Prepare Your Firm for the Unexpected

The events of September 11 have shown us just how quickly things can change, personally, politically and economically. While we would hope that we'll never again have to face a tragedy like this one, as business managers in the kitchen and bath industry, we must be prepared to adjust and adapt to whatever situation confronts us.

The key to adapting to unexpected situations that arise in our business is preparation and planning. To that end, it's a good idea to look at a few key elements that will help us to know where we stand and how to react to the developing business climate.'

First, we need to be able to look ahead and make a reasonable judgment about the future of our business. We need to understand the cost and expense ramifications of changes in our revenue streams. We need to know what the real and accurate cost of operating our business is. Finally, we must be prepared to fulfill our role as leaders.

There are several things you should be paying attention to in order to get a feel for what's in store for your business. On the "macro" level, one of the best indicators of what's ahead is the Consumer Confidence Index (CCI).

Typically, the work we do falls into the category of discretionary expenditures, and because of that, most of this work can be postponed by our clients if they're feeling uncertain about their future. From observing the impact of falling consumer confidence on our business, it becomes clear that when these indexes fall over an extended period of time (usually several months), so, too, does traffic and business fall off for a time.

While most localities don't have anything similar to a Consumer Confidence Index, there are usually state and local government economists who will produce forecasts of the outlook for regional areas. It would seem obvious that if these forecasts are for growth in the local economy and employment, that consumers our clients will have the confidence to proceed with remodeling projects.

The least reliable indicator of future business levels is the local media reports. All too often, a big order for a local manufacturer will receive a banner headline and coverage out of proportion to the impact that this will have on the local economy. Conversely, you might see a headline blaring that a local company is laying off 40% of its staff, when the detailed account shows that the company only employs 25 people. Keep in mind that the objective here is to increase ratings or sell newspapers.

Finally, you should track your own indicators, such as floor traffic, to keep abreast of how business is doing. Make it a practice to ask members of your staff what their impressions are of the potential customers who are coming into your showroom. Look for various indicators that you can track over a long period of time. Comparing these statistics month to month and year to year will allow you to develop a feel for the relationship they have to your future business.

Another factor to consider is that, while remodeling projects can be deferred in many cases, most of these projects will still eventually be done. What this means to you is that slow times often result in pent-up demand breaking loose somewhere down the road.

Making Adjustments
Assuming that we can make reasonable judgments about the future business climate, we then must translate that into action. In order to do this, we have to have accurate information about our businesses and what the result of various potential moves might be. The starting point for this is to have a thorough understanding of the relationship between your revenues and expenses.

In the area of costs, you should be aware of the cost per day of each of your trades (carpenters, plumbers, etc.), as well as the monthly cost of various staff functions. By knowing this information, you'll be able to make informed decisions about scheduling work and adding or reducing staff.

You should also be aware of the relationship between your revenues and expenses. Some costs and expenses, such as construction materials, job labor and commissions, will normally be reduced, along with any reduction in revenues. These are referred to as "direct" costs, and it's important to know how these costs will actually respond to changes in sales revenue.
The other grouping of costs is normally referred to as "fixed" costs or expenses. These items, such as utilities, rent and office staff salaries, tend to remain the same (in the short run), regardless of the level of revenues. Note that if your field labor is on your payroll, some of those costs may fall into the fixed category rather than the direct type.'

If you anticipate a significant change in future revenues, these areas must be addressed. Failure to adjust these areas to the level of revenues will result in deterioration of customer service or a drain on cash flow. Making adjustments to this area of your business is by far the most challenging of balancing acts, and is something that should be constantly evaluated.

You need to review your financial statements carefully and regularly not just the "bottom line," but each costs and expense that makes it up. If you know what these cost and expenses are, you'll be much better prepared to deal with the changes that will inevitably present themselves.

As a kitchen and bath firm owner or manager, you're in a unique position to influence the future of your business. Think back to your experiences with "authority figures," such as teachers, bosses and clergy. We all tend to attribute knowledge and wisdom (often unrealistically) to such individuals.

It's important that you be aware of this phenomenon. Because of your position, your employees will look to you for answers and direction, particularly in times of change and uncertainty.

The role and responsibility of leadership is to direct and inspire those who have chosen to be a part of your organization. Whatever your leadership style, it must instill confidence in the future and a unified effort to accomplish the goals of your organization. Never underestimate the impact of what you say or do.'

Finally, do not underestimate the power of optimism and willpower. Most businesses fail when the leader becomes discouraged and gives up.