Ordinary challenges founders must overcome to grow their business

Use Case: Barbershop. A guide to grow your business by leveraging an outside perspective.

This is Frank.  Frank owns a barbershop that has been open for four years.  He is interested in growing his top line revenue but has found his growth to be stagnant since year one.  This can be overwhelming as a small business owner who wears many hats.  He constantly faces challenges with personnel turnover, inventory management, bookkeeping, and the list goes on.

Primary Issues:

• Stagnant revenue with increasing overhead costs
• High turnover of employees absorbing time for hiring and on-boarding
• Cash flow mystery – managing all from one account
• Inventory management

Our Approach to Help Frank

1. Clarify Your Vision

First you need to review your business plan to ensure that it is still relevant with where your business is today.  Frank realized that while his mission remained the same, he needed to make revisions regarding the business size, profitability projections, and timeline for his milestone goals.  Initially, Frank had hopes to expand to another location in year two and to add a travel service van outfitted for haircuts locally by year 4.  Well into the fourth year of his business, he still only operates one location that is barely staying afloat.  After making the necessary revisions, we then evaluated his Turnover issue.

2. Don’t Set It and Forget It

We took at a look at Frank’s fulfillment rate of capacity and found that he operated above average at 61% for the chairs that had staffing.  The problem was, although he has 6 chairs of service, only 4 were filled consistently.  This was a huge problem as Frank’s time was extremely valuable.  Although our list below provides a list of solutions to solve the problems, we would urge Frank to reevaluate the true reasoning as to why the employees are leaving in the first place.  It may be necessary to assess his business model for his employees (Commission based, Salaried, Chair Rental).

Frank earned an average of $130 per hour.  Each time an employee would leave, it would cost Frank an average of 22 hours (~$3,000) to conduct the following:

• Post ads for help (4-5 hours)
• Interview employees (4-6 hours)
• Complete hiring paperwork (system updating) (2-3 hours)
• New Employee Training (8-12 hours)

Despite the required investment for the following recommendations, the revenue gained would exceed the cost and allow Frank to focus on what he does best.

• Partnering with a talent search agency that would routinely funnel barbers to the business providing a pipeline of talent (just in case)
• Enlisting in an employment personality test to target specific traits that would provide the highest probability of a long term hire (Test Gorilla is a great option)
• Outsource hiring paperwork and streamline the process with technology
• Standardization of new employee training with timeline, milestone, and testing schedules generated for all service offerings from the date of hire would ensure that time (and money) isn’t wasted

3. Separate the Personal from Professional

Conduct a thorough analysis of your financial disciplines.  Do you have separate accounts for your business and your personal life?  If so, do you have established budgets for marketing, monthly operations, expansion and investment.  Founders often use their personal bank account when getting started and fall short of establishing a separate business account as they scale.  This will often cost you when it comes to future planning and reconciliation for tax advantages.  There are ways to simplify this.  Pull your financial records for the previous 3 years of operations.  Categorize your spending by assigning each transaction to a specific category.  We like to separate what’s required to run the business (Rent, Utilities, Systems) from the ‘nice to haves’ (Retail products).  This is critical to the success of your current location and you need to standardize your financial discipline if you plan to scale your business.

4. What Gets Measured, Gets Managed

This rings true for many facets of business, but especially when it comes to inventory.  We have extensive experience in consolidating excess inventory and refining purchasing practices to optimize carrying cost.  Although products in barbershops have an extensive shelf life, you don’t want to hold onto this for too long or you’ll be wasting space (and MONEY!).  Often, we will come across founders that have a lot of irrelevant inventory that they need to purge.  Many of these items would be labeled as SLOB (SLow moving and OBsolete).  These are items that rarely turn over and have been occupying space.  The important thing to focus on when conducting this assessment is refining your purchase practices. An approach you may want to take includes the following Questions/Actions:

• What system do you use to manage your inventory?
• Is your inventory up to date?  Do a quick reconciliation to verify accuracy
• Conduct a profitability analysis across your product catalogue
• Conduct an ABC analysis to look for consolidation opportunities
• The ABC analysis should highlight supplier consolidation opportunities as well
• For all of the items that are no longer necessary/relevant, define an offload plan (high discounts, nearby competitor, buy back option)
• Reevaluate Service Level Agreements (SLAs) with your current suppliers.  See if there is an option for automated replenishment and consignment billing

Conclusion

The gist of this use case is that Frank has many options to overcome his stagnant revenue.  Often, we feel as if we have to do everything as the business founder.  STOP IT!  The key to growth isn’t being a superhero that executes every task within your organization.  It’s realizing the opportunity you can capture when you enlist in the help of others to partner with in scaling that mountain.  There are numerous options to choose from including: virtual assistance, specialized consultants, bookkeepers, Small business advisors, etc.

If you find yourself exhibiting some of the same problems Frank had to overcome, schedule a call with us at the link below to collaborate on potential solutions for your business.