Prepare Your Firm for the Unexpected

by WOHe

The events of September 11 have shown us just how
quickly things can change, personally, politically and
economically. While we would hope that we’ll never again have to
face a tragedy like this one, as business managers in the kitchen
and bath industry, we must be prepared to adjust and adapt to
whatever situation confronts us.

The key to adapting to unexpected situations that
arise in our business is preparation and planning. To that end,
it’s a good idea to look at a few key elements that will help us to
know where we stand and how to react to the developing business
climate.’

First, we need to be able to look ahead and make a
reasonable judgment about the future of our business. We need to
understand the cost and expense ramifications of changes in our
revenue streams. We need to know what the real and accurate cost of
operating our business is. Finally, we must be prepared to fulfill
our role as leaders.

Forecasting
There are several things you should be paying attention to in order
to get a feel for what’s in store for your business. On the “macro”
level, one of the best indicators of what’s ahead is the Consumer
Confidence Index (CCI).

Typically, the work we do falls into the category
of discretionary expenditures, and because of that, most of this
work can be postponed by our clients if they’re feeling uncertain
about their future. From observing the impact of falling consumer
confidence on our business, it becomes clear that when these
indexes fall over an extended period of time (usually several
months), so, too, does traffic and business fall off for a
time.

While most localities don’t have anything similar
to a Consumer Confidence Index, there are usually state and local
government economists who will produce forecasts of the outlook for
regional areas. It would seem obvious that if these forecasts are
for growth in the local economy and employment, that consumers our
clients will have the confidence to proceed with remodeling
projects.

The least reliable indicator of future business
levels is the local media reports. All too often, a big order for a
local manufacturer will receive a banner headline and coverage out
of proportion to the impact that this will have on the local
economy. Conversely, you might see a headline blaring that a local
company is laying off 40% of its staff, when the detailed account
shows that the company only employs 25 people. Keep in mind that
the objective here is to increase ratings or sell newspapers.

Finally, you should track your own indicators, such
as floor traffic, to keep abreast of how business is doing. Make it
a practice to ask members of your staff what their impressions are
of the potential customers who are coming into your showroom. Look
for various indicators that you can track over a long period of
time. Comparing these statistics month to month and year to year
will allow you to develop a feel for the relationship they have to
your future business.

Another factor to consider is that, while
remodeling projects can be deferred in many cases, most of these
projects will still eventually be done. What this means to you is
that slow times often result in pent-up demand breaking loose
somewhere down the road.

Making Adjustments
Assuming that we can make reasonable judgments about the future
business climate, we then must translate that into action. In order
to do this, we have to have accurate information about our
businesses and what the result of various potential moves might be.
The starting point for this is to have a thorough understanding of
the relationship between your revenues and expenses.

In the area of costs, you should be aware of the
cost per day of each of your trades (carpenters, plumbers, etc.),
as well as the monthly cost of various staff functions. By knowing
this information, you’ll be able to make informed decisions about
scheduling work and adding or reducing staff.

You should also be aware of the relationship
between your revenues and expenses. Some costs and expenses, such
as construction materials, job labor and commissions, will normally
be reduced, along with any reduction in revenues. These are
referred to as “direct” costs, and it’s important to know how these
costs will actually respond to changes in sales revenue.
The other grouping of costs is normally referred to as “fixed”
costs or expenses. These items, such as utilities, rent and office
staff salaries, tend to remain the same (in the short run),
regardless of the level of revenues. Note that if your field labor
is on your payroll, some of those costs may fall into the fixed
category rather than the direct type.’

If you anticipate a significant change in future
revenues, these areas must be addressed. Failure to adjust these
areas to the level of revenues will result in deterioration of
customer service or a drain on cash flow. Making adjustments to
this area of your business is by far the most challenging of
balancing acts, and is something that should be constantly
evaluated.

You need to review your financial statements
carefully and regularly not just the “bottom line,” but each costs
and expense that makes it up. If you know what these cost and
expenses are, you’ll be much better prepared to deal with the
changes that will inevitably present themselves.

Leadership
As a kitchen and bath firm owner or manager, you’re in a unique
position to influence the future of your business. Think back to
your experiences with “authority figures,” such as teachers, bosses
and clergy. We all tend to attribute knowledge and wisdom (often
unrealistically) to such individuals.

It’s important that you be aware of this
phenomenon. Because of your position, your employees will look to
you for answers and direction, particularly in times of change and
uncertainty.

The role and responsibility of leadership is to
direct and inspire those who have chosen to be a part of your
organization. Whatever your leadership style, it must instill
confidence in the future and a unified effort to accomplish the
goals of your organization. Never underestimate the impact of what
you say or do.’

Finally, do not underestimate the power of optimism
and willpower. Most businesses fail when the leader becomes
discouraged and gives up.

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