March 23, 2011
You survived... Now what?
Avoid these six mistakes as you put the recession behind you
By: Norm Gaither and Pat Brown
It has been a tough two years for anyone selling tires. Chaos in Washington, high unemployment and a faltering economy has kept everyone in the retail business scrambling to keep the bottom line in the black.
In our business, motorists put off buying tires until the last minute. Thankfully, the service side of the business remained strong, as customers maintained their aging vehicles.
Finally, we are seeing some bright spots on the horizon. Pent-up tire demand finally kicked in and the economy seems to be stabilizing.
Typically, independent tire dealers are optimistic, enthusiastic entrepreneurs expecting good things to happen. So, once you see a glimmer of hope, you immediately start thinking about hiring... expanding... buying. Time to hire those techs that you’ve been needing; buy that equipment you’ve been deferring; take the family on a long, overdue vacation; give your employees the bonuses that you couldn’t afford; improve your benefits for your hard-working employees. The list of things you could do goes on and on.
Stop. Before you make any grand changes in your business, consider these common mistakes that might be premature moves in our still fragile economy.
Mistake #1: Hire additional employees. Now that business is better, some think they should hire more people because most dealers believe it will get even busier and they don’t want to miss sales. Always try to run lean and mean and show the profits before you consider hiring more people.
As you look at your financial results, payroll should never be more than 45% of your gross profit. In our analysis, payroll includes all salaries: owner, store manager, outside sales, service manager, service techs, tire techs, bookkeeper, office, etc. If it runs higher than 45% of your gross profit, it will be tough to reach a 10% net profit for your business, and that should be everyone’s minimum goal.
On the other hand, there might be quality people out there still hungry for work, and you should always think about replacing marginal employees with better skilled workers.
Mistake #2: Take time off. With the increase in sales, the owner now thinks he can take more time off since the sales are up. This often leads to the employees slacking off and not paying attention to the business. Oftentimes, the employees feel that if the owner can slack off, why can’t they?
If you do take some much deserved time off, make sure that you have controls in place to monitor your business in your absence, such as security cameras, mystery shoppers, daily sales reports, etc.
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