A retail business on the brink…
The retailer was a sole trader who was turning over approx £35,000 per week. However, even at that level of turnover, the business was still not viable. Not only did the business have massive fixed overheads, but also a very large and expensive workforce. From the start, however, a decision was taken not to reduce the workforce. Both Odette and the client felt that this had the potential to destabilise the business. Instead, a brief was drawn up to increase both profitability and overall performance of the business.
At the first meeting, Odette asked the client: “where do you want to be in five years?” …a question that we ask all our prospective new clients. His answer was that he wanted to be solvent and to own his own home. With our help some eighteen months later, that was exactly what he’d achieved: he was indeed solvent and the owner of his own home.However, before that wish could be fulfilled, some fundamental changes had to be implemented and quickly, but with considered integration.
It’s more than looking at the numbers…
Odette looked at the business from every angle. Her immediate impression was that the company was projecting totally the wrong image. The showrooms were not only dark and dingy but had the potential to be perceived as dirty by some. However, the products themselves, which were manufactured on site, were attractive and of a very high quality. They were simply not being displayed in an environment that complemented them, or encouraged sales.
The first task was to change people’s perception upon entering the building. When customers walked in they needed to feel that the environment was attractive. Creating a pleasant ambience would encourage them to linger, to look around and then buy one of the outstanding products.The lack of turnover was a direct result of these ill-kept showrooms. This, in-turn, affected the morale of the staff, which was aware that the sales conversion rates were not only lower than anticipated, but also lower than comparable businesses within the industry.
The financial management reporting was also wholly inadequate. The accounts dept comprised of one full time bookkeeper that was not only overstretched but also swamped by the sheer volume of work. In addition, this particular employee was expected to act as cashier and to run the private financial affairs of the client. Thus it was evident that the business had no functioning accounts department. The bookkeeping was still being run on a manual system and, although there was a computer in the accounts department upon which the SAGE accounting software had been installed, it appeared, on further investigation, that the figures were incorrect. In short, nothing much made sense and the figures did not stack up.
To deal with all the issues and bring about change, looked, on face value, to be a daunting task. But the fact was, it was really just a matter of formulating a strategy and of making the pieces of the jigsaw fit.
The first task was to tackle the showrooms. They were redecorated, carpeted and structurally altered to provide valuable extra sales space.
Secondly, the advertising budget was increased. As a direct result of the changes to the showroom and the increase in ad spend, more customers began visiting the showroom. As the sales conversion rates changed so did the morale of the sales staff. Because they no longer appeared to be so ‘desperate’ they began to convert more sales. It was an upward spiral – one driven by cause and effect.
The next task was to put in place correct accountancy functions. SAGE was wiped, reinstalled and tailored to suit specific businesses needs. ‘Balance Sheet’, ‘Profit & Loss’ and ‘Budgeting Management Reports’ plus extensive cash flow forecasting were all implemented. The bookkeeper was trained in SAGE and the entire business was computerised with state of the art networking and software.
Within five months the weekly takings had increased by 50%. New members of staff were interviewed to fill hitherto unknown roles, an IT specialist was employed and the accounts department grew by two new members of staff.
With the sales turnover continuing to increase, the challenge now became one of managing a profit situation as opposed to a loss situation. As every passing month brought massively increased profit, it became apparent that the business would have to change its legal status. Incorporation was the logical answer. Due to the level of unexpected profits, the amount of tax the client was personally liable would be exorbitant. Furthermore, his personal level of exposure was felt to be tactically incorrect. A limited company was formed and the business transferred from a Sole Trader to a Limited Company. Various other changes were instigated including changing the banking and merchandising providers.
It was at this stage that an expert Tax Consultant was instructed. His brief was to come up with a plan to negate the cleint’s personal liability. This he duly did.Within a year the business had changed dramatically as had the client’s personal circumstances. He now owned a property and had covered all his tax liabilities.
So where to now? As people’s hopes and wishes change, so do 5-year plans. When it became evident that the business was turning, a new idea was mooted. Why not another showroom? A further outlet would create a valuable source of additional income. This became a reality and the lease was signed on an additional premises. The cost of fitting it out was in excess of £150,000, an amount funded entirely out of the business’s cash flow…oh how times had changed.
A bright future…for all
This was a real success story, whilst our involvement and commitment were total, the client was only one of numerous clients that benefited from the advice, after eighteen months, the company’s takings were £110,000 per week.
Vision and passion go hand in hand – the vision to make the pieces fit, and the passion to do so with complete integrity. Both are paramount to understanding the processes that make a business tick.