When my wife and I took control of our shop we knew that it was close to going out of business. Our weekly sales were very low and deteriorating due to the fact that there wasn’t enough stock on the shelves. I desperately need to work out what had been going on and with the help of a friend who had an accountancy back ground I took a close look at the shop’s financial position.
The first step was to work out what our Break Even was. Looking at the previous year’s accounts and adding together the cost of stock, premises, staff, utilities, professional fees etc. dividing the total by 52 gave me the weekly cost of running the business. What the information told me was that we had taken on a business that had a weekly turnover that was half what was needed to cover the costs.
I knew that there are two things to resolve our dilemma, reduce costs and increase sales.
The next step was to understand our costs. There are those that are fixed such as the premises and variable costs like staff and utilities. I reviewed the staff rostering and took some hard decisions. Of the employees we took over there were two ‘supervisors’ who were working the same shifts. I developed a new staff roster that would have given us better staff cover across the week and told the two supervisors that they would need to be on different shifts. They both decided to find work elsewhere and this with other adjustments brought staff costs to an affordable level.
The next targets were wastage, shrinkage and stockholding.
Because the business was short of cash we needed to make sure that we gained full value from the stock that we were buying and the best we could from the stock we took over. Fortunately the shop had epos and the sales data was reasonably reliable so I could see what we were selling and discover the top selling products. The stockholding information on the epos was inaccurate so starting with the high value stock, tobacco and alcohol I undertook a complete stock count to give me a firm base. I then trained the staff so that they could undertake this task and set up a timetable to ensure that all the stock would be counted every 13 weeks and high value every week.
With reliable data on the system my wife and I were able to target our buying to ensure that we had the right products in stock and we had the information that allowed us to buy the right amounts. This helped to reduce wastage and deliver a higher gross profit margin.
The key to our survival was to understand our Cash Flow and my friend told me to search on the internet for a suitable spread sheet template.
Of course I needed to understand all the information I was collecting so I had find enough time to do this. As I was working full time for BT I found that Sunday morning was the only time that I could reasonably use for this. It is a habit that I have kept up as we moved from stabilising our business
to making the most of our opportunity.
By understanding some basic rules of business like working out break even and being rigorous in managing costs coupled with setting up a cash flow forecast to know when outgoings are going to happen. Then recording receipts and expenditure to stay on top of what cash is in the business we survived, but beyond this I learnt the key fact about business. It’s about making a profit!