Close

Percentiles And Profits

Everett Childers |

A textile-cleaning company is no different from any other business, but all businesses are complicated to manage if you want them to succeed.
Understanding the numbers your business generates is important to its overall financial health. Rarely does the average drycleaner make sense of those numbers beyond money in/money out, or what the costs should be for revenue- and expense-producing areas of the business.
The data produced by your point-of-sale (POS) or accounting system can yield valuable information. It can help you direct your business, if you have the discipline to maintain a budget and make corrections in sales and spending.
For instance, if year-to-date information shows an increase in payrolls with flat or declining sales, it could indicate that employees are working too many hours for the volume the business has, or that laws covering employee compensation and benefits have changed. 
If the temporary increase in payroll percentages is due to vacations, for instance, you don’t need to make an adjustment. But if the change is due to decreased sales and steady payrolls, you may need to reduce hours and increase efficiency to maintain the targeted ratio. A problem like this should also be a red flag that you need more volume in order to continue to run a profitable operation.
You must consider past, present and future sales and expenses in planning for profitability, whether you’re running the business for income or putting it up for sale. A failing business is difficult to sell, while a profitable business has proven value.INCOME AND EXPENSES
The figures in The Breakdown, below, are from a full-service drycleaning operation. Its operators own the building and rent storefronts to other businesses. I’ve known them for 20 years, and am always amazed at their quality and management skills.
The figures are several months old, and bank service charges and utilities have increased somewhat since. Price increases preserved the averages, however. General administrative expenses are an additional 4.6%.
Fortunately for the business, many of its employees are second- and third-generation. They work as a team, know that they have stable employment and are great assets to the business.
The owners are friendly with customers and employees alike, and eager to hear consultants’ suggestions on how to improve the business. They know that answers don’t come easily. 
They adhere to budgets strictly, and plan months and years ahead to plot out where the business is going and how it’s going to get there. They have built up a cash reserve, and can take advantage of deals that arise occasionally. When hanger prices were on the upswing, the business bought $40,000 worth; soon, the same amount would have cost them more than $80,000.
It’s always better to have cash on hand when prices are low, instead of being forced to invest when prices are high. This operation provides several banks with full financial information twice a year to make sure it can get the best rates when deals pop up.
The owners adjust income and expense figures with a full understanding of how a decrease in labor costs can affect other aspects of the business. For instance, employees might slow down to let the boss know it was a bad decision to cut hours. They might short-cycle cleaning, quit working on spots or skimp on pressing.
If a store moves to another location to take advantage of lower rent, it may be on the wrong side of the street, or in the wrong neighborhood. If you don’t conserve energy, utilities will be a higher percentage; if you cut claims to less than 0.5%, customers will take their business elsewhere. Cut advertising, and you’ll get fewer new customers.
Getting the correct figures doesn’t have to be complicated. You can set up a simple accounting program based on the list and yield information sufficient to control changes in expenses and income. Transfer dollar amounts to a spreadsheet to create percentages, and you will be on your way to taking financial control of your business.
Remember to divide the big number into the small number to produce a percentage — for example, if sales are $10,000 and rent is $1,500, rent is 15% of income. If you can match the numbers below, you should be able to produce a similar profit margin.
To increase profit, you must reduce expenses or increase sales. The safest way to cut expenses is to establish conservation measures and cut inefficiencies. You can increase sales, but it will be difficult because of high unemployment. You must find new customers with disposable incomes.
Averages can vary widely among cleaners, who may or may not have a long-range focus on their businesses. You want to be the other kind of cleaner: one who delivers consistent quality and reinvests in his company for the long term.
Encourage employees through continuous training, competitive pay and excellent working conditions. Maintain the business with constant cleaning, decorating, attractive lighting and upgrades. Replace equipment regularly to save on labor and utilities while maintaining quality.
If you pay attention to the business, not only is survival possible, growth is easier. Many operators won’t make it through these trying times, and business in the future will be very different from what we know now.
If you want to stay in the business, run it like a business — be obsessed with customer service, quality and employee morale. There will be fewer textile cleaners soon, and those who are professional can make a good living while providing a necessary service.THE BREAKDOWN
The following are percentages based on eight months of operation. Income averaged about $50,000 per month.Product Mix
Drycleaning……………………...70.4%
Shirts…………………………….25.5%
Leather (contracted) ……….……. 0.3%
Alterations ……….……….….…. 3.9%
________________________________
Total ……….……….……..…. 100.00%Cost Percentages
Wages ……….……….………... 43.1%
Maintenance ……….….……..…. 0.3%
Rent, CAM & Property Taxes … 10.1%
Janitorial/Garbage ……….……... 2.0%
Natural Gas ……….……….….... 4.3%
Electric ……….……….…..……. 1.0%
Water & Sewer ……….……...…. 0.8%
Telephone ……….……….……... 0.2%
Supplies ……….……….……….. 3.6%
Solvent ……….……….………... 0.1%
Laundry ……….……….………. .0.4%
Office Supplies ……….…..……. 0.4%
Parts & Repairs ……….…..……. 1.4%
Leather & Laundry Contracts .…. 0.7%
Alteration Contract …….………. 1.4%
Advertising ………....….………. 0.3%
Dues & Subscriptions ….………. 0.1%
Insurance ……….………………. 0.9%
Taxes & Licenses ………………. 1.0%
Bank/Bankcard Charges …..……. 1.9%
Claims …….….……….……..…. 0.1%
________________________________
Operating Expenses ……….….. 73.0%
Operating Profit (Pretax) ………27.0%
(About $13,500 per month)
 

About the author

Everett Childers

Childers & Associates

Industry Consultant and Educator

Longtime industry consultant and educator Everett Childers is the author of the Master Drycleaners Notebook.

Advertisement

Digital Edition

Latest Classifieds

Industry Chatter