this year. In 2013, we absorbed increases to capital gains and individual rates (now at 39.6 percent for top earners), decreases in deductions, and added taxes for Medicare and unearned income. And we’ll keep paying those in 2014. But there’s nothing significantly new on the horizon.
6. It should be easier to get financing. The banking industry has recovered from the last crisis. The economy has moderately improved. Rates are low. Banks’ balance sheets look better. Your balance sheet looks better. The venture-capital industry is flush and looking for more opportunities. There were many initial public offerings in 2013, and many more scheduled for 2014. This will be a good year to look for cash, new financing, or investors. A healthy balance sheet is still key to your banking relationship.
7. You will pay your employees more. The U.S. unemployment rate is down. Economic activity is moderately rising. Wages have been depressed for years. But in 2014 the competition for good people will continue to heat up. Skilled workers will go at a premium. Others will ask, and receive, better increases than in prior years. It’s quickly becoming a seller’s market for employees, and that means business owners will pay a premium this year.
8. Your cost of doing business in the cloud will continue to decrease. Research firm Gartner forecasts that the market for software as a service applications will top $22 billion through 2015, up from more than $14 billion in 2012. Cloud-based applications are proliferating. The number of companies that offer cloud-based managed services is increasing. And so is the number of small companies that are embracing these technologies. Companies like Amazon Web Services are cutting monthly fees for services that will be popular for small businesses. Costs are declining and will continue to go down in 2014. This year, you move more to the cloud.
9. Your customers will be even more educated. End users, and especially clients and projects with a strong IT influence, will continue to educate themselves on your systems and solutions. Buying decisions will be influenced by this, and more buyers will test your expertise and service capabilities. We will need to stay ahead of this and continue to become IT-savvy solutions providers. We’ll be discussing this topic in detail at our 16th annual Business & Leadership Conference in Dallas on Feb. 27-March 1. Plan to attend to learn more about what your clients will expect from you in regards to IT.