February, 2009

Managers with Skill and Will Can Show a Profit in 2009

By Bill Lee

From where I sit, I see at least two markets in the U.S.: the most challenging one is in metro areas where subprime lending and production builders were extremely active over the past few years leading up to 2008.

The other market—while still challenging— is less so. I’m referring to the more rural parts of the U.S. and even the cities that never experienced the boom experienced in, say, Atlanta, Las Vegas, Phoenix, Florida and California…just to name a few.

As a consultant with clients operating in both markets, I have to take two almost totally different approaches. In metro markets, the name of the game is first to break even; that is, get operating expenses in line with gross profit income, which carries with it a lot of heartache.

Because people-related expenses make up such a huge percentage of a lumberyard’s total operating expenses, a part of this heartache is laying off or outright terminating the majority of your personnel. I have several clients who were generating sales in the $75 million range at their peak in 2005 or 2006 and are averaging as little as $1.5 million a month in 2008. Needless to say, overhead has to be slashed and quickly, beginning with people.

Another challenge many of these metro-based dealers must deal with is holding onto their lines of credit. If their bank(s) is in trouble, there’s always the risk of credit lines being “called” or else significantly reduced. So if you’ve not already done so, talk to a bank officer who is high up enough in the organization to know what’s what.

Cash is king, especially when credit lines are in jeopardy, so not only must managers whose sales have plummeted prune personnel, but inventory and accounts receivable, as well. All of the business’ numbers must change to accommodate current levels of sales and gross margin.

When a business is fighting for survival, there’s no time for indecision.

A somewhat brighter side of our industry lies between the states of Florida and California and outside the boom towns that exploded with housing starts during the earlier part of the decade. Many of my clients in these markets are having relatively good years and are still profitable.

Credit Management

Get serious about credit. Be realistic. Review all credit customers and make sure you do enough research to understand their ability to pay their bills.

Sales & Marketing

Now is the time for organizations to sharpen their axes. There was no time for much training and development when business was gangbusters, but there’s no excuse now. So I suggest that you prepare your people to take business away from the competition without using price as a weapon.

Gross Margin

Gross margins are up among dealers who have taken the time to teach their people how to earn more gross margin on whatever sales volume they are producing.

When you think about it, “margins” have to increase for many businesses to survive. So make sure your salespeople understand how to improve their gross margins without necessarily raising prices.

New Business

Bottom line: Managers with both the skill and the will can generate a profit in 2009.

BILL LEE has nearly 40 years of experience in the construction supply industry. A consultant and seminar leader, he is the author of two books: Gross Margin and 30 Ways Managers Shoot Themselves in the Foot. www.BillLeeOnLine.com, 800.277.7888.