You are probably familiar with the feeling of driving up to your favorite restaurant only to find the “Out of Business” sign hanging in the window. So, what keeps some eateries open for years while others seem to close almost before they open?
Imagine two bistros sitting on the same street corner. Each parking lot is filled to capacity during the noon hour. The wait staffs are equally attentive. The quality of food is impeccable at both. At the end of the rush, there is the same amount of cash in the tills of both restaurants.
Yet, one chef frantically counts the cash to see if there is enough to appease the landlord that is standing in front of him asking why the rent is three days late while his neighbor calmly inks the check that funds his monthly retirement contribution.
What’s the difference? One is a chef and the other is a businessperson who happens to cook.
With the restaurant business, specifically, a banker shed some light on the subject. Her comment was that controlling food costs is the key to being a successful restaurateur. The reality, as her statement indicates, is that the financial success of an eating establishment probably has at least as much to do with an adding machine as it does with a skillet.
That might sound gastronomically absurd, but it is probably true.
A refuse equipment salesman said that with the same number of customers, the same rate structure and the same landfill costs, half of his customer’s businesses were paycheck-to-paycheck and the other half made good money.
What’s the difference? Again, half of his clients were garbage collectors and the other half were businesspeople who happened to collect garbage.
In the refuse business, one culprit of poor returns is often the density of its customers. What happens when a customer calls to begin service at a location that is 3 miles beyond your nearest stop?
The less successful owner probably would take on the customer and be excited that he has one more customer on his route. The astute proprietor would analyze the account in terms of how much it would cost to serve the account.
He might well determine that the extra fuel and labor might not only fail to meet his profit-margin requirements, but that in fact, he might spend more money to service this new account than he will take in from the monthly invoice.
This pattern in business is no different from people and their personal finances. One family earning $40,000 a year barely keeps food on the table while the family across the street brings home the same $40,000 a year but has a fully funded IRA and is able to take a family vacation each year.
What’s the difference? Unfortunately, there is no one and/or easy answer. Each industry and situation has its own aspects. This article seeks only to provide a few examples to initiate a new way of looking at things or to hone one that already exists.
Finally, one last example. The owner of a sign company was discussing the merits and demerits of attaching a small version of his logo and phone number on each sign he created.
He commented that in the last four years he had designed and installed about 4,000 signs.
Just think, although some customers would not want his logo on their signs, that would probably be in the neighborhood of several thousand free mini billboards. To that point he had not attached his logo because he didn’t want to “screw-up” the artwork. He placed a greater importance on artwork than on free advertising. Certainly, neither is right or wrong but just a choice. But a choice that might have direct financial implications.
As we have pointed out, there are chefs and then there are businesspeople who happen to cook, the sign company owner might need to ask the question, “Am I an artist or am I a businessperson who happens to design?”
Damon Carson is a Longmont business owner and small business investor who can be contacted at firstname.lastname@example.org.