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The Question Every Business Owner Needs to Ask | November 15, 2017 (0 comments)
Omaha, NE--Now what could that question be? "Where has all my profit gone?" "Why is it hard to find good staff?" "How do I stop my competitors from discounting so much?" "Where will I spend my summer break?"
All good questions, but not as important as the question that gets to the heart of self-employment. Whether you are a jeweler, baker, or candlestick maker, reminding yourself of why you are in business takes the cake as the number one "ah-ha!" moment. That question is:
Do you have a business or have you bought yourself a job?
Most jewelers probably ask themselves at some time or another why they are in business – and some days, they might have trouble finding an answer! For many, it’s the appeal of self-employment, which brings with it a greater degree of control over their working life and a desire for better profits than an employee can earn. Your future is in your hands, not the hands of anyone else.
Often getting into self-employment can be an emotional decision rather than a logical one, and can be driven by a desire to get away from pain (a job they don’t enjoy) rather than a move towards pleasure. Many lack the necessary skills to work effectively at this level. It has to be said, however, that few people who become self-employed ever have a desire to go back to working for someone else. The pluses do outweigh the minuses.
Sadly, many jewelers don’t receive sufficient return for all the hours of effort and the dollars of working capital that are invested in them. To exemplify, here is a quick exercise using a hypothetical store:
Sue earned $70,000 from her store this year, including a salary of $50,000 and a profit of $20,000. She paid $250,000 for the business two years ago and believes it to be worth the same today. She works 50 hours per week (approx. 2500 hours per year).
Based on a 25% return on investment (ROI) on her $250,000 purchase price, Sue would expect an annual return of $62,500 from owning the business ($250,000 x 25%). This figure represents the 25% she deserves for the risk she is taking, compared with the return on risk-free investments such as bank deposits or government bonds. (Although this represents a greater premium over non-risk rates than a few years ago, it would be fair to say business has gotten a lot riskier during that time!)
If Sue deducts the $62,500 that she should earn on her investment from her total income ($70,000) she is left with a figure of $7,500. This is Sue’s “pay” or the reward she gets for the effort she has put into the business. If she divides this by the hours she works per year which is 2500 then she is effectively earning $3 per hour to manage the store ($7,500/2500). Sounds a bit low, huh?
Would Sue find someone who would manage her store for $7,500 per year? Not likely! Yet many owners ask this of themselves every year. Sue is not earning nearly enough for her labors and her initial investment, and all she has succeeded in doing is to buy herself a job – and a poor paying one at that!
Sadly, this situation is all too common. Sue has kidded herself that she has a profitable business, yet if she invested her money elsewhere and went to work for someone else she would be earning a lot more without the hassle. How can Sue turn that job into a business that works for her?
If you’re in a similar situation are we suggesting you sell your store? No. You need to turn these circumstances around.
The biggest difference between a successful store owner and an unsuccessful one is the ability of the owner to concentrate on the important rather than the urgent.
This means doing the tasks that will move the business forward, the types of tasks that will earn $100 or more an hour indirectly, such as: 1) financial planning, 2) effective inventory budgeting, buying and management, 3) marketing plans, 4) pricing revision, and 5) not fiddling with urgent but less important tasks that can easily be completed by a staff member, such as fitting watch batteries.
In order to do this, an owner needs to plan and be constantly asking themselves the question, “Is this the best use of my time?”
Here are a few guidelines to help make your time more productive:
Step1: Preferably on Sunday night (Monday morning will do), review all goals and priorities for the week ahead. At times like this, it's not all about reducing costs; it’s about setting goals to increase profit margins, clear aged inventory, increase sales, improve team communication, re-order fast sellers and so on.
Step 2: Prioritize. Choose one or two tasks that can make the greatest amount of difference in the shortest amount of time. Write them down.
Step 3: Plan when to take action on these tasks. Ideally break tasks down into one-hour blocks. Everyone can find an hour to concentrate on a key task but many struggle to find three hours out of a busy day. Also choose a time of day with the fewest interruptions. Early in the morning is best.
Step 4: Plan where to take action. Choose somewhere private with no distractions and with all of the things required to complete the task. Sometimes doing important tasks at home first thing each day is more effective than trying to do them at the store.
Step 5: Schedule or delegate the task. Wherever possible, give things to someone else to free up time to move to the next item of business. Remember, delegation is not abdication.
Step 6: Use discipline and self-control to follow through and complete each task. Mark it off and celebrate any successes with a coffee and a five-minute break.
Step 7: Repeat these steps each week and review them each day.
Some careful planning can make all the difference to the rewards an owner can get. As Abraham Lincoln once said, “Give me six hours to chop down a tree and I will spend the first four sharpening the axe.” It’s time to sharpen your axe!
The Edge Retail Academy is a highly effective jewelry industry consulting company that provides customized strategies for retailers and vendors to increase profits, optimize growth, reduce debt, create profitable inventory solutions, build effective teams and enhance brand loyalty and profitability. The Academy is committed to helping jewelry businesses improve their bottom line while reducing uncertainty and stress. Edge Retail Academy software and the unique talent pool of their business advisors provide real world knowledge and advice for guaranteed results, all on a “no-contract” basis. www.edgeretailacademy.com. If you are in need of advice on time management, leadership, or any other strategies to make these things happen in your store please contact us to help, through our Business Academy. Call (877) 569-8657, Ext. 1, or email Becka Johnson Kibby, Becka@EdgeRetailAcademy.com.