Retail Break Even Analysis

Lower your breakeven point and hang on to your cash reserves.

Financial Management by David McMahon

Article in April Issue of Furniture World Magazine

During the recent recession, high exposure to risk forced lots of good retailers to go out of business. The culprit in many instances was high fixed costs relative to total costs. When consumer spending suddenly slowed, businesses were unable to respond in time. These retailers simply fell uncontrollably and quickly beneath their break-even point of sales. Losses were incurred, and eventually their cash flow dried up

Many businesses did survive the recession and remain profitable. They are the businesses that have a greater proportion of variable costs (lower fixed costs), and, therefore, shoulder less risk. You see, businesses with more variable costs in lieu of fixed costs are less susceptible to sudden changes in sales volume. Variable costs rise and fall in proportion to sales and result in a lower break-even point of sales. This gives retailers an advantage over their competition in that they have more time, or room, before their cash reserves are depleted during a sudden sales slump.

This article will demonstrate how to calculate your break-even point of sales. It will also provide some real world examples of ways smart retailers are reducing their break-even points. Finally, at the end of this article is an offer to get a free break-even calculator that you can use to improve your business.

So, what is the formula for break-even sales?

Article in April Issue of Furniture World Magazine

Get a better handle on your cash

Here is an article that I wrote that was published in the latest issue of the WHFA Retailer.

We’ve all heard the saying “Cash is King”. That is very true. The level of liquidity that an organization can maintain determines the ability of that organization to operate each day and to succeed in the future. High liquidity allows organizations to reinvest in themselves to boost efficiency and sales. This reinvestment is the catalyst for expansion which generates even greater cash flow. On the flip side, low liquidity forces companies into cut- backs, tightening of operations and an eventual downward spiral.

Recently some business leaders asked me for advice on figuring cash flow with respect to actual versus money in the bank. They also wanted some specifics on using software and spreadsheets to assist in getting a better handle on their cash flow. With this in mind, I recommend four prime actions:

• Reconcile the bank account

• Generate a Statement of Cash Flow

• Forecast future cash levels

• Track key cash and liquidity metrics

Full Article: Getting a better handle on cash

Flash Demo #1: PROFITdelivery

We have added a flash demo section to our blog. On the right side column we will post product demos that run automatically in your browser. They are audio as well as video (so make sure your volume is turned up).

Our first is PROFITdelivery. This is our routing and mapping service that interfaces from PROFITprofessional.

The difference between a high profit operation and an average operation with respect to the delivery department is 1% of sales. You will save at least 10% on fuel costs alone!

Watch the PROFITdelivery Demo

21 Profit Pointers:

1. Document Specific Goals. Get weekly metrics. Report to the team. Offer incentives.
2. Improve All Departments. Sales. Administration. Advertising. Warehouse. Delivery. Service. Finance.
3. Create Contribution Margin Statements. Monthly. Automatically. Improve break-even. Improve profits.
4. Implement CCC (Customer Care Center). Track sales metrics. Improve sales performance. Elevate customer service.

Click HERE to get all 21 Points

Colossal Presention on Recovery

Here is the link to download the Updated Recovery Presentation for the Colossal Conference in Colorado Springs. Contact us if you have any questions. Thanks!

DOWNLOAD Updated COLOSSAL PRESENTATION

"What Are You Seeing Out There?" -- Retailer

This is one of the most common questions that my consulting clients ask me. They want to know: "What is happening with the businesses that I visit around the world? How are other operations doing in this economy now? How are consumers responding? What is working and what is not working? Are people buying? Is the general feeling up or down?"

Here is what my experiences are telling me now:

This has undoubtedly been the worst recession in America since the great depression. It is the biggest that I have experienced in America in my career. (Although the Asian banking and currency crisis was just as big in the mid-90's when I was working there). The primary U.S. stock market (Dow Jones Industrial Average) fell from a high of 14,500 to 6,500. Trillions of dollars have evaporated. Along with this, unemployment rose steadily as consumer spending plummeted.

Independent retailers sure have felt their fair share of this loss and I really believe they were the hardest hit sector in the U.S. economy. We can all name numerous companies that have gone out of business in the past two years. For those companies that have hung on, I've seen some with 50% drops in sales from their "glory days" and 20% declines have been commonplace.

That said, there were bright spots. Select operations have managed to bust their butts, work smarter, and innovate to avoid declines. Some have even had increases in sales.

But there is something more important than sales: PROFITABILITY! That is a prerequisite and determinant of sales growth. During the recession, I have seen that the most profitable companies were still the most profitable companies, regardless of what has happened to their traffic and their sales. Great businesses have remained the same great businesses in the recession as in the boom.

In my opinion, a great business is defined as businesses with people that embrace learning, innovation, efficiency, self-investment, integrity, and respect for all. They mandate excellence and high profitability. They can make quick decisions, manage professionally, and execute their strategies. They enjoy the process of getting better at what they do.

So, what's next?

The recession is over. Recovery has begun. The economy and retail sales have stabilized. Revenues have stopped declining. That means, and I will repeat, THE RECESSION IS OVER!

Smart companies have restructured themselves during the downturn and are seeing decent profitability levels again. Just look at the earning reports on CNBC. Even though sales are flat and definitely nowhere near peak times, in most cases, earnings are good.

Across the U.S., retailers that we work with are doing the same. They are becoming efficient at their new sales levels through maintaining proper inventory mix, capturing appropriate gross margin, changing marketing methods, and investing in expenses that add rather than take away from their businesses.

It is extremely important that you have decent profitability at this point in the economic recovery. First, it will determine whether you will survive the bottom that we are currently in. Then, this efficiency will allow you to reap the maximum benefits in the future when consumers return in larger numbers.

If you are not maximizing your profitability now, do so quickly. To do it right, and as fast as possible, you should contact us and we will help you as we have helped others.

Advice:

Don't worry about the PAST. It does not exist. It does not matter if sales once were double where they are now. What matters is NOW!!! Get your business in order NOW. Turn your fixed expenses into variable expenses NOW. Build your productivity and profitability NOW. Your future will thank you.

Good luck!

Furniture World Article on using GMROI and IGMROI

Track this inventory metric to understand your customer’s buying patterns, establish a more relevant product mix, satisfy more people and sell more.

by Daivd McMahon

Consumers’ tastes and the economy are constantly changing. Some vendors and categories that were once popular are not anymore. You cannot control your customers’ tastes or the economy, least of all, through general advertising. This is impossible. If you agree, ask yourself, “What can I control?”

In this article, you will discover how to listen to what your customers want in order to make more informed purchasing decisions. If you can manage a process, you can influence and control it. So, by better understanding your customers buying patterns and establishing a more related product mix, you will satisfy more people and sell more.

First, take the guessing out of the equation. There is only one group’s opinion regarding the desirability of purchasing your products that matters. It’s not your buyers, your reps, suppliers or your competition. And, it’s not you or me. It’s your customers!

Buying is analytical. You need to know what your customers are purchasing and what they want to buy from you in the future. With any top industry Customer Relationship Management (CRM) software, this data should be readily available to you.

Read the full article in the latest issue of Furniture World