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All you believe…may be ALL WRONG – Belief #6

Merry 2010 CHRISTmas to all! Did your business return a gift of profit to you this year?

(Read time approx. 3 minutes.)

This is the sixth misconception in a series of six. The concepts being discussed here will likely be counter to your beliefs. The comments left on the previous posts are quite interesting so you may want to go back and read them.

Click HERE to go back and begin with the first post related to this series.

“Was any profit left in your business this year?

“My salary is in the profit.”

“We don’t want to be ‘greedy’ about it.”

“If we do everything ‘right’ it will all work out in the end.”

“We leave all the profit in the business.”

“I get paid in the rent.”

Those were common responses to our questions about garden center profit going back several years:

These types of statements have faded away in recent years. The focus of owners has become directed most often to getting rid of dead inventory and paying off vendors, lines of credit and credit cards. Maybe they were listening to us after all? Maybe they can’t afford not to listen now? Whatever the cause we are here to help, not to criticize.

There are major questions we must ask to get started:

What are the current financial constraints of running the business?

  • What is owed to vendors?
  • How much is owed to credit cards?
  • How much is owed back to the family?
  • How much does it cost annually to service the debt?
  • What are the owners basic income requirements?
  • What is the annual total payroll cost?

The final question: How can we restructure all of these to improve the bottom line?

Restructuring the costs of operating the business is internally political, uncomfortable, and absolutely necessary because profit is not an accidental occurrence, but the result of specific intent. It is also a necessary business expense. No, profit is not technically a business expense but if a business does not earn a profit the music will someday stop. To me that means profit is a necessity and plans must be made to deliver it to the owners/investors in the business. In our opinion it takes a minimum of 10% EBITDA profit to sustain a garden center business. Why? Because without profit and over time several forms of Small Business Disease will set in:

  • Dilapidation from lack of maintenance
  • Discontent and resulting loss of productivity from uninspired associates
  • Disloyalty from lack of relevance to customers

New Belief #6 – Profit is Not an Accident

If profit is not an accident that means you must prepare and plan for it. If the financial, operational, and organizational structure of the company does not allow for profit then it is necessary to restructure those areas to allow the possibility. Once you have restructured those areas (we can help) then you’re ready to put together your plans – a Merchant Plan, a Marketing Plan, and an Operating Plan all coordinated into a working cash-flow budget that provides the information required to know how and when money will be made. The most important part of a working cash-flow budget is that when you are off track you will know it. Then you’ll be in position to make adjustments to preserve your profitability.

I know that some of you can’t budget because things change so much. To the contrary, the very reason you must budget is because things change so much.

You might be amazed to know that most of our clients have been able to increase profitability while experiencing both sales increases and decreases. A process must be in place to recognize that things are changing, how they are changing, and to evaluate what you can do about it.

How are your plans for 2010 coming? Does your structure allow profitability, or should you be seeking help now to restructure?

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