Producing Strong Numbers
Where would you go if you wanted to research something you wanted to share—no, needed to share!
Where would you go to find the critical information you knew your audience needed to be exposed to in a way they would appreciate and understand? Where do you find what you know they need to know? A message critically important to their success in the future and as such, a message you feel compelled to share with them here in the present?
You could call mentors and friends, trusted business associates and members of your support system. Or, if you’re me, you could lean forward, come out of your seat ever so slightly, reach up and over to the right to the section of your bookcase where the eight-volume series of automotive shop management books have been patiently waiting for just this kind of research and pull out the volume entitled The High-Performance Shop.
Why? Because it’s got a chapter filled with exactly the information you need to share and because unlike just about everything else, the content is essentially timeless. The principles, formulas and strategies haven’t changed since the material was first submitted more than a decade ago.
And no, this is not a shameless plug designed to sell more books! It just took a long time and a lot of work to condense the research I’d done into language and a framework I was confident people like you and me would understand and appreciate. It’s hard to find the shortest, most direct way to say anything if you are forced to paraphrase your own thoughts and ideas in the process. Regardless, and at the risk of plagiarizing myself, I’m going to try.
First, it’s reasonable to assume that no one goes into business thinking about when and how they plan to exit the business! Getting out isn’t even remotely close to being on your radar when all you are thinking about is building a successful business—a business that will work as hard for you as you are likely to find yourself working for it.
And yet, you are likely to find that thinking about how and when you will exit the business and who will succeed you before you are confronted with the reality of stepping down is just as important, if not more!
As I wrote then and believe even more completely now that I am living it, “Waiting until it is too late to consider what that means (leaving the business)—waiting too long to plan, do or act for the future—is not the most effective way to secure the reward of a lifetime of long hours, sacrifice and hard work.”
It starts with respecting the numbers that represent your business's health and resiliency. It starts with understanding that capitalism is all about building wealth—the kind of wealth it will take to support us through our retirement when we are no longer able to generate an income.
There are essentially two ways we can enjoy the fruits of our labor and the benefit of our efforts. We can bury personal expenses in the general administrative and operational expenses supported by the business, resulting in a “higher” lifestyle and lower tax burden. Or, we can keep a “cleaner” set of books that represents only those expenses that are legitimately experienced in the administration and operation of the business, which is likely to show higher income, resulting in a somewhat greater tax burden.
Each is accompanied by a series of logical consequences. In the first, you show less income and pay lower taxes, while still enjoying the benefits of greater profits through the expenses buried in the business (expenses that are coming out of the business and not coming your personal pocket). And, in the other, the business is showing higher profits, paying more in taxes, while still providing you with a draw or a salary large enough to support many, if not all, of those same expenses.
There are other consequences as well. Consequences too many of you may have already encountered. The first thing many of us have learned about operating a profitable automotive service business is that the best way to ensure a bank’s willingness to offer you money is to demonstrate that you don’t really need it!
Stated another way, the more successful your financial statements suggest you are, the less risk the financial institution you are dealing with sees in their relationship with you. Thus, the more likely they are to invest in your future in terms of lines of credit, operating capital, expansion and a host of other financial instruments designed to help you operate, expand and grow.
The lower the net, the skinnier the profits, the more likely they are to pass! And, if they don’t pass, the more likely it is for whatever they are willing to invest to cost you more, in terms of significantly higher interest.
Perhaps, more importantly, as we will see in the next installment of this series, the valuation of your business will reflect whatever your current financials reflect. High profits and strong financials will almost certainly result in a higher valuation, a higher asking price, and finally, a higher purchase price that translates almost perfectly into a more secure financial future.
It’s perfectly alright for you to ignore whatever it is your financials are trying to tell you. I’ve seen hundreds, perhaps even thousands, of shop owners do exactly that. I’ve been in shops when their financial statements arrived, watched them tear open the envelope, pull the statements out, ensure the bottom-line number isn’t in brackets and then slide them back into the envelope, thinking the analysis is complete!
Just remember that it isn’t alright, nor is it even likely, that that kind of superficial analysis will work for whoever it is that is likely to succeed you!