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Is it a Business or Just a Job?

I work with a lot of smaller retailers – start-ups and indies who are just getting going in this crazy industry we’ve all chosen. Many of them get this one question wrong.

Did you start a business or just create a job?

Most people think they are starting a business, but in reality all they have done is create a job for themselves, often a low-paying job at that. Then when they go to sell the business, they can’t find any buyers.

Here are three questions you need to ask yourself to see whether your retail shop is truly a business or just a job.

Could the business run without you? More specifically, could you hire someone to do your job, or is the whole reason the business exists because you exist?

Do people come to your business because of what you offer or what your business offers? If the vast majority come because of you, you might have a job, not a business.

Do you pay yourself a salary? If you don’t then it isn’t even a job, it’s a hobby. If you do pay yourself a salary, is it a good one? Is it enough to hire someone else to do that job? If you said no, then you might have a job, not a business.

Do you show a profit? If you’re paying yourself a salary, that is a good thing. It means that you could potentially hire someone else to do that job, while you reap the profits – assuming there are some profits. Some owners will make the correct move of paying themselves a salary, but do so at the expense of showing a profit. Some will keep profits low on purpose to avoid taxes. There might be a number of reasons for not showing a profit. Amazon doesn’t seem to need to show a profit. As long as the cash keeps flowing they (and you) can usually keep doing your job. But an indie retailer without profits probably won’t be able to sustain that cash flow for too long. You and I don’t have the deep pocket investors Amazon has. If you’re paying yourself a salary in lieu of showing a profit, you might have a job, not a business.

Not that there is anything wrong with having a job, not a business. You can make a healthy living for many years that way. You might like the job of being boss (and you might be really good at it). You might like the salary you pay yourself for being boss in lieu of having your business show a profit. Those are good and valid points for you to keep doing what you do.

The only downside will be the exit strategy. Once you decide you no longer want your job, if you didn’t first turn it into a business, you’re going to have a hard time finding anyone who wants to buy it. No one “buys” jobs. They buy businesses. Without a business, all you have left to sell are your assets.

Neither concept is wrong, but not knowing the difference can be costly down the road.

-Phil Wrzesinski
www.PhilsForum.com

PS If you want to turn your job into a business, you need to think about three things.

  1. Could I hire and train someone to do my job?
  2. Do I pay well enough to hire someone competent to do my job?
  3. Is there enough profit and/or growth potential to keep the business making money?
When you can answer yes to all three, you have a business, not a job. You have something you could sell down the road. You are truly an entrepreneur. Heck, you could should hire someone to do your job right now and go start another business or two.

Bye-Bye Buying (A Grandfather’s Wisdom)

In 1951 my grandfather and founder of Toy House, Phil Conley, wrote his “Twenty-Two Important Retail Fundamentals”. I just uncovered them going through some old files.

Wow!

It was amazing how many of them are still true today. Take, for example, number 18 which is appropriate as many of us start buying for the fourth quarter…

18. That weak departments dissipate their merchandising strength…

  1. By buying from too many manufacturers
  2. By buying from too many price lines
  3. By buying too many colors
  4. By buying too many sizes
  5. By buying too many materials
  6. By buying too many styles

All this adds up to bye-bye-volume and profit.

Powerful stuff. Stay true to who you are. Limit your customer’s choices. Give them the best options. Remove the clutter. Don’t over-buy.

In today’s retail climate we feel compelled to offer more and more because the Internet offers more. Yet, we will never be able to match the offerings of the Internet. Instead, the more we should be offering is more thoughtful choices, more carefully chosen products, more practical solutions, more intelligent offerings. We need to help our customers cut through the clutter by knowing everything that is out there and why we chose to sell these particular items.

There are already too many options causing analysis paralysis in our customers. Remove the options that don’t make sense and don’t fit your customer’s needs and your inventory will sparkle and shine just a little better than before. The only bye-bye’s will be when you help a customer carry her purchases to the car, usually followed by a Thank You!

-Phil Wrzesinski
www.PhilsForum.com

PS Choices are good. Don’t get me wrong. Having options for different needs is also good. But the biggest way to eat up a chunk of your cash is to buy too many choices and too many options. Keep it down to a Good, Better, Best (or better yet a Best, Bester, Bestest) selection and your cash flow and profits will improve.

PPS Yeah, I’ll talk about a few others down the road. There are some really good nuggets in there, like this one…  7. That good basic stocks plus strong reorder numbers, plus realistic timing, plus selling – not order-taking – will increase volume and profit anytime.

The Last Buy

The season is almost over and you’re out of a lot of things. Do you make that Last Buy?

This is a question that haunts all retailers.

If you don’t make the buy, you run the risk of not having what the customer wants which means you lose the sales and you lose their trust. If you do make the buy, you run the risk of having it show up too late and being  stuck with inventory you cannot sell.

Dilemma…

Here is how to think about it…

Ask yourself why you are out of stock. Did you not buy enough to begin with or did you have an extremely good, better-than-expected run on that product?

If your answer is the latter, you may just want to smile and say thank you to the retail gods for giving you a winner and go home and count your money. Forget all about that Last Buy (it’s like trying to double your money at the casino on the last bet of the night – a sucker bet at best).

If your answer is the former, you might want to consider why you didn’t buy enough. Was it cash flow concerns or was it just projecting too conservatively? If it was cash flow concerns, think twice before you make the Last Buy. It is a fast road back into cash flow hell.

About the only time you should make the Last Buy is when it is a product you can sell after the season is over and you have the cash to do it.

The best thing to do is to eliminate the temptation in the first place. Overbuy the must-haves. Always project higher on the items people come in asking for by name. Have extras on hand of those items and you won’t have to make a Last Buy on them. Everything else? Let it go. When you run out for the season, you run out.

The key is identifying the must-haves. If you are out of things people don’t come in asking for, no one will notice. If you are out of things people buy from you all the time, they will notice and they will quit coming to buy them from you.

Don’t run out of those items.

-Phil Wrzesinski
www.PhilsForum.com

PS You know what the must-haves are. The stuff you order every single time without having to look at a report. The stuff your customers ask for the moment they walk through the door. The stuff that sells 3x faster than the average item.

Financials You Can Understand

I told you about the book I wrote for the American Specialty Toy Retailing Association called Financials You Can Understand: Building Blocks for Successful Toy Stores.

The book is finished, published and available for purchase.

Here is what the editors wrote about the book…

“After reading this book you will know and understand all of the numbers in your Balance Sheet and Profit and Loss Statement – from where they came, what they mean and how you can make them stronger. You will know what other numbers you should be tracking and how they compare to other specialty toy stores. If you understand the basics, look for special boxes with advanced, in-depth knowledge on more detailed ways to track your numbers. Most importantly, you will know how to make your business better.”

Who should buy this book?

Anyone who owns a retail store and (or) feels clueless when the accountant starts talking about your financial statements will find this book amazingly helpful.

Although much of the discussion is designed around the toy industry, the information, insights, and analysis will translate well to any type of retailer.  If you struggle to understand your accountant when he talks to you, or struggle to wrap your head around all the numbers on your financial statements, this book will be like taking the coolest, easiest, most practical accounting class ever that makes it all something you can understand.

You can buy the book here.


-Phil Wrzesinski
www.PhilsForum.com

PS  You can still download my Financials eBook for free.  It does not have the detail or analysis that this new book does.  But it does cover some basic stuff.

PPS  Yes, the book might seem expensive at first glance, until you see the value in it.  Even a small retailer will gain enough knowledge to recoup that investment in short order.

PPPS  Full disclosure.  I do not gain financially from the sale of this book.  I have received my compensation for writing it.  But like with everything I do, there is no satisfaction for me until you benefit from my efforts. Please buy a copy for yourself or as a gift to a fellow retailer who could benefit.

David Beats Goliath (Again)

March Madness is a great reminder that even when the deck is stacked against you, you can win.

In the first full round of competition in the NCAA Men’s Basketball Tournament, ten of the thirty two games were won by the underdog.  31.3% for you statisticians.

The more telling stat is this…

100% did it by out-hustling their competition.  They did it by doing what they do best, to the best of their ability, and by wanting it more than their competitor.

Some could not match up size-wise.  Others did not have the depth.  Some lacked the overall talent.  A few even needed a lucky break or two.  Gee, sounds a lot like independent retailers.  Size of store, depth of product, lack of educational business training.

Yet independent retailers are slaying Goliaths all over the place, even without a lucky break or two.  They do it by playing up their strengths.  You don’t need a deep product mix, just a few great options.  You don’t need a huge store, just a talent for merchandising it well.  You don’t need an MBA, just an understanding of how to relate to others and build relationships.

More importantly, you don’t need to beat Goliath to win. You only need to accomplish three things:

  • Keep the cash flowing
  • Show a profit
  • Make a living

Do those and you get to raise all the championship banners you want.

-Phil Wrzesinski
www.PhilsForum.com

PS  Not doing all of those three things, yet?  Do not despair. Sometimes all you need is some coaching to push you in the right direction.  For those of you who are self-coached, check out Freebies section of my website.  There are plenty of Goliath-beating tools you can download for free.  For those wanting a little more, contact me.  Sometimes the fix is easier than you imagined.

Are You Working ON Your Business or IN Your Business?

Morgan Freeman’s character “Red” said it in The Shawshank Redemption, “You either get busy living or get busy dying.” Never have more truer words been said about retail.

So what are you busy at right now?

Are you busy coming up with new ways to market your business?

Are you busy evaluating your inventory mix to make sure you have the right items, the right amount of items, the right prices?

Are you busy measuring your financials to make sure you have enough cash flow, are keeping expenses in line, and building profits for the future?

Are you busy training your staff, teaching them how to please your customers and make their experience both memorable and worthy of talking about?

If you want to get ahead, you have to spend just as much time working ON your business as you spend working IN your business. Maybe even more.

Here are some simple things you can do to find more time to work ON instead of IN.

  • Don’t waste your time stapling, folding, cutting or hole-punching. If you don’t have a staff person in need of a simple project, give it to your kids or grand kids. (And if that isn’t an option take it home with you and do it while you catch up on your favorite show).

  • Don’t micromanage. Train your staff how to do it. Then empower them to do it. Even encourage them to come up with their own ways to do it better.

  • Don’t ever say or think “it would be quicker for me to do it myself.” The first time, you’re right. But if you teach someone else how to do it, the first time will be your last time.

  • Hire somebody. Let them do all that day-to-day stuff that bogs you down. Not only does it free up your time, but it forces you to work ON your business just to find the money to pay them.

And if you aren’t sure where to begin working ON your business, think about it as a three-legged stool.

  • The seat of the stool is the products. Without the seat there is no need to prop it up.

  • The first leg, then, is the marketing. What are you doing to get people in to see your products?

  • The second leg is selling. How well trained is your staff? Do they know the benefits of the products?

  • The third leg is the financials. How is your cash flow? Profit? Inventory levels? Expenses?

Pick the wobbliest leg and get to work. (Let me know if I can help).

-Phil

The Price is Right (Where it is)

I don’t recall any time in the past 18 years where price has been such a driving issue for retail. Is it the economy? Is it the Internet? Is it the smart-phone barcode apps?

For whatever reason, all most retailers seem to be thinking about is where to set the price. How low do you go?

The easy answer is to set the price at what the customer perceives the product to be worth. Figure out what the average person would expect to pay and charge that amount. You’ll sell tons!

What about profit, you ask?

Well, for that, you’ll probably need to raise your prices.

But how?

Simple… Raise the Perceived Worth of the item in the mind of the customers. You do that three ways:

  1. Merchandise the product more effectively. Give it a special place on the shelf. Put a table cloth under it and a spotlight over it. Build a display that tells a story about the product. All of these things make the product appear more valuable to a customer.

  2. Make a sign for it. Put on the sign the story behind the product, the benefits of buying/using that product. Signs sell.

  3. Teach your staff everything on the sign and then some. Make sure they know what problems the product will solve so they can match customer to the product.

Quit worrying about price and instead focus on raising the customers’ perceptions and expectations. You’ll sell more and make more at the same time. Oh yeah, and you’ll have more fun doing it!

Happy Easter!
-Phil

PS For more on Pricing for Profit, download the FREE eBook.

How Will You Measure Success?

It dawned on me that I’ve never asked you the most important question of all.

How will you measure success?

Whenever I work one-on-one with another retailer, that is usually one of the first questions. If I don’t know what measuring stick you’re using to decide if you are successful, I can’t help lead you there.

Will it be profit? Will it be increased sales? Will it be increased customer counts? Will it be larger transactions? Will it be positive cash flow?

Are you preparing your business for future stability, short-term gains, or to sell it to someone else?

All of those are realistic goals, but the path to each is not necessarily the same. Knowing the answer helps you point your ship in the right direction. The only wrong answer is, “I don’t know.”

How will you measure success? Write it down. Post it where you can see it. Put it in your planner, on your calendar, anywhere you look daily. Then start doing what you need to do to get there.

-Phil

Make Your Dogs Bark!

If you’re in retail, you’ve done what I’ve done – bought stuff that didn’t sell. Oh, it looked good in the catalog or at the trade show. The sales rep gave you tons of info on it. You put it in a great location, even trained your staff on all its finest features.

But at the end of the day, the customers weren’t buying.

So what do you do with those dogs? Make ’em bark and move ’em out!

This Thursday we’ll have over five times the usual customers at our Summer Fun Sale. It’s our once-a-year clearance sale (or as my friend calls it, the make-it-go-away sale).

For the past two months we have been searching the store for the dogs, the merchandise that just won’t hunt, and red-tagging it at half-off the regular price. We’ve been storing these goods in a corner of the warehouse waiting for the third Thursday in July.

On Wednesday we’ll close a couple hours early and set up tables & shelves right in the center of the store. And on Thursday the fun begins. Our first customers will arrive about an hour before we open. They’ll sit by the front door in lawn chairs and peer through the window with binoculars to search out the deals they want to scoop up first. About fifteen minutes before the doors open our parking lot will be full.

And three hours later, I’ll be making my first trip to the bank!

Some people ask me why I do it this way. They ask questions like…

Why do you always mark it half-off and not 25% or some lesser margin?

I mark it half-off to create both excitement and urgency. Anything less and customers might not bite. Remember, these are items no one wanted. Your customers already voted a thumbs down on them. You need to go big if you want to get their attention.

Why wait until one certain day? Why not just mark it down and have a clearance area?

I don’t want to train my customers to expect a markdown. A clearance area that is always full of new merchandise just tells customers to wait until the item they like ends up there. The thinking goes… something is always on sale, so why pay full price? Plus, the excitement factor goes way down. Think about it this way… Would you rather have your parking lot full and people lined up at the door fifteen minutes before you open, or the same few regular customers wandering through the clearance section on occasion?

Why mark it down at all? You’ve already paid for it and now you’re just losing profit.

If you read my earlier post on Gross Margin Return on Investment, you’ll remember that GMROI is calculated by dividing your Gross Profit by your Average Inventory at Cost. Selling a whole bunch of inventory at half-off does not increase my gross profit, but it does wonders for lowering my average inventory. Plus, the cash I get gives me the opportunity to go buy something else that will make me a profit.

Here’s another way to look at it. If I buy a crib for $350 and put it on my floor, but don’t sell a single piece for a whole year, that space on my floor has cost me $350. But if I sell that crib for $250 after 6 months, I now am only down $100 for that space and have 6 more months to put something else there that might make me money.

The bottom line is this…

Don’t be married to your merchandise. If you have dogs that have gotten fat and lazy, you need to make ’em bark and move ’em out. Turn them into cash and move on. That includes seasonal merchandise that didn’t sell during the season, too. For us that means the Summer Fun Sale – a necessary part of my inventory management plan.

-Phil

New eBook on Inventory Management

Cash is King.

And in retail, your cash is primarily tied up in your inventory.

But what would happen if you earned an extra 20 cents for every dollar you have in inventory? Multiply your average inventory times 0.2. What do you get? Extra money to play with. Extra money to pay yourself, to invest in your business, to spend attracting new customers.

Is that number worth 30 minutes of your time?

That’s how long it will take for you to read my new free eBook – Inventory Management: Cash is King.

And in those 1800 seconds you’ll learn simple easy ways to unlock the money tied up in your inventory.

What are you waiting for?

-Phil