While there is no real secret to keeping a company afloat in today's challenging market, some ideas are less well known than others. Here are 10 tips collected during my work with leading profitable dealers. Review this list with your management team and see which ideas you can implement or improve upon. Cut this out and put it on the wall in the break room, bathroom, or hallway for everybody to read.
1. Buyers need to see their expenses.
If any person in your company creates an expense, then that person should see that expense monthly on a profit and loss statement, schedule, or spreadsheet. For example, if the warehouse foreman decides to purchase a forklift, he should see any service work, payments, or other related expenses on a monthly basis. A truck driver should see all related truck expenses, and an IT manager should see all IT-related expenses.
2. If you are serving retail, maintain retail hours.
While I realize many pro dealers have left the retail market in the past 10 years, riding the housing boom instead of investing in retail, there are those that did not and are now profiting by maintaining retail storefronts and serving the do-it-yourself weekend warriors. If you have been giving only lip service to your retail trade, it's time to welcome them back into the store. That means thinking like a retail operation, including hours that meet their schedules.
3. Train your employees without taking money out of your training budget.
Many states and local governments provide training dollars per employee. For example, in Louisiana, pro dealers can receive up to $3,000 per employee for training per state fiscal year. If you have 30 employees, you can receive $90,000 per year in training. In some cases, this also includes training materials and books. This is a no-brainer. Go to Google's Web site and type in "incumbent worker program," and the state where you conduct business to see if there are any available programs.
4. Pyramid selling works.
That is, a referral is money in the bank. On the other hand, cold calling is a distraction. The best example of referral selling is that of kitchen-cabinet dealers. Imagine a satisfied customer hosting a dinner party at home and receiving compliments about the cabinets. When asked where he or she purchased the cabinets, if the host responds positively about the dealer, then that dealer has just received a referral. Ask your organization what it takes to get the referral. Some answers include: on-time delivery, great selection, fair price, a follow-up call and a thank-you note or small gift of appreciation. Poll your employees and begin tracking referrals. You cannot operate a profitable business without referrals-good referrals.
5. Sales tax and use-tax audits.
We are margin managers, and taxes are a black hole that can dwindle your profits. Are you paying use tax on purchases not intended for resale? Are you paying use tax on installed sales at the retail price or at the cost of the materials? Does your state require tax on freight or labor? Review your sales tax exposure with your accountant on an annual basis.
6. Produce financial reports within 24 hours of month-end processing.
By the close of business on the first day of the month, you should have a preliminary financial report in the hands of your managers so they can make profit-related business decisions. This is like an exercise program: You can't just do this once in a while, and it takes practice. Moving from producing financials in 30 days to 15 days or from one week to one day is a lot of work. In organizations where we have focused on producing financials in 24 hours, we have uncovered inefficiency in accounting departments, operations, and inventory control. For example, we discovered that one company was not processing customer credits for picked-up materials for a week or more; this was costing the company money in accounts receivable phone calls, customer dissatisfaction, and inventory variances.. In short, do a day's work in a day, and don't discount the fact that you can close your books in 24 hours.
7. Limit inventory shrinkage to 0.3% of annual sales.
If your sales are $10 million, your shrinkage should be less than $30,000 per year. I am sure I'll get many phone calls and e-mails about this one, but I have never met a profitable dealer that had a high inventory shrinkage variable. LBM dealers in the manufacturing businesses may beg to differ, but I always respond with "avoid over allocating materials usage." For example, I have a customer that builds doors, and while it uses 17 feet of casing per interior door, it allocates 21 feet per door and thus has a surplus. I might suggest that, at some point, it allocates 17.5 feet, but for now it's happy with the results and has a surplus. Of course, it's over on other parts as well.
8. Good managers manage well in an up market, but great managers manage well in a down market.
Do you have the right management team in place for 2009? What are you doing to challenge the team? Stack up your 2008 financials against the Cost of Doing Business Survey and see how you compare. Your financials are a true report card of your manager's progress. But don't stop at the financial level. Randomly call three to five customers per month, asking three to five questions. Some questions might include asking about their experiences with your company, what they like and do not like, or the quality of your products and services. Ask them why do they do business with your company. We seem to only call customers when we have issues and it is human nature to take care of a problem. Surely we can call a customer to solicit management advice. Once you have completed your short questions with the customers, provide the feedback to your manager. Do you look at your financial numbers on a monthly or quarterly basis? How do your numbers compare to that of the Cost of Doing Business Survey compiled for our industry?
9. Your cost of goods sold (COGS) must be accurate.
I have seen two companies in 2008 exit the market because they had incorrect costs or misstated costs. When asked to identify the No. 1 and No. 2 problems dealers face today, I say they are higher sales and margins, followed by inaccurate COGS. If you are operating between a 5% profit margin and breaking even, and you have a 3% COGS adjustment because of inventory accuracy or other costs, you might be operating at a loss. I see the major culprit as keeping inventory on your books that is damaged, obsolete, or just does not exist. Take a tough look at your inventory, and be realistic about the value.
10. Look for healthy business relationships in 2009.
Where is the next profitable customer in the herd, and how do you find him? This is what you need to ask your sales team. If your competitor leaves the market, do you want all of its customers or only a few? Find out what percentage of a salesperson's time is spent prospecting as opposed to servicing existing clients, and whether your salespeople are asking for referral business. Don't be afraid to fire a customer if the relationship is not profitable and healthy. Every tree needs to be pruned. ProSales editor Craig Webb often talks about a symbolic baobab tree. Even though the tree gets its nutrients from within, it still requires pruning. It is better to prune a tree than to have it die because it does not have enough nutrients to keep it going. Get the point?
Chris Rader is a consultant based in Lafayette, La. Contact him at firstname.lastname@example.org.