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A BIGGER Big Payday

Make your Big Payday BIGGER

You Need A Bigger Big Payday

Not many years ago it felt so good to a garden center owner to have such a large amount of cash in the bank at the end of spring.  THAT is the BIG PAYDAY for all the hours, sweat, investment, and risk of the business. Then it was fun to figure out how to handle the money to reduce the amount of taxes that would have to be sent to the government. New SUV, greenhouse, benches, 401K?  Today that pile of cash feels inadequate to pay the bills to get through the year to even begin the next spring for many companies.

In any highly seasonal business the money taken in during the busy time has to do double duty. Spring income must provide a profit, plus cover the gap between current bills and income through the slower time of the year. What is needed is a BIGGER Big Payday!

(This may not apply to some garden centers in year-round gardening climates, those who have alternate (and profitable) income streams, or those with very low to no debt load.)

To end up with a little pile of money start with a GREAT BIG pile of money. The pile of money taken in during the peak spring season has to be big enough to last long enough. Ending your year with even a little bit of profit today is never the result of an accident. It can only be the result of careful planning – and of first accumulating a bigger pile of money to draw from.

We’re Not Talking About Excessive Profit Here

There is a simple formula to making a reasonable profit. But first, let’s define what “reasonable” is. In my opinion, it takes every bit of 10% EBITDA profit for a retail garden center to be able to modernize, computerize, develop people, refurbish, replace worn out equipment, and to do whatever else is necessary to stay competitive and relevant to your customer while still returning enough profit to the owner to warrant their continued investment in the business.

Reinvesting In Your Business, Really?

Most of the owners I are confused when it comes to reinvesting in their business. It seems like every dollar they get is reinvested, with little for them to live on. They find that as my grandma (who is celebrating her 90th birthday this month) says, the harder they work the behinder they get.” Can you relate? Working harder and doing better don’t seem to be directly related to each other the way we were told they were any more, do they?

The problem of plowing cash back into the business is that if it is the cash required to run the business instead of cash from profit there is no reinvestment happening at all. What is really  happening is that equity away from the inside out of the  business to just “pay the bills”.  Again, reinvestment in the business is necessary, but that reinvestment must come from real profit, not from cash flow that comes in and goes back out just to run day to day operations.

Where A Growing Debt Load Begins And Keeps Growing

In almost every company we have consulted with money is being spent from cash flow on what seems like minor and expected to even major capital improvements. In the end this eventually results in increased borrowing rather than infusing more equity from outside sources into the business or from reinvesting true profit. We’ve seen it all from more than $250,000 on credit cards to home equity loans, personal loans from family members, notes to vendors and a few other things I won’t mention so as not to give anyone in desperation an even more desperate idea for where to get money to stay afloat.

Here is what happens: As the debt rises, and equity shrinks, the bank gets concerned, and rightly so. This s0unds familiar if you’re following the US housing crisis doesn’t it. Yes, it is the same problem, just a different scenario. And that is one reason and probably the major reason why Today’s Garden Center magazine’s State of the Industry report says 43% of 283 garden centers admitted that they were having difficulty with banks in 2010 vs. only 18 percent saying the same in 2009.

Garden Center Profit Milestone

I checked in with my colleague, Steve Bailey, financial consultant to The Garden Center Group on this and we agreed that the garden center that does not post a first half year to date profit (June 30) of 18-22% will not be able to post a 10% EBITDA profit by calendar year end. (More or less depending on the individual circumstances.)

Why is this true? It is simple. Money drains out of the bank account to pay for operating expenses and wages during months when income does not exceed expenses. A proforma cash flow budget will show that the numbers work this way. It is simply a matter of doing the math. If the math doesn’t work on paper it will never work in real life. But you have to “Do the Math”. In other words, do your budget.

So, the big question is this. What are you doing to get a Bigger, Big Payday?

Please leave a reply or comment on what you are doing to get a Bigger Big Payday.

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6 Responses

  1. Sid:
    You are right on with this Blog. I just wish I was doing what you mention here 3 or 4 years ago. I thought you were talking about us! In the past we never really made much money, did improvements out of cash flow and made a modest salary to live OK, but never paid down the bank substantially. It all hits you hard when sales slow down – less cash to pay vendors and the bank calls your line of credit! We now budget and watch it weekly – sales, gross profits, inventory levels and salaries!! We’ve heard all this for years but never did much of it.
    Garden Center owners out there – ” listen and learn!”
    Keep up the good posts Sid,
    Phil

  2. Thanks for commenting Phil. A lot of other people will think I was talking about them too. I am. As you know, keeping an eye on the critical factors and then taking the right actions to make those factors what they must be is what I call The Real Work of Retail. I’m sure you will have Sid’s profit over 10% EBITDA in short order.

    Disclosure: Sid’s Greenhouses is not related in any way to Sid Raisch, but I am proud to now have them as a client and will soon be wishing those profits were mine!

  3. Sid,

    I think this is right on the money. The garden centers that are thriving in this environment have a clear plan and related budgets for the year.

    An area we are seeing that the industry can improve their bottom line is related to their on line advertising dollars. We have seen a few “experiments” that were set up in better times with no conversion rate or other benefit. We have been surprised by how many of these campaigns hit the company credit card with no results month after month.

  4. Interesting comment Ron. Advertising or spending real money doing anything can be good but with no follow through or expectation of return it can turn into an automatic monthly waste of money and erosion of capital. We see this in traditional advertising such as the yellow pages, newspaper advertising without a message, and in areas such as supply purchases, and in the hiring of people who languish with little or no or even counter-productivity.

  5. We have enlarged our parking lot, added more cash registers, simplified the checkout process, and (reduced the number of) choices folks have. We went to Internet processing of the charge cards so the register process was faster. We added shopping carts. We never want our parking lot to appear full in May or for their to be long lines at the register. Build the peak higher so the pile of money is higher at the end of June. A 10% improvement in May is greater than a 20% improvement in July Aug, Sept and Oct combined.

    When the parking lot is full on weekends in May you cannot build the pie bigger. You have to figure out a way to get greater turns in the parking lot and ways to get the customer to buy more on each trip while at the same time giving them less choices so they shop quicker.

  6. Thanks for commenting Ed. Many times in life we must get out of our own way first in order to find success. You have learned one of the basic tenets of our Marketplace Advantage program well when we discuss how there is an “Invisible Ceiling” on spring where we can systematically prevent your customers from doing business with us simultaneous with spending marketing money to invite them to do so.

    After raising the invisible ceiling so you can make more hay when the sun shines you will find that more customers see reasons in your store to come back – and they will. In most cases to the degree spring business increases traffic and sales automatically increase thereafter because more customers have been in your store to see reasons (stuff to buy) to come back. May you have ideal weekend weather all spring so you can take maximum advantage of the opportunities of your higher invisible ceiling.

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