Year-End: Time to Measure Your Performance

© 2004 Door & Access Systems
Publish Date: Winter 2004
Author: Bruce McConnell
Page 64

Year-End: Time to Measure Your Performance
By Bruce McConnell

The end of the year has come. Now is a perfect time to measure the performance of your door business.

One of the most important ways to gain value from your annual financial plan is to compare it to your actual results at year-end. This comparison offers you several benefits.

First, it provides a very efficient way to more accurately understand how your business really did. Second, it helps you understand why its performance met or missed your goal.

Line By Line

This annual review should include a line-by-line evaluation of each Sales segment and its corresponding Cost of Goods and Gross Profit Margin. Discuss reasons for variances in line items. Develop corrective actions for areas that are within your control.

When reviewing Sales and Gross Profits, give special consideration to the overall Sales Mix and the factors causing it to vary. Since each segment has a different Gross Profit Rate, a change in your Sales Mix can significantly affect your total or average Gross Profit. For this reason, it is not uncommon to meet your overall Sales goal, but still fall short of your total Gross Profit goal.

For Example …

In the example shown, the total sales goal was slightly exceeded by $3,250. However, the Sales Mix was dramatically different than planned.

Residential New was the only business segment that exceeded its goal. The extraordinary increase of $90,000 pushed it up to nearly 20 percent of the total business for the year, which far exceeded the projected 12 percent.

The Residential New segment is one of the most competitive segments for door dealers and usually with very low margins. Thus, as the portion of the more profitable segments decrease, your average Gross Profit rate will decline.

Pinpointing Problem Areas

Isolate the primary reasons for changes in your Sales Mix. Why did the other segments fall short?

For example, rising steel prices had a dramatic impact on nearly all garage door business segments. To compensate for this, you may have increased prices to your customers.

This situation may have resulted in higher revenues and higher costs, but little or no change in Gross Profit. But if your Gross Profit dollars decreased, see if you have adequately adjusted the price your customers pay for your products.

As you identify the reasons for changes in Gross Profit, your corrective actions will become clear. There is rarely just one reason for Gross Profit decline. However, one or two corrective actions can often generate significant improvement for your business.

Watching Expenses

Evaluate each Expense line and ask why an increase or decrease occurred. Some changes may be out of your control. However, an annual review of each Expense helps you see if you can reduce it or become more efficient.

In 2004, Insurance and Fuel Expenses became much more volatile and difficult to budget. Understanding this volatility can help you apply a more conservative approach next year.

The Bottom Line

By the time you get down to Net Profit, you should have a good understanding why it is better or worse than your plan projected. More importantly, you should know the specific areas that need correction.

A year ago, you created this plan to develop strategies and provide direction to meet a profit objective. That was a smart move. Now, at year’s end, you can double the plan’s value by using it to determine how well you did. This will help you do a better job next year.

Bruce McConnell (bhmc@grics.net) is a consultant to hundreds of door dealers on issues related to financial analysis and planning.