National Clothesline

November is here and we are now cheering for the NFL, our hometown college football team, NBA and NCAA basketball, and NHL hockey.

I have never been a big hockey fan but Barbara loves to see the men on ice. I do not understand going to a sporting event to wait for a fight to break out. It rather reminds me of roller derby when the fans would eagerly anticipate bloodshed.

Question of the month: “I bought a drycleaning plant a year ago and my sales have dropped 10 percent.”

I felt like telling him he should be happy he has only lost 10 percent of his business. There are many who have lost 20 percent and more. However, I decided to question him further. In the following story, a few of the facts have been changed to protect everyone involved. On TV they would say, “The names have been changed to protect the innocent.”

I inquired what his total time in the drycleaning industry has been. The response was one year.

My next question was about his previous employment or business. He told me he was in the IT department of a large company and was laid off.

This was interesting because the man had absolutely no knowledge of drycleaning prior to buying a business. I decided to push my interrogation a little further.

Why drycleaning?

I then asked him why he chose to buy a drycleaning plant. His response was “ROI.” For those of you who are not familiar with those three letters, they mean Return on Investment.

“What sales volume did you look for?”

His response was rather lengthy at this point. “I looked at plants doing $300,000 or more in annual sales. The problem with most of the small plants is they were keeping two sets of books so there was no way of knowing the real numbers. Most were paying cash to employees and a few did not buy workers’ compensation insurance.”

Does that sound familiar to you? What this man is telling me is probably true for most mom-and-pop operations.

He went on to say, “Their sales were supposed to be $300,000 but they reported $200,000 to $250,000. They would skim $50,000 and report $50,000.”

This was not a bad income for a $300,000 operation. The non-reported income was worth more because it was tax-free.

He went on to say, “The husband did the cleaning and spotting. His wife took care of everything else. There would be one presser and, if things got busy, they would get a part-time presser. They were all perc plants and as you already know, perc is on the way out. In this kind of situation I would have a big problem because my wife has her own career and she does not want to work in a cleaners.”

“So what did you do?” I inquired

He said, “I decided to empty what was left in my 401K and look for a higher volume plant that did not clean with perc and did not keep two sets of books. That was hard! I finally found a plant cleaning with DF2000. The place was doing a little over $10,000 per week. Nobody was getting paid cash and the books seemed to be clean when compared to other places I had looked at.”

I then asked about how much labor there was.

He said, “There are two full-time pressers. In addition, there was a cleaner-spotter, and a woman who did the inspecting, assembly, and bagging. There were also two full-time counter women, marking and helping the woman in the back, two part-time counter women, plus a commissioned tailor. The owner would help any department that was in need of his assistance. The owner was taking home about $2,500 per week, but he was tired and burnt out after 20 years.”

How much did the employees approximately earn?

“The pressers each received $450 per week on salary, the spotter was $600 per week, the three full-time ladies earned around $400 each, and the part timers combined earned about $400. The tailor received 50 percent commission on what he produced.”

This was a pretty well run operation with total labor of about 33 percent.

I then asked about his lease.

“My rent is a killer. The shopping center charges triple net on top of my base rent. The annual total comes out to around $75,000. There are five years left on my lease and a five-year option.”

I now understood why the owner was not taking home more money. As is often the case, when a cleaner is in a shopping center the rent exceeds my prescribed 10 percent. At least he was not paying 20 percent.

Assuming his other expenses were in line, it appeared that this man had bought a nice, well-run business. He paid about $400,000 cash for the company and was earning over a 20 percent return on that money. I asked him if he was happy with the 20%+ return on his investment.

“I love my ROI, or I should say I loved my ROI until business started slowing. That is why I called you. I need your help, but now I cannot afford to pay for it.”

I guess I look like I am a kind, giving person who does charity work. Here is a man who bought a business without any formal training other than what the seller provided. He was college educated, but they do not teach business administration in the school of computer science. The previous owner was gone with the cash and moved out of state.

He caught me at a charitable time. Barbara yells that I give away too much of my knowledge free. This man did not have a lot of business sense, but was very book smart. I am sure you know of people like that. They might have a bachelor’s degree or MBA, but their business sense is non-existent.

“What kind of marketing do you do?” I asked next. Now we find out how much knowledge this person lacked.

His response to me was, “I do not do any marketing. The old owner did not do any marketing and he told me it was not necessary.”

I almost started laughing. However, in retrospect, does that sound familiar to you? What you were able to get away with prior to our current economic crash is no longer possible.

I then said, “Because you are a computer-literate person, you should know you have a great database of information.”

Now the truth comes out. He said, “We do not get addresses. The counter women were never trained to do that. The old owner told them just to get the phone number and I never gave it a second thought.”

Like I said, this man was well educated but knew zilch about business. I gave him the following plan to follow and told him to contact me when he had taken care of it.

First, collect all of your customers’ addresses.

Second, redesign your logo and create a web page. He thought a web page was a great idea.

Third, and most important, write a business plan that will include a marketing plan.

I wrapped up our conversation by telling him, “Once you have completed all of that, call me, and we can discuss my fees.”

Barbara is yelling in the background, “You’re not giving him more free advice are you?” Barbara, of course, is correct. I do give away more information than I should.

As my son, Allen, would often say, “Failing to plan is planning to fail!” Many of you should take those words to heart. Plant the word planning in your brain and fertilize it with fresh input and new knowledge. Finally, if you do not advertise, you should not be in business.