Drycleaners impossible: Part I
‘Somewhere along the line, you need to regroup and retrain and rethink how you do what you do and what your organization is all about. You have to adapt in a very dynamic environment that’s constantly in flux.”
This quote came out of the sports section. Mr. Dan Guerrero made that statement. Mr. Guerrero operates a business known as the UCLA athletic department.
No matter the size of your company, whether you have two employees, 22 employees or 222 employees, Mr. Guerrero’s remarks hold true.
We live in a constantly evolving world. It is a world of dynamic change in technology. It is a world of dynamic change in how you can operate your business. If you do not constantly look to improve your company, your team will be a team of losers continuously beaten by the competition.
I received the following phone call. “Can you help me?”
I responded, “What is your problem?”
His answer, “I had a fire.”
My response, “Do you have bailee insurance?”
His answer was, “Yes!”
I next inquired as to whether he had business interruption insurance.
His response was, “Yes!”
I then asked, “What is your problem if you are insured and you have business interruption insurance?”
Now we will get to the meat of this drycleaner’s problem.
He responded, “The insurance company won’t pay me what I should get for business interruption.”
I then inquired, “Why?”
His answer, “Well, you see it’s like this. I don’t put all the money I take in on the books. You know how it is. I take a little off the top for my wife and me to have some fun and take the kids to places.”
Does that ring a bell for you? Do you “take a little off the top?”
This business owner’s agony is because he was skimming. He never thought he would have a fire. He never thought he would need to worry that his business interruption insurance would be based on his reported income.
He went on to say, “The insurance company will only pay me what I show on the books. Can you figure out how I can get more from the insurance company?”
I wish I could work miracles, but I cannot wave a magic wand and put the money on the books so this man can collect more dollars from the insurance company.
If you are skimming, you reduce the value of your business and reduce any compensation from an insurance company in the case of a tragic event like the fire this owner suffered.
My final response to the inquiry was, “I wish I could help you but I cannot.”
The money you report on your income tax return is what the insurance company will pay you. Think about all the fun you, your wife, and your children had with the money you took off the top. Now multiply the number of dollars you took and you can see how expensive it is to keep two sets of books.
Yes, it is great that you were able to go places and do things by not reporting all your income to Uncle Sam, but as a final result did you end up making more money or losing money?”
Think about that Mr. or Mrs. Business Owner.
Because the real earnings of the drycleaner were not reported, this person is receiving a significantly lower amount of money from the insurance company. The adjuster told him that if he wants to change his tax returns, they could reconsider his payment.
Guess what. It isn’t going to happen. He will not file amended returns for the last number of years. How do I know? He told me.
He also said, “Are you sure about the tax returns?” I told him, “Yes, I am certain.”
His final remark, “I guess you can’t help me. Goodbye.”
The next phone call was of a similar and not so similar nature.
“My drycleaning business keeps getting slower. My lease is up next year. The roof in my boiler room is leaking and the property owner won’t fix it. My landlord is worried about perc contamination Can you help me?”
This owner has multiple problems. Fortunately, he did not have a fire. However, with the leak in the boiler room roof, perhaps enough water would come down to put out the fire?
I asked him what he thought his most important problem was, and he said, “My sales.”
Wrong. His most important problems were the contamination and lease issues. This man is lucky he is in a state that has a surcharge on perc to handle environmental problems.
He does not belong to any trade association. I told him to join the state association immediately. He needs all the help he can get regarding a potential contamination issue.
The solvent he currently uses is not perc. The previous owner used it for more than 10 years. This owner used perc for three years prior to switching to his current non-hazardous product.
The landlord bought the property a few years ago and did not do a Phase II inspection prior to the purchase. That seemed unusual considering there was a drycleaner on the premises. Perhaps there was no bank loan involved.
I told the drycleaner to arrange an immediate meeting with his landlord. This meeting would be to determine what the landlord wants regarding the possible soil contamination issue and new terms for the lease. During this meeting, the roof issue can be discussed because it is also property owner related.
I wished him luck with the meeting with the landlord and reiterated the need for him to join his state association. He promised he would join.
I next asked him about his falling sales. I inquired as to the size of his community and the demographics. He did not know about demographics and described the location as a bedroom community for a nearby large city. If the local residents are driving to a large city for employment, there should be a decent drycleaning market.
I then inquired as to what kind of computer system he owned.
His response was, “Computer system? I don’t own no computer system. All my sales will be in the computer. The IRS could find out how much my sales are.”
That, my readers, is the similarity to the first call. Here is another owner who does not report all his sales.
Here is a man who has been in business over 10 years and he does not own a computer system. I told him his sales would increase a minimum of 10 percent if he owned a computer system. I went on to say the computer system would pay for itself in six months and increase the value of his company.
God gave this man two ears. What was going in one ear was coming out the other. I then suggested he get back to me after he purchases a computer system. I could not help this person until he wants to help himself.
Do not miss Part II of Drycleaners Impossible.
If you have a question or questions, do not hesitate to send me an email. As you have read, I will respond to most questions, no matter the subject matter.
Harvey Gershenson operates Sterling Drycleaning Consulting and is a former owner of Sterling Dry Cleaners. A second-generation drycleaner, he has been in the industry since he was in high school. He has served as president of the Cleaners and Dyers Guild of Los Angeles and has served on the boards of directors of the Drycleaning and Laundry Institute and the California Cleaners Association. He is also a guest lecturer for the California Department of Corrections. He can be reached by e-mail at firstname.lastname@example.org or phone at (310) 261-2623. His web site is drycleanerconsulting.com.