June 19, 2024

You’re the Boss: What it Means to Make a Profit

Staying Alive

I went back and reread my post about becoming profitable. I laid out the factors that I believe turned around my company’s financial state: six actions and circumstances that allowed me to survive the recession and put my company on the right path. What I neglected to discuss is my personal reaction to the idea that I might finally be able to breathe easier about money.

In my mind I continually replay a scene from a couple of years ago: a Christmas party I attended in 2008. My wife has lots of friends, and one of them invited us to a big bash at her house. It was a fancy affair, and the enormous house was decorated exquisitely. Several hundred people attended. Everyone was dressed up: men in suits and ties, women in fancy gowns. Catered goodies were heaped in every room, and drinks flowed freely.

I had met a few of the guests before, and found myself in a group of men my age, making conversation as one does in these situations. The others were professionals: doctors, lawyers, accountants. None of them owned their own business. They were discussing their vacations, their boats, their golf scores. I was acutely aware that nothing I was wearing had been bought after 1985, that I couldn’t afford a trip to Paris, a motor cruiser, or country club membership, and that I would be driving home in a ‘92 Camry that emitted a dense cloud of smoke when I started the engine. Soon I was at the edge of the group, smiling politely as I had nothing to add to the conversation. Did anyone want to hear that I had just laid off two more workers, and I was about to run out of cash? After a few minutes, I got my wife and went home.

For all of the years that my company was unprofitable, I felt like a fraud. I do run across people who seem impressed that I own my own business, but the assumption seems to be that I must be doing well as a result. How to explain the juggling act required to keep paying the bills? Until I started writing this blog, the story was impossible to tell. People who don’t own a struggling business simply have no idea of what’s involved. Slowly going broke is shameful, and it’s hard to turn it into an amusing anecdote.

But things are different now. Yesterday I sent checks to my partners and wrote one to myself: the first distribution of profits since I started the business. Before anyone gets started, let me explain. When The Partner and I re-formed the corporation in 2002, we wrote a bylaw requiring that we distribute a percentage of any profits equal to the highest marginal federal tax rate plus 2 percent, so that no one had to be out of pocket for the tax liability. These payments had to be made within 30 days of the company filing its taxes. So the other day, I distributed 37 percent of my 2010 profit of $92,155. Sure, that’s a piece of change, but we have enough cash on hand that it’s not a problem. Which is another sign of success.

Having a little jingle in my pocket is nice, but I’m not letting it go to my head. I have a couple of college tuitions coming at me, so any extra income is pretty much spoken for. I’m very gradually letting the concept of not being on the edge of failure take hold. After all, we are always subject to external forces beyond our control. What surprises do our friends on Wall Street have up their sleeves? I’m certainly not rushing into any new spending habits. I’m looking to get another two years out of the Camry, I’ll continue to take my vacations by visiting relatives, and we’ll stay in the same house that we’ve been in for 10 years. I’m not sure what it would take to turn me into a snappy dresser, but I know for sure that the ability to afford fancier shirts isn’t enough.

Well, enough about me. On to the questions from commenters.

From Kirk in St. Louis: “Have you started restoring the wages you cut for your remaining workers? They sacrificed to keep the shop open — will they benefit from the turnaround, other than just having a job?”

I cut wages by 20 percent in 2008, but restored half of the cuts in the summer of 2009 (for everyone but me). That wage scale is still more than they would make elsewhere, and no one has quit or asked for a raise. New hires have been paid at market wages. I’ve been mulling over how to implement a bonus scheme, and after much reflection have come to the conclusion that there is no perfect way to do this. I’m going to see how the rest of the year goes, and if I’m feeling rich and happy about the way the factory is running, I’ll probably pay out substantial money. And if I’m not, I won’t. The company still owes me and my partners more than a half-million dollars for the many, many times we dipped into our pockets to make payroll and keep the doors open. So employees are not the first people I will be repaying.

From Frank Bray: “Is there some way you can increase the price spread of your offerings, reaching downmarket a bit, without compromising on quality or your reputation?”

From David: “I agree with Frank, I think you need a lower market item to sustain your high-end product. Perhaps residential furniture that could be sold in niche stores?”

From Shylock: “I am convinced you do not charge enough for your products.”

Hmmm. How to reconcile these viewpoints? Easy. I’m with Shylock. I’m surprised how often I receive the advice to cut my prices, as if I were the only place on Earth to buy conference tables, and there are legions of impoverished buyers struggling to choose whether to buy gruel for their children or a 30-foot video-conference table. I’d rather sell more expensive stuff to richer clients — that way I’m bringing in more money per customer interaction rather than less. Making sales is expensive, so I want every phone call to yield the maximum revenue possible. The best way to do this? Shoo the cheapskates away, and give the potential big spenders fantastic service. Same thing on the shop floor: I’m not interested in entering a race to the bottom with Chinese factories. We’ll continue to build very, very high end products because that allows me to pay good wages to American workers.

From eBusinessAppraiser: “there does not seem to be any reference about efforts in acquiring new customers, or innovating the company’s products or service.”

We’re working on a major expansion and rewrite of the Web site, which will be starting next month. And we continually work on our products, but the innovations are highly technical in nature and beyond the scope of discussion here. New customers? We get them every day. I think I’ve said this before, but I’ll say it again: this is not a repeat business. We do have some clients who buy more than once, but the vast majority of my customers only need to buy a single table, and then they turn their attention back to their business.

That’s what I should be doing now, too. But I’ll be back in a week with three more business problems.

Paul Downs founded Paul Downs Cabinetmakers in 1986. It is based outside of Philadelphia.

Article source: http://feeds.nytimes.com/click.phdo?i=aced3a59c30394fb93ea13b7035e88c0

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