Money is…where the money is

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flooring businessBy Kevin Frazier As independent retailers, we find ourselves constantly faced with myriad obstacles within our flooring business. There are the ongoing serious systemic challenges in both labor supply and product availability to contend with, as well as the “classics” like retail traffic, acceptable close rates and claims.

Running a retail flooring operation is a significant challenge—so much so that we can easily lose sight of the forest for the trees. But regardless of how many years we have been in the flooring business, it is important to remember that we are entrepreneurs first and must understand that keeping a very firm grip on the strategic and financial realities that move through your company on a monthly basis is what matters most to the success of your business.

So, when I say, “Money is where the money is,” I mean understanding and executing the financial aspect of your business that will most directly impact your company’s profitability. There are big picture and small picture action steps that I have found to be extremely significant in terms of impacting the bottom line.

The No. 1 priority is to capture, report and interpret your financials every month (your P&L income statement in particular). You can’t control that which you don’t know and understand. And if you aren’t looking at a quality P&L every month, you don’t really know and understand your costs, expenses or overhead. Therefore, it is imperative that you know your monthly break-even point (expressed as a written sales figure). If you know your monthly break-even point, it is relatively simple to discern a corresponding written sales sweet spot.

Here are some valuable tips:

  • Your flooring business should be a corporation. Not an LLC, but a corporation.
  • Own your own property and building. This is the most important income-producing, wealth-building action step in this entire discussion.
  • Maintain rigorous control of your product net margin by developing and maintaining a vision for how your company’s standard operating procedures are set up. You want your SOP to always be “working” to create more margin at multiple junctures—like pricing, payables and job costing.
  • You, or your partner, should be the comptroller for both strategic and protection reasons. Remember to work on your business, not in your business.
  • Audit every incoming supplier invoice for accuracy. Have a systematic, “air-tight” process in place that allows your operational staff at both the order-entry/purchase-order stage and the accounts payable stage to do this with every invoice.

We performed a year-long survey about three years ago and discovered that, month-in and month-out, 30% of our incoming supplier invoices were priced higher than they were supposed to be not intentionally, but nonetheless, 30 out of every 100 invoices came in too high.

  • Establish freight agreements with your largest suppliers so that freight becomes a known, quantified expense that can be easily checked during the accounts payable process. And further, make sure that freight is always “costed” to material.
  • Pay your invoices to take discounts and negotiate better terms when making larger stock purchases. This creates a significant pop in both monies saved through discounts and cash flow through extended terms.

In 2020 alone, these action steps (auditing supplier invoices, freight agreements and invoice discounts) saved Frazier’s roughly $78,000. Indeed, our operational staff substantially pays for itself by simply managing these three key areas.

Kevin Frazier is director of operations for Knoxville, Tenn.-based Frazier’s Carpet One Inc., a fourth-generation flooring business started by his grandfather and great-grandfather in 1953.

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June 7/14 2021

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