Ed's AV Handbook.com
Home Theater & High Fidelity Stereo Audio

Chapter Ten
AV Business & Marketing

Page 3

Batting practice for the audio/video pro and a primer for the novice

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Implement the plan
          Hit the street with your marketing tactics.  Produce your product/service.  
Launch your promotional campaign to generate the leads, that generate presentations,
that generate closes, which generates sales.  
Keep this cycle in motion:

Promotion > Leads > Presentations > Closes > Sales > return to Promotion

          Follow up all sales with a thank-you phone call and letter.  
Seek customer feedback.
Re-examine your competitive edge.  
Continually ask, "How can I produce our product or service at a lower cost while maintaining or improving quality?"

Assess & adjust the plan
         Give your business/marketing plan ample time to perform and then ask;
"Is the plan working?"
 The answer lies in a 'macro' and 'micro' audit of your business data.

The macro audit

          Your assessment begins with the macro numbers of the 'Profit & Loss Statement' and
the 'Balance Sheet'.  The P&L assesses profitability.  The Balance Sheet measures
financial capacity and strength.
The profit & loss statement
          The Profit & Loss
Statement is the undisputed bottom line.  The P&L computes the total revenue collected less the total incurred costs.  
This computation answers the question,
"Are you making money?"

Budget vs actual
          Use the P&L computational concept to produce a
budget.  This requires a sales projection with a projected profit & loss statement.  (The projections are your best guess.)  Your budget is the projected operating expenses.
         Actual P&L results that deviate from the budget should be scrutinized.  Keep in mind that lower than budgeted expenses are not necessarily a good situation.  For example; lower than budgeted promotional expense may be due to a failure to execute an advertising campaign. Lower than budgeted payroll may lead to a loss of personnel.  

Inventory management
          Use the P&L to manage inventory.  Adequate levels of inventory (the principal consumer of cash) must be maintained to fuel sales.  Manage inventory purchases with an "Open to Buy" budget.  The "Open to Buy" is equal to the projected cost of goods sold less the actual inventory on hand.  Allocate this budget on a monthly or quarterly basis.

          Assess the use of inventory cash with the financial yardstick of 'inventory turnover'.
This is the number of times you annually sell and replace inventory
.  Inventory turns are calculated by dividing the cost of goods sold by the average monthly inventory level.  
Your turnover goal should be within the industry
average for consumer electronics retailers of 4 to 9 turns per year.

The balance sheet
          The Balance Sheet is an inventory of what a business owns and what it owes - its’ assets and liabilities.    

Fixed vs liquid assets

            An asset can be fixed or liquid.  Cash is liquid.  A light fixture is not.  The faster an item can be converted to cash the more liquid it is.   Hot selling items are liquid.  Dead inventory is not.

Long term vs current liabilities
            A liability can be current or long term.  A current liability is a note or invoice that is due soon -- as in 30, 60 or 90 days.  A long-term liability has terms described in years not months.

Business oil pressure
           Somewhat analogous to an oil pressure gauge, use the balance sheet to assess your cash flow pressure health via the Current Ratio or the Acid Test.
Current Ratio is the ratio of the liquid assets -- (cash, inventory, and accounts receivable) -- to current liabilities.  
           The Quick Ratio
or Acid Test is the ratio of cash, account receivables, and short-term investments to current liabilities.

            Industry standards for specialty retail stores are 2.2 for a Current Ratio and more than 1 for the Acid Test.  
Think of these ratios as the power supply specs of the business.  A power supply that establishes the asset-voltage-pressure and cash-flow-amperage to drive the system.  Each test exposes the capability of a business to meets its financial obligations.

Owners equity
          Finally, the value of the owners' stake in the company -- owners equity -- is computed by taking the difference between the assets and the liabilities.  It’s the balance of the balance sheet.  The industry standard of predictable owner equity health for a specialty retailer is a factor of 0.485 times the total assets.

Handbook Note:  
Do not over scrutinize the operating expenses and hound staff about thermostat settings at the expense of larger issues such as inventory management. Why count pennies while more significant dollars are being ignored?

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Ed's AV Handbook.com
Batting Practice for the AV Pro and a Primer for the Novice.
Copyright 2007 Txu1-598-288   Revised 2018