The success of our businesses is greatly enhanced by a strong bottom line. The Tuchman Advisory Group (T.A.G.) is extremely fortunate to have had long-time T.A.G. member Terry Quinn, C.O.O. of M.W. Cleaners in Houston, Texas, working with us on our financials. Every month all T.A.G. companies enter their numbers on detailed spreadsheets in Dropbox. Terry was instrumental in working with our members to develop these spreadsheets, and over the years has presided over the financial-analysis discussion at our meetings.
Terry’s approach to reviewing the numbers is worth sharing as we enter the New Year. He prepared a PowerPoint presentation, which I have adapted as the basis for this comprehensive question-and-answer article about numbers that serves as our T.A.G. members’ guide.
The first key point is that you must drive your financials before they drive you!
Terry offered the simple truth that “there is no doubt that planning and budgeting are the keys to having a successful year. It is essential to know where you are going so you can develop a plan to achieve your goal.”
What should this business plan include?
“The plan should be strategic and measurable. It must be communicated to your entire organization. The plan results must be reviewed with your organization routinely. It must be incentivized so that all of your employees can realize the benefits of your plan.”
Why is it important prior to the beginning of each year for the company to develop a plan/budget?
“The budget must include agreed-to standards for your organization.
There are several that need to be considered, including the following:
• Quality Standards
• Efficiency Standards (including pressing and tagging speed)
• Customer-Service Standards
• Wage And Salary Standards
• Overtime Standards.”
How does the designated individual at the company begin to develop the plan/budget?
“The first thing is to start with an acceptable annual return (dollars and percent of sales). Remember that acceptable returns can be adjusted if you own the real estate. The majority of the budget is driven by sales, the largest cost being labor.”
What would you say are the key points that are critical to the success of a company’s sales/revenue plan?
“One should be sure to use historical sales information. It is vital to constantly evaluate the local market. It is necessary to know your competition and their effect on your business.
And remember to review demographics to determine any expansion plans. Ask yourself if you can increase existing customer sales with new products. Be sure to develop a store, and company-wide marketing plan. It is important to determine when and how much to increase prices for the year ahead. Do not forget to include both dry cleaning and laundry pieces and to prepare a budget for every location and every route.”
Once the plan is formulated, how do you communicate the plan to your entire team?
“In order for the plan to succeed it must be communicated to each location, route manager and plant manager. Make sure to develop a short-term incentive plan for sales that includes monitoring the sales price and piece count. It is absolutely necessary to focus on underperforming stores and routes immediately. Develop special procedures for new customers. Increasing sales depends on ensuring that your retention program is being implemented quickly and effectively. Developing a plan to communicate quickly with customers ‘at risk’ is vital to a successfully implemented plan.”
Is there anything that should be kept in mind when developing the budget?
“We know one constant is that direct labor costs are the largest expenditure in all of our budgets. The company budget should include these five key performance indicators:
1) Efficiency Standards (Team POH)
2) Average Wage Per Hour
3) Revenue Per Piece (dry cleaning, laundry and overall price)
5) Bonus Payments.”
Terry adds “you must ensure that you have a budget for the following categories and a labor standard as a percent of sales:
• Dry Cleaning Labor (as a % of DC sales)
• Laundry Labor (as a % of laundry sales)
• Alteration Labor (as a % of alteration sales)
• Counter Labor (as a % of total sales)
• Route Labor (as a % of route sales)
• Household/Other Labor (as a % of other sales)
• All Salaried And Office Personnel (as a % of total sales).”
Is there anything else that should be kept in mind?
“In making your plans remember that labor includes benefit support costs, which are ever increasing. This includes upward of 30% of direct labor costs and medical benefits. You must decide what opportunities for coverage you will provide. Do not forget to factor in: payroll taxes, 401K company match, vacation and sick-day policy and training programs.
Remember that all other cost categories need to have a detailed budget backed by support. The main items to consider are:
• Customer Service/Claims
• Repairs and Maintance
In closing, how often should companies review their numbers?
“The financials should be reviewed monthly. General planning looked at every six months.
Labor costs on a bi-weekly basis that includes: efficiency, quality, overtime and wages.”
It is my hope that this planning-and-budget framework provided by Terry Quinn will help all of us in a positive way in 2018. As you can see, Tuchman Advisory Group has been extremely fortunate to have had Terry Quinn as our financial consultant. He continues to be an outstanding member of our industry as we benefit greatly from Terry’s insights and leadership.