Are Your Saving And Spending Ideas In Order?
A reality check on what smart spending and savings really means.
December 27, 2011
Hi, this is your friend Sid writing to you again. I’m not here to criticize, but to help you profit from some new thinking about your business.
This article may be a little abrasive for some of you so I apologize in advance and suggest you sit down to think about it a bit. I’ve been where you are and have bought all the t-shirts you have.
Do You Really Understand Savings?
An old and almost obsolete saying is “pennies make dollars.” Most people won’t even bend over to pick up a free penny. We’re just talking about pennies and it takes 100 of them to make a measly dollar. What can you do with a dollar?
Likewise, most people won’t take two minutes to call a store about what they need to know before they spend too much or buy the wrong thing.
The trouble with the way some define saving money is that they have an incorrect belief that they save money while buying things we don’t really need.
Save $5,000 on a new Suburban? Yeah, right. It’s still $44,000. I haven’t been seeing many new vehicles in garden center owners’ garages lately. But I do see aging Suburbans, Tahoes and Excursions that are not paid off yet.
What about not buying things we really should buy? Like saving $44,000 with good advice. Oh, you can’t afford to spend the $4,400 to get good advice? You put that on the down payment for the Suburban, huh?
I’ve got news for you. Saving $25 on the $750 monthly payment is anything but saving.
Allow Me To Define Reality
Saving money on a company vehicle that doesn’t deliver stuff or move people to jobs for customers is not making money. It is spending money – and a lot of it. A car is a depreciating expense, not an investment.
I don’t care what anyone thinks. Save money by not paying the “stupid tax” other people pay for buying expensive living expenses they don’t need.
Saving money means having a back-up fund to cover for contingencies – and stupid mistakes.
If neither of those happens, then it is money that can be invested.
Investing Is A Better Strategy
Making money requires investing to either increase the value of what we sell or to reduce expenses. Some of the best spending is on investments that help you get the most out of what you already have, like better display benches. Benches increase the perceived value of what you already sell so you can increase prices without the customer noticing.
Another good type of investment is to buy things that will make money while you own them. A good example of this is to invest in improving the operation systems of your company so you can increase profitability and perhaps draw more money from its operation to put away in savings and someday expand, retire, or give away if you like.
Take a look at the graph above for what I mean by a good type ofinvesting. I may sound a little self-serving with the last items, but I believe in my product.
Sorting out expenses from investments is not an easy thing to do. Maybe some help would help.
Help comes in many forms. For example, there is expensive help, and there is profitable help. You’ve had both types on your staff, right? One talks about getting the job done while spending a fortune on stuff that doesn’t sell, and then they quit. And there is the kind of help that gets the work done at a reasonable cost and makes money for you with no drama.
I read that landscape consultant Monroe Porter once said, “Make money to grow. Don’t grow to make money.” That’s wise advice.
Take A Close Look At Inventory
Another area of savings is on inventory purchases. In almost every client situation I have encountered we have been able to move a substantial amount of money that is tied up in inventory that does not sell well into working capital that can be invested to improve the business to sell more inventory that does sell well.
Think about this: Your company probably spends more in a year on inventory than the total value of the business if you were to be able to sell it today.
In fact, I would bet you spend more on inventory than the total value of everything the owners of the company own.
Let’s check. Add up the beginning inventory, inventory purchases, wages and wage benefits associated with the inventory (all wages), and operating expenses to house, handle, advertise, and sell the inventory.
If you just added all that stuff up you see a big scary number that should scare the daylights out of you. And it should put everything you thought you knew about your business into a new, different, and more realistic perspective.
Having spent a good bit of time on the supply side of business I hate to do this but I have to tell you that vendors come in many forms as well. There are those that know the business side of the business and how to help you make money with their product. There are vendors who know the product side of the business and help you buy it from them.
And there are those vendors that don’t know much at all and don’t know what they don’t know. Those are the ones that got a lucky break to work for a good company that doesn’t know they’re getting snowed.
Speaking of snow jobs, I think there’s a big one coming and I finally invested in a snow blower last year. I couldn’t afford one before I bought it.
Again, I’m not here to criticize, but to help.
Sid Raisch is founder of Horticultural Advantage, a consulting firm to independent garden centers and servce provider to The Garden Center Group. He created the Advantage Development System to help client companies increase effectiveness to earn greater profits. For more, go to http://AdvantageDevelopmentSystem.com, call 888-339-7456, or eMail firstname.lastname@example.org.