the Dairy Cream story
cript 36
by Jim Salinas At the close of each year, many of us spend some time reflecting on our personal and professional goals. A few years ago, one of our readers wrote to columnist, Jim Salinas feeling discouraged about her business. The answer that followed has become a “classic Jim” story that we felt was so appropriate for this time of year. We hope that it will resonate with some of you again today.
cript 43
I am getting discouraged. I have now owned a shop for four years. Even though I thoroughly enjoy it, I am not making much money out of it, and I am starting to consider bailing out. Do you have any words of wisdom for me? “Bailing out” may be a good idea. This would be as much of a personal discussion as it would be a business decision. I wouldn’t begin to tell you what you should do! However, before you make this decision, you need to hear my “Dairy Cream” story. This is a true story and should strike a chord with many shop owners who find themselves in situations similar to yours. Some time ago, I was working with a good customer that I knew well. I could sense that she was down, not at all the high energy, upbeat person that I had come to know. Jim: Dorothy, what’s wrong? I can tell that something is bothering you today. Dorothy: Jim, I might as well be working for the Dairy Cream! I’m putting my heart and soul into this business, and I doubt I’m making minimum wage out of it. I’m starting to question why I’m doing it! J: Dorothy, if you are serious, I can show you how to have a fabulous liquidation sale. Within 90 days you will be free from the business, debtfree and have money in the bank. If that’s what you want to do, you can do it. But before you make that decision, let’s take a look at the situation and make sure that you are looking at the situation accurately. How long have you had this business? D: Four years.
J: What size investment did you start your business with? D: $25,000 J: Have you put additional personal monies into the business over the four years, or has it been self-funding? D: Well, I haven’t had to put any more personal monies into it, but darn near all of my sales revenue goes to cover expenses and to pay you vendors! Sometimes I think my vendors are the only ones making any money out of my business! J: Okay, you started with $25,000, and you now have $125,000 worth of inventory (cost). Are you current with all of your vendors? D: Yes, I am. J: So, you started with $25,000 of your own money four years ago, and using your vendors’ credit terms and your customers’ cash, you now own $125,000 in inventory? D: How did you know that’s how much inventory I have? That’s extremely close; we inventoried recently. J: I’ve been in the industry a long time, Dorothy. I just know! Dorothy, I can show you how to conduct a going out of business sale which will convert that $125,000 in inventory into approximately $160,000 in cash within 90 days. Granted, the retail value of that inventory is worth approximately $250,000, but with some good planning and a lot of work you can get $160,000 within three months if that’s what you really want. But, consider this — in four years’ time, you have increased the value of your investment from $25,000 to $160,000.
30 AMERICAN QUILT RETAILER DECEMBER 2014
You have added $135,000 in equity to your business in four years by using other people’s money. So, maybe you have only made minimum wage over the last four years, but you will have $135,000 in the bank (after you’ve paid yourself back the $25,000 with which you started) 90 days from now if you decide to bail out. How much money would you have in the bank if you had been working for the Dairy Cream for the last four years? D: Probably none. J: Well, the story is not over, Dorothy! How old are you? D: I’m 55. J: So, when you are eligible for full Social Security retirement benefits at age 66, what does your Social Security annual statement estimate the value of your monthly benefit to be? D: About $1,200 per month as I recall. J: Okay, Dorothy, let’s get my laptop out and go to work. Let’s assume that we take the $135,000 in equity that you created in the last four years and invest it rather conservatively over the next 11 years so that it grows by 6 percent per year. Granted, there is no guarantee that it will, but this is actually less than the historical average! If your $135,000 does grow by 6 percent over the next 11 years, you will then have $256,270. Now, let’s see what $256,270 would give you in monthly income for the rest of your life if you were to buy a simple life annuity at that time. My goodness, Dorothy, look at this! You would receive $1,545 per month for the rest of your life regardless of how long you were to live. By the way, this estimate is based on the current
very low interest rates that we are living with. Surely interest rates will rise in the future and only enhance your monthly benefit. Do you realize what this means? It means that even though you owned a business for only four years, you have created the wherewithal to create a monthly retirement benefit that is, at a minimum, 29 percent larger than your Social Security benefit, a benefit that you contributed to your entire working career! Are you really sure that you would have been just as well off to have worked at the Dairy Cream the last four years?
Volume 20, Issue 120 December 2014 EDITOR Heidi Kaisand
HOW TO REACH US To subscribe, change an address, renew your subscription or ask a question visit www. AmericanQuiltRetailer.com or email [email protected]
D: Jim, you are about to get kissed! So, that’s the Dairy Cream story. I’m not suggesting that shop owners be content with the future value of their business equity. Good fundamentals can produce respectable incomes for shop owners. Respectable monthly incomes should be the goal of all shop owners. The Dairy Cream story simply illuminates the power of sweat equity, the power of using other people’s money in building a business, and of course, the time value of money.
American Quilt Retailer
PO Box 80014 — Keller, Texas 76244 817-562-4212 www.Facebook.com/AmericanQuiltRetailer
It does puzzle me that so many shop owners are so good at building their balance sheets but so bad at creating income. The two main reasons for this I suspect, are poor inventory management and profit gross margins that are well below benchmark. A better grasp of retail fundamentals would enhance the financials of so many businesses! Be a merchant, not a shopkeeper. It pays better!
The Answer Books by Jim Salinas
ER BOOK THE ANSWrs to
Expert advice from our trusted industry professional
Answe ss questions your busine Ask Jim” from “Just s By Jim Salina
Reprinted from
d 1
k_Cover.ind
AnswerBoo
Jim Salinas has over 40 years of experience in the fabric industry. He was a store manager and then district manager with Hancock Fabrics for 17 years and later vice president of merchandising and marketing for Cloth World, director of fabric merchandising for Michael’s Arts and Crafts and executive VP of House of Fabrics. He has been a sales associate for Moda Fabrics since 1997 and currently resides in Dallas, Texas.
PUBLISHER Ranelle King
lt Retailer
American Qui
$59.95 each
Inventory Profit Margins Merchandising Pricing Strategy Open-to-buy Plan Business Management Asset Allocation Models Investment per square foot ...and so much more!
AM 10/3/07 9:25:13
Sold exclusively at
AmericanQuiltRetailer.com DECEMBER 2014 AMERICAN QUILT RETAILER 31
by Jim Salinas At the close of each year, many of us spend some time reflecting on our personal and professional goals. A few years ago, one of our readers wrote to columnist, Jim Salinas feeling discouraged about her business. The answer that followed has become a “classic Jim” story that we felt was so appropriate for this time of year. We hope that it will resonate with some of you again today.
cript 43
I am getting discouraged. I have now owned a shop for four years. Even though I thoroughly enjoy it, I am not making much money out of it, and I am starting to consider bailing out. Do you have any words of wisdom for me? “Bailing out” may be a good idea. This would be as much of a personal discussion as it would be a business decision. I wouldn’t begin to tell you what you should do! However, before you make this decision, you need to hear my “Dairy Cream” story. This is a true story and should strike a chord with many shop owners who find themselves in situations similar to yours. Some time ago, I was working with a good customer that I knew well. I could sense that she was down, not at all the high energy, upbeat person that I had come to know. Jim: Dorothy, what’s wrong? I can tell that something is bothering you today. Dorothy: Jim, I might as well be working for the Dairy Cream! I’m putting my heart and soul into this business, and I doubt I’m making minimum wage out of it. I’m starting to question why I’m doing it! J: Dorothy, if you are serious, I can show you how to have a fabulous liquidation sale. Within 90 days you will be free from the business, debtfree and have money in the bank. If that’s what you want to do, you can do it. But before you make that decision, let’s take a look at the situation and make sure that you are looking at the situation accurately. How long have you had this business? D: Four years.
J: What size investment did you start your business with? D: $25,000 J: Have you put additional personal monies into the business over the four years, or has it been self-funding? D: Well, I haven’t had to put any more personal monies into it, but darn near all of my sales revenue goes to cover expenses and to pay you vendors! Sometimes I think my vendors are the only ones making any money out of my business! J: Okay, you started with $25,000, and you now have $125,000 worth of inventory (cost). Are you current with all of your vendors? D: Yes, I am. J: So, you started with $25,000 of your own money four years ago, and using your vendors’ credit terms and your customers’ cash, you now own $125,000 in inventory? D: How did you know that’s how much inventory I have? That’s extremely close; we inventoried recently. J: I’ve been in the industry a long time, Dorothy. I just know! Dorothy, I can show you how to conduct a going out of business sale which will convert that $125,000 in inventory into approximately $160,000 in cash within 90 days. Granted, the retail value of that inventory is worth approximately $250,000, but with some good planning and a lot of work you can get $160,000 within three months if that’s what you really want. But, consider this — in four years’ time, you have increased the value of your investment from $25,000 to $160,000.
30 AMERICAN QUILT RETAILER DECEMBER 2014
You have added $135,000 in equity to your business in four years by using other people’s money. So, maybe you have only made minimum wage over the last four years, but you will have $135,000 in the bank (after you’ve paid yourself back the $25,000 with which you started) 90 days from now if you decide to bail out. How much money would you have in the bank if you had been working for the Dairy Cream for the last four years? D: Probably none. J: Well, the story is not over, Dorothy! How old are you? D: I’m 55. J: So, when you are eligible for full Social Security retirement benefits at age 66, what does your Social Security annual statement estimate the value of your monthly benefit to be? D: About $1,200 per month as I recall. J: Okay, Dorothy, let’s get my laptop out and go to work. Let’s assume that we take the $135,000 in equity that you created in the last four years and invest it rather conservatively over the next 11 years so that it grows by 6 percent per year. Granted, there is no guarantee that it will, but this is actually less than the historical average! If your $135,000 does grow by 6 percent over the next 11 years, you will then have $256,270. Now, let’s see what $256,270 would give you in monthly income for the rest of your life if you were to buy a simple life annuity at that time. My goodness, Dorothy, look at this! You would receive $1,545 per month for the rest of your life regardless of how long you were to live. By the way, this estimate is based on the current
very low interest rates that we are living with. Surely interest rates will rise in the future and only enhance your monthly benefit. Do you realize what this means? It means that even though you owned a business for only four years, you have created the wherewithal to create a monthly retirement benefit that is, at a minimum, 29 percent larger than your Social Security benefit, a benefit that you contributed to your entire working career! Are you really sure that you would have been just as well off to have worked at the Dairy Cream the last four years?
Volume 20, Issue 120 December 2014 EDITOR Heidi Kaisand
HOW TO REACH US To subscribe, change an address, renew your subscription or ask a question visit www. AmericanQuiltRetailer.com or email [email protected]
D: Jim, you are about to get kissed! So, that’s the Dairy Cream story. I’m not suggesting that shop owners be content with the future value of their business equity. Good fundamentals can produce respectable incomes for shop owners. Respectable monthly incomes should be the goal of all shop owners. The Dairy Cream story simply illuminates the power of sweat equity, the power of using other people’s money in building a business, and of course, the time value of money.
American Quilt Retailer
PO Box 80014 — Keller, Texas 76244 817-562-4212 www.Facebook.com/AmericanQuiltRetailer
It does puzzle me that so many shop owners are so good at building their balance sheets but so bad at creating income. The two main reasons for this I suspect, are poor inventory management and profit gross margins that are well below benchmark. A better grasp of retail fundamentals would enhance the financials of so many businesses! Be a merchant, not a shopkeeper. It pays better!
The Answer Books by Jim Salinas
ER BOOK THE ANSWrs to
Expert advice from our trusted industry professional
Answe ss questions your busine Ask Jim” from “Just s By Jim Salina
Reprinted from
d 1
k_Cover.ind
AnswerBoo
Jim Salinas has over 40 years of experience in the fabric industry. He was a store manager and then district manager with Hancock Fabrics for 17 years and later vice president of merchandising and marketing for Cloth World, director of fabric merchandising for Michael’s Arts and Crafts and executive VP of House of Fabrics. He has been a sales associate for Moda Fabrics since 1997 and currently resides in Dallas, Texas.
PUBLISHER Ranelle King
lt Retailer
American Qui
$59.95 each
Inventory Profit Margins Merchandising Pricing Strategy Open-to-buy Plan Business Management Asset Allocation Models Investment per square foot ...and so much more!
AM 10/3/07 9:25:13
Sold exclusively at
AmericanQuiltRetailer.com DECEMBER 2014 AMERICAN QUILT RETAILER 31
