Retailers
Don't Die, They Inadvertently Commit Suicide!
10 reasons why businesses often fail
Many
retailers would think the biggest item to occur which could affect
their business would be the opening of a competitor within their trade
area. It could be a Target, K-Mart, Wal-Mart, Home Depot, Menards,
Lowes, or even a pool and spa specialty retailer. When this does occur,
most retailers go into a defensive mode, thinking how can they protect
their market. And in those situations where the retailer fights the
competition for a period of years, only to eventually close, is it
said, "the big stores put him out of business".
The scenario has happened thousands of times, and not just in the
pool and spa business. It is however, the last statement which is
not true. What caused the business to close occurred within the four
walls of the business. For, retailers don't die, they inadvertently
commit suicide!
Statistics do not lie. If there were 100 pool and spa businesses opening
on January 1, 2000, there would be only five left to celebrate their
fifth anniversary. Of the five remaining, two or three would continue
to the ten-year mark. What happens, and why? What happened within
the four walls of the business was a series of events: inactions and
incorrect actions, all a part of the list of fatal mistakes. For most
businesses, it takes a combination to become fatal. In some cases,
it takes only one. What are the ten fatal mistakes? More importantly,
what can you do about them so you will have a need to be reading the
December 2009 issue of Pool & Spa News?
Mistake #1 - Cashflow management - If you are just starting your business,
determine how much money it will take to purchase your initial inventory,
equipment, fixtures, and leasehold improvements. Then assume you will
not sell any inventory for 12 to 18 months; how much will it cost
to operate the business for that time period? Will you have enough
money to pay your insurance, utilities, payroll and other expenses
for that time period?
Too often a business owner plans to have enough money to get started,
but when sales do not meet their objectives they begin to experience
cashflow shortages. The business is in trouble within the first year
and all of the plans become useless. If you have the necessary money
set aside, you can continue to adjust your business plans without
concern for needing a "quick fix". Cashflow management is
also necessary for the retailer who has been in business for many
years. Unfortunately, most businesses only look at their financial
sheets as historical data. They receive the balance sheet and income
statement from an accountant, give them a quick look, and then file
them away.
If that same business were going to borrow money from a bank, they
would be consulting with an accountant, and creating a cashflow chart.
This chart, probably the most useful tool a retailer could have, allows
you to see the next year's financial sheets today. More importantly,
it allows you to accurately forecast your sales, and cash on hand,
while helping you to determine how much inventory you should have
and the level of your accounts receivable. Mistake number one is failing
to manage your cashflow.
Mistake #2 - An Open to Buy - Think of all the categories of products
you can stock; chemicals, pumps, filters, and accessories for example.
You should be tracking the sales and inventory on hand for each of
the product categories. As you track this information, you will see
what type of margin you are maintaining in each of the categories.
You will also see the inventory on hand, inventory turn and sales.
By tracking this information, you should be able to calculate an open
to buy for each category. When you go to a trade show, or when a sales
representative calls on you, you will know how much money you can
spend for each of the upcoming months.
You should also track information on each of the product lines. Too
many retailers have made the mistake of closing down their open to
buy, only to find they are completely out of stock on their best selling
line. Mistake number two is failing to create an open to buy.
Mistake #3 - A Business Plan - Designing the business plan begins
with selecting the location; or determining whether your current location
is still correct for the type of business you are. A location for
a pool and spa retailer is usually selected to serve the customers
in the surrounding area.
For both the new business and the business which has been in the same
location for many years, there is a need to continually examine the
customers. When there has been the occasion of a neighborhood experiencing
an influx of affluent customers, the progressive pool and spa retailer
has seized upon the opportunity to add more upscale products and services.
Unfortunately too often, a business is in an area which experiences
a declining customer base; the more affluent families move away, property
values decrease, and the replacement home owners are not as committed
to maintaining the home, pool, or spa. When this occurs, the business
has three options: move to the more affluent area, reposition their
selection of products and services to serve the new homeowners, or
modify their advertising and promotion efforts to draw the original
customers back into the store.
Another concern with the business plan is seen with the business,
which still maintains a 50-hour work week - open Monday thru Friday,
9 am to 6 pm, and Saturdays 9 am to 2 pm. This may have worked well
twenty years ago, but today some of your competitors are open 24 hours
a day, 7 days a week. These drastic hours are not necessary, but realize
with the 50-hour work week, you are open on weekdays during the same
hours many of your customers are working. Mistake number three is
not having the correct business plan.
Mistake #4 - Technical knowledge without management knowledge -As
we walk into many pool and spa stores, we will often find the most
knowledgeable person to be the owner of the store. While there is
nothing wrong with this, we will observe when any of the staff has
a question regarding the maintenance of a pool or spa, or use of a
chemical, they will have to go to the owner for an answer.
The owner of the business does not need to have the most knowledge
about the products and services. What the owner needs to have is the
most knowledge about how to run the business. Too often, we find the
business owner having a level of business knowledge equal to the product
knowledge of their staff. When it comes to knowing how to read financial
sheets, chart cashflow, create job descriptions, and implement them,
the owner needs to be a master. Mistake number four is failing to
have a high level of business knowledge.
Mistake #5 - Reorder when you are out - Reordering merchandise when
you completely sell out of a product is the traditional example of
crisis management. Try this exercise to determine if you manage by
crisis. At the end of a day, list all the tasks you want to accomplish
the next day and the amount of time it will take to complete them.
As you work on the following day, keep track of what you are doing
and how long it takes. If, at the end of the day, you have spent more
than 15% of your day completing tasks which were not originally on
your schedule, you are performing crisis management.
This is where a business gets into trouble and too often finds itself
without the necessary products and supplies to operate. Mistake number
five is managing by crisis.
Mistake #6 - A Marketing Plan - The business plan we have already
discussed requires we go a step further. What products do you want
to sell? What brands do you want to sell? What type of customers do
you want to have shop in your business? As you select the products
you sell, you will begin to mold the type of customers you attract.
Should you offer services to your customers? As you are shaping what
type of store you will be, your efforts need to be consistent.
If your business decides to aim for the higher income customer, you
are not being consistent by providing no customer service, carrying
the same brands as the big box stores, and naming your business, "Bill's
Discount Pool Supply & Service". Mistake number six is failing
to have a marketing plan.
Mistake #7 - An Advertising Plan - Do you have an annual advertising
budget? The sharper pool and spa retailers are establishing a twelve-month
budget. They set aside a part of the monthly budget for last minute
opportunities and those donations you are always asked to provide
to a community organization. From there, they experiment with the
available media: radio, television, newspaper, magazine, and direct
mail. These retailers will document their results and continually
tune the advertising to get the maximum results for their dollars
spent.
These same retailers will be masters at promoting their business.
They keep track of the names, addresses and phone numbers of all of
their customers. When it is time to prepare the pool for winter, they
contact each and every one of their customers to tell of their products
and services. Every month they are speaking to their customers by
phone or a newsletter letting them know about their business. These
businesses are adhering to the Jack Rice adage of, "Never forget
a customer, and never let a customer forget you". Mistake number
seven is failing to effectively advertise and promote.
Mistake #8 - Internal and External Theft - When a business takes a
physical inventory each year, the owner and manager should examine
the discrepancies in what your financial sheets report and what your
physical inventory shows. After confirming each of the reports, discrepancies
should be researched; the errors could be in counting, office paperwork,
or unfortunately shoplifting.
While you have probably read many articles about shoplifting, both
internal and external, it is enough to point out the two primary locations
where shoplifting occurs. The first is at the checkout; whether a
cashier is giving an extra discount, failing to ring an item or ringing
a less expensive item for a more expensive purchase, or a customer
swapping price tags or bar code scan labels. Hopefully your business
also has in place rigid register checking procedures to verify the
amount of cash, checks, and bankcard transactions. Failure to do so
is simply an invitation for someone to steal.
The second location is at the back door. While this location also
hints at employee theft, it can just as easily be from failing to
check a delivery manifest of incoming merchandise. Speaking of the
back door, a retailer offering delivery should also have a system
involving at least two people in loading merchandise into delivery
vehicles. Pool and spa retailers who provide service also need to
have a procedure for verifying the amount of chemicals, tools, and
other products into the service vehicle. This inventory should be
checked against the service tickets. Mistake number eight is failure
to have shoplifting precautions in place.
Mistake #9 - Job descriptions, policies and procedures - Ask a business
owner and each of the employees to make a list of the top ten priorities
for the job. Comparing the list of any employee to the list of the
owner, you will easily find the employee who is the best as they have
the list which will most closely match the owner's. Creating job descriptions
is that simple. As the lists are compared, the owner can work with
the employees to better explain what is expected of each of them.
As for procedures, your business sells many products which can be
dangerous to handle. To avoid repeated visits from OSHA, and your
insurance claims department, having procedures allows you to reduce
the risks to a minimum.
Policies can be an important part of the success of your business
as you use them to explain to employees how they are to dress, how
to open and close the store, and handle problem situations with customers.
Look upon these three items as being valuable tools for you. Mistake
number nine is failing to have these three tools in place.
Mistake #10 - Technology - Business has been good, and there is additional
cash in the checking account. Too many businesses will take many of
the items they have been purchasing on a "onesie" basis
and decide to buy in case lots. For most situations this will simply
slow the turn in inventory. Is the business utilizing technology?
Having computer generated reports of sales, average ticket size, margins,
and other various information allows the business owner to scientifically
determine how to improve business. After all, you don't suggest a
customer just buy chemicals and dump them into their pool or spa.
You either teach the customer how to gather the information or you
provide a service of analyzing their water; then you tell the customer
how to improve their water quality. Your business needs this same
analysis. Mistake number ten is the failure to properly invest money.
Mistake #11 - Customer service - Wait a minute. This article stated
there were ten fatal mistakes. The eleventh is to prove a point; always
give your customer more than they expect. If you are giving an estimate,
bring in the final invoice a dollar or more below the estimate. When
you are waiting on a customer, exceed their wants and desires. Many
pool and spa retailers will gladly state, "My customer service
is as good as my competitors". That philosophy does not work.
Everything about your business must excel; your products, your services,
and your entire staff. Mistake number eleven is having average customer
service. Finding ways to stay in business is as difficult as finding
customers. It is not the competition that put the pool and spa dealer
out of business, he just inadvertently committed suicide.
* Business failure usually occurs due to one of a few reasons
* Competition rarely puts another out of business
* 98% of businesses do not survive ten years
