How can you run your business if you don't know how you're doing?
My wife and kids will tell you I’m a sports nut. Pretty much all sports! I played three sports in high school and a couple while in college. Having lived in Northern California for 40 years, I’ve been lucky to have cheered on champions in football, basketball and baseball.
Early on I learned statistics about teams and players can tell you how they are doing. My San Francisco Giants finished the regular season with a .537 winning percentage, .025 behind the dreaded Dodgers. Buster Posey, my favorite Giant, batted .288 during the regular season vs. .318 last year.
Suffice it to say every player, manager, owner and loyal fan knows the statistics of their favorite team and players.
Unfortunately, this isn’t the case with too many decorative plumbing and hardware showroom owners and managers. Recently, a perspective client called me and said their cash flow was hurting and could I please take a look and see if I could determine what was going on. I asked them to send me their most current financial statements (P&L statement and balance sheet). The person who called sheepishly admitted their financial statements were running 6-7 months behind due to the installation of some new computer software. Yesterday, when I finally received the updated financials the picture was ugly! Sales had fallen by 17%, the GP margin slid by 3.4% and operating expenses had increased by 8.4%. No wonder their cash flow was hurting. They were losing money and had been for most of this year. Whether this business can get back on track or not remains to be seen.
My single biggest concern and frustration in this industry has been and continues to be poor business-management habits. The smaller distributors and independently owned showrooms appear to be in the worst shape! The larger distributors are sophisticated in how they operate their overall businesses. But my niche in this great industry is showrooms. In my humble opinion even too many of the larger distributors don’t treat their showrooms as separate profit centers with dedicated business plans, budgets, marketing plans, formal training programs and specific showroom financial statements. In fact, a recent ASA benchmarking report indicates only 52.1% of the distributors operating showrooms did separate financial reporting for their showrooms. That’s 47.9% who don’t know if their showrooms make money or not. This is inexcusable.
My frustration is compounded by the fact there are no reliable, fully inclusive financial and operating benchmarks specifically for the showroom side of the business. ASA offers a great benchmarking report for the plumbing, PVF and HVAC segments of the industry, but not for showrooms. Other industry trade associations (DPHA, NKBA) don’t offer benchmarking of financial information for their members. Unfortunately, this means owners and managers of showrooms don’t have any reliable statistics they can use to compare their activities to. They are pretty much out there flying solo, hoping their hard work earns them the return on investment they deserve.
Know the score
I recently had the pleasure of presenting a workshop on “How to Grow Your Gross Profit Margin” to an industry group. I asked the 200-plus attendees if they generated monthly financial statements for their showrooms. About 50% raised their hands. Then I asked how many that did get monthly financials regularly spent at least 30 minutes a month analyzing these reports. A disappointing 25% raised their hands. Finally, I asked how many had a formal/written business plan for their showroom businesses. Incredibly, only 10 hands (5% of those in attendance) raised their hands.
How in the world can you run your business if you don’t know how you’re doing or which direction you’re heading? Can you imagine getting in your car and heading to a new destination without GPS? But these above-referenced showroom owners/managers sit at their desks on a daily basis without any kind of plan or roadmap on how the business should be operated. Are you starting to feel my frustration?
I recently did a consulting job for a showroom business that used to generate financial statements once every six months. That means five months went by without a report card on how the showroom was performing. Not good! Well, being the fine salesman I am, I talked them into producing a P&L and balance sheet each month and stressed the importance of reading it when they received it.
I called them recently to ask how things were going. They said they “thought” things were “pretty good,” but they had been busy “putting out fires” and hadn’t had a chance to pull the financials out of the drawer and study the results. They have promised to do better and I will follow through to try to help them do so!
As promised, here is a list of several of the most important business management strategies I believe you should/must do if you want to justify all the hard work and hard-earned money you continue to pour into your showroom operations.
A 1-2-3-year detailed business plan: This plan includes a vision statement (the core purpose of why your showroom exists) and a mission statement (a brief statement on how the business will strive to meet its goals). The business plan explains who you are, what you hope to accomplish and how you plan to meet and surpass the outlined goals. It is your GPS on how you plan to get from point A (current revenues, expenses, etc.) to point B (budgeted revenues, expenses, etc.) for the next three years.
Annual and monthly budget: This is an all-inclusive guestimate on what you expect revenues, GP margin, expenses and net profit to be. Your budget is derived by using historical data, economic outlook data and local market research data. Yes, there’s a certain amount of “crystal balling,” but the end result is a month-by-month guide on the projected financial status of the business.
Monthly financial reports on the showroom operation: This will include a P&L statement, a balance sheet and a cash-flow report. These are your monthly report cards on the financial status of the business. These reports should be completed by the 10th of each month and should be studied to understand exactly what’s happening in the areas of sales, margins, expenses, assets, liabilities and cash flow. These reports eliminate surprises and allow you to react in a timely manner to any changes that should be made.
Annual/monthly marketing plan: This report includes how much money will be dedicated to marketing the showroom with things such as your website, social media, advertising, promotions, events, public relations, etc. The plan outlines how much will be spent in each area and where it will be spent. Developing a first-class marketing plan is how you let folks know who you are, what you do and why you do it better than anyone else in your marketplace.
Detailed training program: This written plan will include product knowledge, selling skills, policy and procedures, and everything else related to an individual’s job. Good training starts day one and never ends.
Policy and procedures manual: This is a formal, written manual that is the playbook to help every team member be consistent in how they perform their jobs.
Best practices manual: This manual may be part of the policy and procedures manual or a separate document on how everything about operating the showroom will be handled.
“5 bests” in HR management: This program includes a strategy on how to hire the best, train the best, communicate the best, motivate the best and compensate the best.
Job descriptions: This is a detailed list of everything each employee is expected to do as part of their job. Everyone deserves to know what’s expected of them.
Performance evaluations: This is a regularly scheduled, detailed and honest evaluation on how the employee is performing in their job. The good points are acknowledged and the things that need improvement are pointed out. Everyone deserves to know how they are performing in their job.
Market research on/in your geographic area: This includes economic conditions, construction trends, your competitive situation, employment and wage statistics and more.
Annual vendor analysis report: This is where you evaluate all your major showroom vendor partners — everything from local representation, quality of products and services, delivery, uniqueness of products, competitive pricing, Internet presence, etc. Plus, you should ask these same vendors to evaluate your performance from their point of view.
Board of consultants: Invite your banker, business attorney, insurance agent, other successful business managers, a member of SCORE and/or an outside paid consultant to advise you in the operation of your business. This group can be invaluable in helping you come up with ideas to help you run your business more successfully.
This is a daunting to-do list, but if you want to operate a first-class showroom business and maximize your return on investment, these are the things you must do.
Your goal should be to work on your business and not in your business. Take off the fireman’s hat and put on the professional manager’s hat. I guarantee you’ll love the results.
This article was originally titled “Showrooms by the numbers” in the November 2016 print edition of Supply House Times.