By David Brown, Published in The Retailer Jeweler, Jan/Feb 2020
We all get a little hectic on a daily basis – there often seems to be too much to do and it feels like we seldom have time to achieve anything other than fight fires and tread water. Despite this we know we need to stop and take time to focus on the big picture with our business. The ideal time to do this is at the financial year end. Once December trading is out of the way and the annual stock-take is complete its time to sit down and evaluate the year. The most effective way to evaluate this is to ask some important questions about your store’s performance. How did you do relative to some of the most important metrics during the year? What targets did you achieve, and which ones did you fall short?
DID YOU ACHIEVE YOUR SALES BUDGET?
We are only as good as the performance we measure and a key factor in this is to set a target for the year with which to strive. If you have set a budget how did your sales go relative to the objective?
HOW MUCH TIME DID YOU SPEND IN YOUR BUSINESS?
As a business owner there are two aspects of our investment we need to consider; the money we have invested and the amount of time we have spent on the business. How many hours did you actively spend in the business during the year? What about the time spent on the business? This is an investment that needs a return. When the year is over, and you are calculating the net profit you have made, you need to consider the time you have spent separately to the money earned on your investment. Your bottom-line result needs to take into consideration your wage for working on, and in, the business. What is left is your return on capital
HOW PROFITABLE WAS YOUR BUSINESS THIS YEAR?
What is your bottom line relative to last year? What result have you achieved relative to what you expected and what would represent a fair return on the money you have invested?
HOW MUCH MONEY DID YOUR BUSINESS MAKE AVAILABLE TO YOU?
Your profit is one factor, but this doesn’t necessarily represent the money your business has made available to you during the year. A business requires re-investment in inventory and equipment. What has been your cashflow payback from the time you have spent? The quickest way to determine this is to look at the increase in your bank balance (if there has been one) plus the money you have taken out of the business during the year, as both wages and drawings. Together they represent your surplus cash. Money spent on buying assets or servicing loans is not surplus cash for you to enjoy.
Sometimes, as a business owner, it’s easy to ignore the payback your business gives you. There are additional “perks” of being an owner, phones that are paid for, vehicle expenses that might be provided, but ultimately, it’s the cash your business can throw off that is the best measure of your business’s success. The best way to assess a business performance is by the cash it can generate. A profitable business that requires a huge level of re-investment is little better than a business that requires limited re-investment but provides a relatively poor performance.
Ultimately the success of your business will depend on what it gives you back relative to what you put in, be it monetary investment or time. You need to constantly assess your businesses performance against this criteria and other options that may be available to you.
David Brown
David Brown is President of the Edge Retail Academy. If you would like more information or strategies on this topic, contact us! The Edge Retail Academy is a highly effective jewelry industry consulting company that provides customized strategies for retailers and vendors to increase profits, optimize growth, reduce debt, create profitable inventory solutions, build effective teams and enhance brand loyalty and profitability. The Academy is committed to helping jewelry businesses improve their bottom line while reducing uncertainty and stress. Edge Retail Academy software and the unique talent pool of their business advisors provide real world knowledge and advice for guaranteed results, all on a “no-contract” basis. 877-569-8657, ext. 1, Inquiries@EdgeRetailAcademy.com or www.edgeretailacademy.com © Edge Retail Academy 1983 Oliver Springs Street Henderson NV 89052-8502, USA