Kitchen & Bath Business April 2021 - 25

It would probably take another one to two years
to sell the commercial property.
The right marketing strategy would attract new
business to achieve his peak sales volume.
LACK OF LIQUIDITY

Besides the absence of mobility, owning a building that houses your business can also present a
liquidity issue. Suppose you bought a building for
$500,000 with a $100,000 deposit. Then a recession sets in within a year or two. Sales are running
about 15% below the norm for six months in a row.
Weaker cash flow is making it difficult to meet
your vendor obligations on time.
Sure, you can cut back on advertising and lay
off staff, but the most successful kitchen and bath
owners consider these two areas to be the " muscle "
in their operations. Indeed, maintaining their marketing budget and retaining the services of their
most effective employees is how successful businesspeople gain market share during a recession.
Owners need to remember that a successful business can be an engine for wealth, but that engine
needs fuel to keep producing profits.
One element of that fuel is cash. In good times,
customer deposits provide the necessary cash for

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working capital. In bad times, owners need a liquid reserve of at least 12
months of fixed overhead expenses (including owner's market-rate salary)
that can be tapped to keep the engine running. It is because buildings are not
liquid that SEN Design Group suggests alternate investment strategies for
most showrooms.
KNOWING WHEN TO BUY

A business owner is in a good position to purchase commercial property
after having been successful in parking 12 months of operating expenses in a
liquid portfolio and delivering an excellent annual return. At this point, if you
still want to own your own building, we recommend following these steps to
ensure your business' financial health:
Establish a separate company that would purchase and own the commercial property.
Document a formal five-year lease between the two businesses, one that
would pay rent to the other.
Stipulate a market-rate monthly rent and a 2-3% annual escalator.This legal
structure protects your personal assets (the building) from lawsuits that
might be leveled at your business. After all, we do live in a highly litigious
society, so taking this action makes good business sense.
Based on my discussions with showroom owners across the country, many
of them lack the knowledge of business management fundamentals and the
data they need to make sound financial decisions. Many rely on outstanding
instincts and skills as far as design professionalism and knowledge of fashionable products, but it takes financial literacy, key metrics and clear milestones
to make big business decisions such as purchasing commercial space.
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3/23/21 5:04 PM

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Kitchen & Bath Business April 2021

Table of Contents for the Digital Edition of Kitchen & Bath Business April 2021