By Brad Grimes
InfoComm

AV companies are at it again. You’re reporting growing sales, surging cash balances and two-year-high gross margins. What’s not to love about these business conditions?

“We are seeing a strong uptick in all the AV indicators,” reports Frank Coker, CEO of CoreConnex, which recently published a new InfoComm AV Industry Index, based on real-world business data from companies that take adavantage of the Corelytics Financial Dashboard software through InfoComm. ”Our big caution is that this is somewhat of a repeat of a spike we saw last year that was followed by several months of downtrend. Our research shows that seasonal patterns have not been consistent over the past four years, so we shouldn’t assume a pullback is inevitable, but caution would be appropriate.”

In a nutshell, according to InfoComm members who use the dashboard, monthly sales growth is up 16 percent over six months, gross margins are up almost 50 percent for the same period, and the rise in cash balanaces is almost off the charts.

Ken LaCroix, CEO of TrackPoint Business Advisors, one of several companies available to advise AV comnpanies through the Corelytics program, expects companies to put fresh capital to use to drive profits. He notes that sales trends have been variable, but are pointed up, and advises AV firms to manage margins and cash to remain healthy.

What of Frank Coker’s cautionary tone? I got him on the horn to ask him a few things about the data and his impressions:

Question: Looking back at last year’s spike, followed by the downtrend, in retrospect, what happened, and what can AV companies learn from it going into this current spike?

Frank: Given that this spike is mid-year, shortly after the big InfoComm show, it’s possible that new announcements and promotions led to a bump in sales that settled back to a normal pace soon after the bump. It’s unlikely that it has to do with budget cycles, which normally happen late in the year or early in the year. In any case, this pattern did not show up three years ago, so this is either a new pattern that might be the new norm, or it is a passing phenomenon. But the more important learning is this: Don’t overreact to a spike in revenues and don’t assume that you need to start staffing up. Staffing needs to be driven by longer term trend lines and not by short-term peaks.

Question: What kind of caution would be appropriate?

Frank: One great way to handle spikes is to hire contract staff to fill in gaps and to help with delivering commitments from a jump in orders. Hiring staff too soon can put a big drag on a company when normal dips in revenue occur. Contract staff can be used as shock absorbers for both increases and decreases in revenue. When you see that you are consistently paying more than a full-time employee’s salary on contractors with a specific skill set, that would be a good time to start looking for the next hire. There are some great companies out there that specialize in providing contract AV experts.

Question: What does it say that seasonal patterns aren’t consistent?

Frank: Seasonal patterns in industries tend to be stable when the economy is stable and the products and services being sold are stable. And of course, the opposite is true. When the economy is in fluctuation and when there is a constant flow of disruptive new technology and pricing changes in an industry, the patterns become erratic and inconsistent. We know that all these variables are at work in the AV industry, so you cannot make a lot of simplifying assumptions about pro AV business patterns. This all means that pro AV companies need to have the right balance of aggressive market positioning combined with cautious investments in long-term resource commitments. It also means it is extremely important to have a deep line of credit with your bank. And the best time to get or increase your line of credit is when you don’t need it (during a peak) so that you have the needed reserve when you need it (during a dip). It’s nearly impossible to get a great line of credit if you wait until you need it. You know the story about waiting until it rains before you fix the leak in the roof. The people that complain the most about banks are often the ones that wait until it rains to fix their roof.

Dear readers, how’s business where are you are? And if you’re interested in using the Corelytics Dashboard at a discount for InfoComm members, learn more here.

This column was reprinted with permission from InfoComm and originally appeared here.