Steve Bailey
Financial Analysis Consultant

$teve's Top Ten Profit Monger Tactics

As we sign off on another year, and begin the new one, it seems a new set of garden center financial issues arises with each passing day. But are they really new? Or just a rehash of the same old financial management problems that have been plaguing garden centers for several years?

My position as Financial Analysis Consultant with The Garden Center Group involves travel to and working with a different garden center almost every week. Although every center feels they have unique issues that only they have endured, they don't. If misery loves company, garden center financials are the classic case.

For that reason, I compile and distribute to our centers $teve's Top 10 Profit Monger Tactics. These truthful, yet sometimes biting, suggestions are compiled and ranked from my notes of centers visited during the past year. We usually refer to the Top 10 poster several times during the course of my visits. In that way, the relevance is reinforced.

Take them in a lighter vein, or take them seriously. If you see your center in only one of the suggestions, congratulate yourself - you've managed the financial end of your business very well. If only two to three of these issues are affecting your center, it says you are working hard on managing your business. If more than three fit, congratulations. You have a garden center with average financial issues that need to be addressed.

Okay, you're going to have to use your imagination a little bit here. In the absence of sound files, with every new number we advance to, you should make a noise resembling a drum roll. Hey, it may not be Letterman, but we can have some fun while addressing some very serious problems. Onward to . . .

#10 - Get a good CPA that is accountable to and understands your business and hang on to them. Prompt service from your accountant should be expected. As long as you hold up your end of the bargain and provide timely data to them (by the 5th of the following month), they should be able to provide you with timely reports - Income Statement, Balance Sheet, and Cash Flow Statement - by the 10th. Notice your commitment here - by the 5th. That old argument that under the accrual system, we can't close our books until every invoice is in just doesn't hold water. If you did that every month (and some do) it would be months, sometimes years, before we would be able to close out and get the reports we need when we need them. And that's too long. Anything past the 10th of the month is managing by a knee-jerk reaction. Close the month, then post the late arriving invoices on the first of the next month.
If your accountant still can't get reports to you by the 10th, run unaudited statements. These will vary little from the audited ones you receive from the accountant, so take them and run. Better yet, use them to manage your business in a proactive manner.
Good advice these days is invaluable. Most accountants don't understand your retail business from a business management standpoint. Virtually none know the nuances of a retail garden center. If yours does, hold onto them. Don't let them out of your sight. And then pay them what they deserve for good service and advice. If they don't live up to your expectations, get rid of them. It isn't as hard as it seems, even though you've been with them since you started the business and they're the only ones that really understands you and what you're business is all about. Wait a minute, isn't that why you're getting rid of them? Because they really don't?
Can you tell I touched a nerve on this one? And I'm only on #10! Okay, I'll try to limit myself on the next nine, but I won't guarantee anything. On to . . .

#9 - Remove non-productive staff and family from the payroll - This one is a real hornet's nest. Even though most owners and managers know it's true. But first let me explain.
At The Group, we conduct an annual Profit & Loss Study with our centers. Wages and Wage Benefits have been rising as a percentage of Sales every year for the last four years. The rise last year alone was 4%! For this to happen we have to raise our margins by 4%, lower our Operating Expenses by 4%, or accept 4% less Profit. For many centers that are marginally profitable, the latter is not an option. It shouldn't be for any center.
Don't get me wrong. I'm not saying wages should be cut. What I am saying is that the garden center industry finds itself in the middle of what many Fortune 500 companies are battling - a decline in productivity in relation to sales and a maturing workforce that receives raises and bonuses irregardless of profitability. Budget your Wages & Wage Benefits and make it work.
Now, to the family members issue. Many garden centers employ family members that are essentially a load on the business. Is this wrong? Not if owners are willing to shoulder the reduction in profitability as a result. That's their decision. Time for . . .

#8 - Calculate Owner's compensation into the budget.
- Okay, I promise to keep this one short. Profit is not Owner's compensation. Owner's wages and wage benefits (at a fair and reasonable rate) belong in and should be budgeted into the Wage and Wage Benefit budget. All excess above and beyond this belongs in Profit. Remember, we're talking business management her, not tax management. If you want a fair assessment of how your center stacks up against others, you'll move the numbers around for an accurate business comparison. Enough said, on to . . .

#7 - Maintain a good working relationship with your bank.
- You need them, they need you. It has to be a win-win relationship for both of you to continue. Provide them with the professionalism they expect and expect the same from them. If you don't deliver, expect a higher rate. If they don't deliver, shop around. It's as simple as that.
One more point needs to be addressed. Your bank should base their lending decisions on your ability to plan and manage your business, not by the collateral you can provide. If they are looking at your collateral only, they are irresponsible lenders. In that case, shop around. Then go on to . . .

#6 - Personal investments into your business should realize a financial return.
- Invest money into an appreciating asset, and you should receive a fair return. Loans or other forms of advances to your business should yield that same fair return as well. Same with leased land. Make sure you are getting a return on your personal investment, not providing cash to a bottomless drain. Speaking of money, let's move on to . . . (keep the drum roll up!)

#5 - Use short-term money for short-term projects
- Don't short yourself by using Lines of Credit to buy improvements or vehicles that should be on a long-term note. Whether time is an issue, or you don't want the lender to know how you're using the money - don't do it this way. You'll be in a bind faster than you can say . . .

#4 - Separate financial tracking for each division of your company.
- If your company is bleeding, you'll never know where until you can report what each profit center is attaining. Same with a hidden gem of a division that is supporting the rest. Know that it is performing well and make it perform even better. Retail, Landscape, and Growing (along with any other division you may have) should have their own Profit & Loss Statement. That's the only way you'll ever know how your company is truly performing. Once you've accomplished that, move on to . . .

#3 - Understand your market when it comes to market potential.
- Your margin, product, facility, and people should all match your market. Swings either way will affect what the buying public determines you should receive in sales and profitability. Aim too high, and you overshoot the market. Aim too low, and you undershoot the opportunity. The latter is usually the case. Look around. Study the demographic numbers. Know who you should be serving, and then develop your business plan around it. Then fine-tune it every year, which is not the next issue, but onward anyway to . . .

#2 - Share financial information with the people that hold your future in their hands - your staff!
- Owners can only manage so much. When their business outgrows their ability to manage every little detail, they hire managers and staff. Now that you've empowered these people to assist you with your business, give them the tools to do it right - provide them with the numbers. They will only know half the story with sales. Show them what their actions mean in Cost of Goods Sold, Operating Expenses, and Wages. If you feel you can't trust them with these numbers, they shouldn't be a manager. If you feel you can't trust anybody with these numbers, you limit your potential. Finally, we arrive at . . .

#1 - Plan, Measure, Adjust . . . Plan, Measure, Adjust . . . Plan, Measure, Adjust
-Going through the next business year without a detailed plan is like going on a car trip without a map. You'll arrive somewhere, but it may not be where you want to go.
Planning the year without measuring the results is just as useless. And planning and measuring without adjusting the game plan is even more worthless. Use all three in conjunction with each other to maximize profitability and to send Wealth to the Balance Sheet. Now, that's another story that will have to wait until the next Top 10.
The centers in The Group that don't follow the mantra above get tired of hearing me say this all the time. Those that Plan, Measure, and Adjust have adapted the saying as a business way of life. And they're usually the most successful.

Did your tongue wear out from all of the drum rolls? I certainly hope not, because you need it to talk with your CPA, your staff, your family, your bank, your managers, your consultants (yes, they are important,too) and your customers. Involve everyone in your business plan in order to maximize profitability.

Above all, be a Relentless Pursuer of Profit. This doesn't mean you have to abandon your morals or sense of business fair play. It does mean you have to take every opportunity every hour of every day to realize financial gain. It's the only way your center will survive.

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Steve Bailey is the Financial Analysis Consultant for The Garden Center Group, a business resource alliance of 0ver 100 independently owned U.S. and Canadian garden centers.
Steve can be reached at stevebailey@gardencenterprofit.com