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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SALES&MARKETING; (continued from page 30) much on expenses. Finally, dealers who do not have a basic understanding of fi nance are almost always surprised at the fi nancial results at the end of the year. The fi nancially astute manager knows the profi tability of the fi rm on a daily basis. Financial knowledge allows competent dealership owners to sleep well at night. The profi table dealership owner will understand the following fi nancial concepts, and more importantly, consistently apply them to his or her business: The Balance Sheet – The balance sheet shows the fi nancial status of the company at a specifi c time. Current assets such as cash, accounts receivable, inventory, and prepaid expenses (such as insurance premiums paid in advance) are shown fi rst. Fixed assets such as company-owned vehicles, offi ce furniture, computers and lease hold improvements are listed next. These fi xed assets are assets that are depreciated and the total of the fi xed assets is reduced by the amount of depreciation. Current and fi xed assets are totaled, showing Total Assets of the fi rm. The second part of the balance sheet fi rst shows the current liabilities incurred by the fi rm, or what the fi rm owes to suppliers, government agencies (such as sales tax due) and monies owed to banks within the next twelve months (such as a line of credit). Current liabilities represent monies owed in the immediate future. Long-term liabilities typically include term loans due to banks and often money owed to company shareholders. Finally, all liabilities are subtracted from all assets to show the net worth or equity of the company. Income Statement – The income statement tells the owner what the fi rm has done in dollars in a given period. The fi rst segment defi nes the sales dollars generated. Careful dealers display sales dollars by category, such as residential builder sales, residential homeowner sales (retrofi t), commercial sales, residential service and commercial service sales. The second part of the income statement shows the Cost- of-Goods-Sold (COGS) defi ned as material used on the job, direct fi eld labor needed to install or service the job, the fringes or burden paid on that fi eld labor such as FICA, SUTA, FUTA, health insurance, 401k contributions, etc. Freight paid to bring the material to the dealers warehouse or to the jobsite is included in COGS. Finally, the third portion if the income statement shows the expenses incurred by the company needed to generate the sales shown in the fi rst segment. These expenses include items such as the owner's salary, sales and clerical salaries, advertising expenses, insurance, truck and auto expenses, interest and many other items too numerous to list. When cost of goods sold and expenses are deducted from revenue, the fi rm's profi t or loss is shown. Gross Margin – Gross margin is defi ned as: Sales - = - - - - = Sales or Use Tax Net sales ($) Material Used ($) Labor ($) Includes door, operator, hang iron, trim, fasteners, etc Labor Burden ($) Includes all item listed on email Freight ($) Gross Margin ($) Gross Margin ($) ÷ Net Sales ($) = Gross Margin as a Decimal Note: Material Used + Labor + Labor Burden + Freight = Cost of Goods Sold or COGS Gross margin is a key indicator of the fi nancial well being of a garage door dealership. Gross margin is equal to the cost of goods sold subtracted from net sales. It represents the amount of money available to cover dealership expenses after paying for material, labor and labor burden and freight. It is also important to understand that overall gross margin is a compilation of gross profi ts generated from different type of sales. Dealers make more gross margin on service work and residential retrofi t work and typically less gross margin on residential sales to homebuilders and new commercial installations. Therefore, gross margin as a percentage of sales can increase or decrease based on the mix of sales in a dealership. This "mix" factor explains why dealers with a large majority of sales to homebuilders took the brunt of the pain during the homebuilding bust starting in late 2006. Segmenting Sales, Margin & Margin Dollars – Once the smart dealer understands the concept of managing margin by managing the type of sales generated, it makes sense to use a chart like the one below to graphically display how gross margin is generated. The chart below shows a sample dealership with sales of $1,210,000. CATEGORY COMMERCIAL SERVICE RESIDENTIAL SERVICE RESIDENTIAL NEW RESIDENTIAL RETRO COMMERCIAL INSTALLS WHOLESALE OVER-THE-COUNTER TOTAL SALES GOAL MARGIN MARGIN $ $240,000 176,000 180,000 290,000 248,000 40,000 36,000 .58 .54 .22 .38 .23 .19 .50 $1,210,000 .3857 $139,200 95,040 39,600 110,200 57,040 7,600 18,000 $466,680 Continued on page 34 VOLUME 45 ISSUE 6 2012 33