Kitchen & Bath Business July/August 2021 - 27

management tool for a business in crisis,
and it should be updated monthly, weekly
and daily if necessary.
DEVELOPING A CONTINGENCY PLAN
One of the many values of having a three-year
profit plan or budget in place is the ability to
quickly determine " what if... " scenarios. This
plan allows you to then take appropriate action
so your corporate feet do not get set in concrete.
Indeed, we recommend that such " what if "
contingency budgets be prepared as an immediate
byproduct once your annual threeyear
budget is completed. For example, once
you have saved your original spreadsheet, you
can set up an emergency budget based upon
a downsizing overhead and a desired, minimum
8% net profit. Then, " reverse engineer "
this format using this critical management tool
to establish the minimum income requirement
for the downsized operation.
Alternatively, you can develop an emergency
budget based upon recessionary conditions
where overhead has been budgeted down to its
absolute core, leaving enough dollars in marketing
to drive in customers and gain market share
as competitors cut back on this overhead account. Owners should cut their
salary to just cover their basic personal overhead - no frills. And plan for
no profit. Then " reverse engineer " using this three-year budget tool to again
establish the minimum company income requirement.
However, professional crisis managers do not expect you to make a profit
during a recession - the expectation is to have a positive cash flow. Those of us
who target consumer business, where payment terms of 50%-40%-10% can
be established, will produce a positive cash flow even with a zero-net profit.
Based upon your recession emergency budget, developing a 12-month cash
flow forecast will quickly prove a positive cash spin-off by year's end in the
tens of thousands of dollars if there is 1) just a break-even situation and 2)
those favorable consumer payment terms.
If that is your situation, you may also be considering downsizing your
operations from a " showroom business model " to what SEN Design Group
calls a " studio business model, " which is moving to a leaner format with you
as the main point of contact with clients and a designer assistant.
COMING BACK STRONGER - AND PERHAPS LEANER
Based on my discussions with business owners and dealers, I have found that
many of them lack the knowledge of business management fundamentals
to allow them to run a financially solid company. When the emotional
burnout, slow sales and recession periods hit them, these owners feel discouraged.
Identifying this turning point is the first step to moving forward.
Perhaps downsizing and switching to a leaner structure may be the answer.
But whichever way you go, it is crucial to have an economic downturn
emergency plan to empower you to stay in business.
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Kitchen & Bath Business July/August 2021

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