Financial Comparisons Trigger Advances

The NKBA Annual Design Competition induces comparisons, invites the sharing of ideas and inspires others to excel. These things are as important as the resulting publicity it garners for the winners, NKBA and the industry.

Indeed, it is exactly that kind of stimulation that is needed if kitchen and bath firm owners are going to sharpen their business acumen and improve their bottom lines. Lack of business know-how is conceded by many to be the primary reason why dealers in this industry fail to reach their profit potential. In my view, major strides in growth and profitability can be achieved when small groups of dealers compare financial statements and work together to improve their respective firms' performances.

Working Together
Many dealers understandably keep their bottom-line results a secret because that's "privileged information" known only to them, their accountant, their spouse and the IRS. But, the underlying reason may be that they are unsure if the results are really any good.
At best, dealers may share sales volumes and gross profit margins. Out of pride, these numbers are often inflated and hardly the best yardsticks of success.

But, what if dealers could get beyond any immediate embarrassments and compare their financial results to similar operations in other parts of the country? The following represents the tremendous gains that could be achieved.

  • Understand Financial Statements. Too many dealers impulsively make important business decisions based upon their checking account balance. And, too many dealers use a cash method of accounting that seriously overstates the firm's financial position. To reach their full potential, dealers need to balance their design expertise with business smarts. That process begins with knowing how to read, analyze and use financial statements to make sound business decisions.
  • Secure Better Advice. Accountants typically have an arms-length relationship with kitchen dealers. By being more financially savvy, dealers will ask better questions of their accountants and advisors. As a result, they will receive more pinpoint advice, better service and greater value from these professionals.
  • Discover Better Business Models. Most dealers think the fastest way to increasing their net profit is by adding more salespeople. Frequently, in such growth scenarios, gross profit margins plunge and owners find themselves in a sales manager's role that they may neither enjoy nor be effective at. One major benefit of comparing financial statements with other dealers is the discovery of more profitable business models that also may be more suited to an owner's goals, skills and resources.
  • Validate Higher Gross Profit Margins. The perception that "it is impossible to earn a 40% gross margin in my market" will change immediately upon seeing that one or more similar-sized operations in a roundtable group exceeded this number in markets less affluent than their own. Indeed, it will trigger the motivation to learn how these margins were earned.
  • Learn More Effective Marketing Strategies. Ever wonder why customers will continue to buy projects from the highest-priced firm in town? Business experts agree on two answers: (1) because there is a "perceived value" and (2) the firm is a more effective marketer than area competition. Most dealers don't allot enough dollars and time to developing what may be largely inexpensive, but highly effective marketing vehicles to convey the value of doing business with their firms. Discovering these techniques is a natural byproduct of financial comparisons conducted in intimate roundtable groups.
  • Gain Greater Staff Productivity. How is it that one or more dealers in a roundtable group can earn 50% more gross profit dollars per staff person? Any of the following could be important factors: (a) better quality salespeople can sell at higher margins, (b) staff is organized more efficiently, (c) subcontractors are used instead of payroll installers, (d) excellent management systems plug profit leaks, (e) incentive systems are based on gross profit, (f) monthly in-house training classes are conducted for all staff, or (g) all of the above. Imagine the impact that successfully transferring a few of these ideas could have on another dealer's business.
  • Streamline Overhead Expenses. Financial comparisons will yield where the most successful owners invest their overhead dollars. These expense comparisons can be very helpful in focusing where a dealer can make substantial improvements in his or her own operation.
  • Increase Owner's Return. Just how much in the way of a market-rate salary, perks and net profit can a dealer make in this industry? Most owners probably would like to know, and that, ultimately, may be the single, most important benefit of a dealer financial comparison. By not knowing, dealers lack a clear vision of financial success and a concrete plan to achieve it. Intimate financial comparisons with other dealers in the industry empower owners to establish compelling new goals, prioritize the means to achieve them and serve as inspiration to stay the course.

Like with design contest entry comparisons, financial comparisons will uncover information and ideas that can fire up the competitive spirit so dealers reach new heights of performance. In the final analysis, the need for greater business knowledge and improved financial performance should outweigh any dealer's fear of embarrassment to participate in such programs. The opportunity for advancement is just too great.