Playing the Numbers
“You cannot control your expenses unless you know specifically what they are.”
Research shows that the neuronal pathways that cause many types of addiction, such as heroin, are the same ones that cause us to binge watch a TV show. With the volume of Shark Tank I have watched, I think that I am starting to agree! Anytime I want to be reminded how difficult a person’s life can be with me in it, I just need to put on Shark Tank while my daughter or fiancée are home; they’re happy to let me know! I can see myself watching on my phone in the car…but that may be coming.
While the science of the parallels between my Shark Tank addiction and heroin use may be sound, I don’t see nearly the harm from the binge watching—I feel like I’m learning a lot about my own business by watching other people try to sell theirs. Everyone looks at a business differently and as you learn in “The Tank;” one interested shark does not make for a feeding frenzy. I want to be the business that sharks would fight for.
The contestants that make the biggest splash are the ones with something exciting to pique a shark’s interest. They either have exploding sales, a patent that’s worth a ton of money, or a record of success in the shark infested waters of entrepreneurism. Whatever angle an entrepreneur uses to get a shark’s attention, I find they all have one thing in common: they know their business’ numbers!
It’s easy, when we think about our businesses, to get caught up in the top lines of your profit & loss statement. I’m sure we all know what our sales are in a given year and (I hope) the gross profit off those sales. But what about the numbers right below that line? They count too, and more than you might think!
Like most independent paint retailers, the biggest line items on my profit & loss (P&L) statements are payroll and rent. Together they make up about half of my total expenses with my rent being about 9% of my sales. That is roughly in line with data I have seen on independent paint retailers. But if rent and payroll (by the way, that payroll number should include yourself!) make up fully half of my expenses, that means that all the other services I buy to keep my stores running also add up to half my total expenses. Since I need to sell a ton of gallons to cover half of my total expenses, I like to understand what makes up those numbers.
Though I only have two stores, I spent over $6,000 in 2017 to provide phone and Internet service to both locations. It used to be worse! Thankfully prices in that area have come down. Another $15,000 was spent on utilities and still another $15,000 on a line that I call “office.” Office is kind of a catchall that includes postage, paper, ink, computer repairs, shopping bags, etc. Over $20,000 for insurance, $15,000 in credit card processing fees, my accountant wont work for free despite my protests and over $25,000 per year just for colorant (I hope you’re keeping track of your colorant as an expense)!
How I work to keep these numbers low is a topic for when I’m given more 750 words, but the point is that you cannot control your expenses unless you know specifically what they are. You need to have them presented to you regularly, totaled with like items together! Even if you are a smaller independent who keeps his own checkbook (as I do).
When you’re swimming in the Shark Tank, they will want to know all these numbers so they can assign a value to your business. But even if you don’t get your shot to hook a shark, you’ll want to know these numbers because they are what make up your profit (or explains your loss). If you are a large dealer you likely have someone reporting these numbers to you on a regular basis or you won’t be a large dealer for long. If you are a smaller dealer, report them to yourself or have your accountant do it for you: but no matter what you need to know them.
I’m not sure that my two stores will ever make it onto an episode of Shark Tank, and I don’t see Mark Cuban and Kevin “Mr. Wonderful” O’Leary fighting for a share of my business anytime soon. But if I’m wrong and I get into a shark fight, I’ll use my numbers as bait to hook the biggest fish!
Mark Lipton is the 4th generation owner of Tremont Paint in New York City as well as a consultant to the coatings industry. firstname.lastname@example.org