International Door & Operator Industry

SEP-OCT 2017

Garage door industry magazine for garage door dealers, garage door manufacturers, garage door distributors, garage door installers, loading docks, garage door operators and openers, gates, and tools for the door industry.

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Page 50 of 118

(continued from page ##) MANAGEMENT 48 International Door & Operator Industryâ„¢ MANAGEMENT #1. Does Your Bottom Line Reflect Your Performance Many garage door dealers (and business owners in general) are obsessed with tax avoidance, but to the detriment of creating value for their businesses. They manipulate financial statements to avoid taxes. When getting ready to sell, remember, if you were a buyer, do you want to see profitable garage door dealership or a minimally profitable or losing business. Once financials are manipulated to avoid taxes, it is hard to convince a buyer your business is really a gem! Some manipulations can be documented and added back for valuation, but some cannot. Carefully track tax saving measures that allow the firm's financials to be credibly reconstructed. Still, it is important to understand there is nothing wrong with making a profit. In preparation for selling your company, buyers need confidence that your reported numbers are correct. Therefore, you need to ask yourself some questions: Do you trust your numbers Will a buyer have any reason to not trust your numbers Do you, as a dealership owner, know and understand your financial position at any moment in time Can you easily run a report to examine job performance Will a buyer be impressed with your ability to retrieve information and use that information to make decisions Strong accounting procedures will impress a potential buyer! #2. Can You Articulate Your Customer Mix Many dealers have financial data in a big lump, i.e., sales are in a big lump, material used is in a big lump, and some dealers combine field labor with office, sales and administrative labor in one big lump. For tax purposes, this might be acceptable, but for managerial analysis, or for a buyer to understand your business, big lumps of data are useless. The goal must be to separate types of sales and profitability by customer or product type. Why do we care about product mix as a percent of sales and the related cost of goods sold Why worry about gross margin by product line First, the goal is to be able to document how gross profitability varies by product line. Once this is known, seller or buyer can work on increasing gross profit for specific sale types or eliminate non-producing products. Secondly, well documented data by sales category reflects strong management to a buyer. Finally, many buyers are specifically focused on one type of sale for an acquisition, be it commercial, service or residential. A buyer will compare gross profits generated by a seller and compare it to his or her firm. Many deals have been closed when the buyer realizes that the seller has solid data, making the transition from seller to buyer smoother and faster. #3. Do You Have a Management Team and, If So, How Does It Work Do you have a working organization chart, with managers and employees responsible for a specific job, or does each employee wear many hats Do you as the owner do everything, unwilling to give authority and responsibility to anyone else in the organization All are Sales $4,000,000 Material 1,783,000 Labor 668,000 Cost of Goods Sold (COGS) 2,451,000 Gross Margin $1,549,000 Gross Margin % .3873 The Wrong Way! Residential Residential Service Commercial Commercial Service Over-the- Counter Total % Total Sales $1,400,000 $600,000 $1,200,000 $700,000 $50,000 $4,000,000 100.0% Material 770,000 120,000 696,000 147,000 50,000 1,783,000 .4458 Labor 140,000 106,000 152,000 89,000 -0- 487,000 .1217 Labor Burden 42,000 38,000 64,000 37,000 -0- 181,000 .0453 COGS $952,000 $264,000 $912,000 $273,000 $50,000 $2,451,000 .6128 Gross Margin $448,000 $336,000 $288,000 $427,000 $50,000 $1,549,000 .3872 Gross Margin % .32 .56 .24 .61 .50 .3872 The Right Way! The Top 10 Ways to Prepare Your Business for Sale Continued on page 50 (continued from page 47)

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