1) Policyholders continue to need your services. 2) Companies that do not make a profit go out of business. 3) Third-party administrators (TPAs) increase what they expect from their program contractors. 4) TPAs lower what they pay for program work. 5) Labor prices increase. 6) Material prices increase. 7) Overhead expenses increase. 8) Supply-chain disruptions increase. 9) Good employees become more difficult to hire. 10) Contractors have more work offered to them than they can complete. 11) Inflation is expected to close out the year above 5%. 12) Buyers of local companies with national networks connections increase. 13) COVID-19 changes the rules of business.
So, what am I trying to say to you regarding 2021 versus 2022? I am saying to you that I am absolutely convinced numbers one and two will repeat themselves in 2022, and I believe numbers three through 13 will repeat themselves too.
The question is: What are you going to do in response to predictions one and two in 2022? Bureau of Labor Statistics data suggests around 20% of businesses fail in their first two years and 45% during their first five years. In my consulting business, I’ve found that it’s certainly no picnic in the years that follow. In fact, it seems to get harder and harder. I also haven’t seen prices on many things decrease below what they were the previous year. Nor have I seen many needs, wants and desires decrease below what they were the previous year.
I would like to share some thoughts on what you might consider doing in 2022 regarding what I’ve pointed out. The first thing you might do is to decide whether what I’ve said has any validity to you and, if so, what points you think are valid. The second thing to decide is whether your company is going to continue as a for-profit business. If it is not, please meet with your CPA and file for non-profit status for 2022 and future years. If you decide to move forward as a not-for-profit company, please discontinue reading this article and get on with your business life.
If you decide that you want to continue as a for-profit company, the third thing is to review your written business plan and consider what adjustments to make based on what you’ve decided to change in 2022. The fourth step would be to sit down with your company and discuss what they think needs to be addressed, and how and who is going to address it. Please write down the results of the discussion so you can review it monthly to see how things are progressing.
I would like to address the 13 items I’ve mentioned and what you might consider doing about them as a for-profit company.
- Policyholders will continue to need your services. This is good news for your business. However, since they are the source of your business, you need to consider doing a better job of what they need you to do for them. The major piece of this is to clearly and constantly communicate with them.
- Companies that do not make a profit will go out of business. You might consider setting a goal of achieving a net profit of 10% before taxes.
- TPAs will increase what they expect from their program contractors. I suggest that you make a list of all of your previously completed jobs. List them from most profitable to least profitable. Consider using your workforce to do your most profitable jobs first. When you run out of the capacity to do all of the work requested, explain that they will have to wait for you or you expand your workforce to do the less profitable jobs they want you to do.
- TPAs will lower what they pay for program work. Consider the issue that you have too much work and only do your more profitable jobs.
- Labor prices will increase. Consider paying your employees competitive wages for your area, or you may become a source of employees for your competitors.
- Material prices will increase. Consider letting your customers pay the increases or you can continue to absorb the increases.
- Overhead expenses will increase. Consider decreasing your overhead, and examining what you really need and you do not need. Please ask your CPA for input on how your expenses compare to overhead expenses of their client base.
- Supply chain disruptions will increase. Consider meeting with your suppliers and asking how you might be able to improve your relationship.
- Good employees will become more difficult to hire. Consider determining what the potential employee wants and whether or not you are capable of meeting their wants.
- Contractors will have more work offered to them than they can complete. Please refer back to my number-three response.
- Inflation will close out the year above 5%. You have no control over this. What you might consider is to adjust your pricing accordingly.
- Buyers of local companies with national network connections will increase. They seem to be interested in companies above $5,000,000, making at least a 10% net profit that can operate for periods without the owner.
- COVID-19 will continue to change the rules of business. Consider determining what has changed and adjust your business to meet their new needs, wants and desires.
I hope this article helps you, your employees and your company operate a company that serves all of you and produces a 10% net profit before taxes in 2022!