Hazard-proofing your business

Four things you should do now to protect your dealership from potential disasters

By Jeff Sheets

There is a TV commercial airing these days that I believe sums up how most people look at the future. In this thought-provoking commercial, Prudential Insurance has created “The Magnets Experiment,” which gets people to look at what has happened in the past and what they expect to happen in the future. The past is a 50/50 mixture of good and bad events, whereas the future is about 90-percent positive.

While it’s great that we have such a positive view of the future, we need to realize that unexpected events will occur in our personal or professional lives that will force us to stretch ourselves in a variety of different ways in order to persevere. In the TV commercial, Prudential is obviously advertising insurance, which is one thing that you need to think about as far as protecting your business, but you also need to be prepared for other potential hazards like financial problems, unfavorable weather, and new competition. The list of potential hazards is endless, but if you can prepare for the most likely ones, then you stand a better chance than if you never think they will happen.

Here are four things that owners need to do to hazard-proof their business:

#1 Assign dual financial accountability

Who handles your dealership’s money or bank accounts? I’ve seen great businesses destroyed by embezzlement of a “trusted employee.” The quotes are the same in all the news stories: “They were like family,” “They worked for us for 40 years,” etc. The problem was that one employee controlled not only the bookkeeping, but also depositing funds and writing checks. This should never happen! You should always have dual accountability in your financial processes. Another person has to be involved in the process. If one person enters information regarding business expenses, then the responsibility of depositing funds and writing checks needs to be handled by someone else.

Some sobering facts¹:

* 33 percent of small-business bankruptcies are the result of employee theft.
* The median amount stolen is $175,000.
* The average time before office fraud is discovered: 2 years.

In many cases, if dual accountability would have been in place, then these things would not have happened. Sooner or later, one of your employees is going to suffer personal financial hardship or need financial assistance. You cannot allow that employee to have the opportunity to loot your business because you’ve never put these protective measures in place. Another helpful suggestion is to require that dual signatures be on any check over a certain amount, so that if a large check is written, the bank won’t process it without both signatures.

In today’s electronic world, you also need to control who can use debit or credit cards. You need to make sure that another person besides the card holder is alerted when purchases are made. When you put procedures like this into place, you not only help your business, but you also help your employees by taking away the temptation to steal. The reason I put this first in this article is that I think it is so important. Make this a priority! You may have an umbrella liability insurance policy for your business, and it may mitigate some of your losses, but depending on the severity, it might not be enough.

#2 Purchase business insurance

Securing an umbrella policy that covers your buildings, land, personal property, equipment breakdown, Electronic Data Processing, and liability is extremely important. If you are a member of a dealer association such as the North American Equipment Dealers Association (NAEDA), you can usually save money on a policy because you are working under a group policy rather than just an individual policy. Also, you need to make sure that the insurance company understands everything about your business. An OPE dealership is much different from an average retail business. For example, if you ever decide to add a rental department to your outdoor power equipment dealership, I would suggest that you review your insurance coverage — or at least check out what the American Rental Association has for recommendations — because of an enhanced risk of liability. Anytime you make changes to your business or add additional lines or ventures, you should be checking with your insurance company about coverage. Umbrella coverage generally does help in cost of theft, forgery and other losses, but obviously can be increased if you see a need. I suggest that you compare insurance costs and coverage with other dealers in your area. You want to make sure that you are paying a fair price for similar coverage. Owning an OPE business without coverage would be a big mistake and a possible death sentence to the business in case some liability would occur.

#3 Droughtify the business

I have created a new word for everyone. You need to “droughtify” your business! Looking through the drought data tables at the United States Drought Monitoring website, about 20 percent of the country was experiencing a severe drought situation in mid-April. In looking at the past 15 years of data, I saw a low of about 2 percent of the country in severe drought and a high of more than 40 percent. However, during most years, approximately 10-15 percent of the country was experiencing severe drought at any given time. Let’s use the 10-percent figure and say that once in every 10 years on average, you are going to experience a very dry time. What are you going to do to make sure that you are in good enough shape to withstand that very bad year? You need to plan as if it is going to happen and make sure you are doing everything you can to avoid using lines of credit and make the business pay for itself all yearlong. This article is too short to be able to list everything that needs to be done, but as you may recall, I did a three-part series on being more profitable in all areas of your business in the January, February and March 2015 issues of Outdoor Power Equipment. More profit means a chance to be able to withstand the down times because you’ve made the profit in previous years necessary to withstand them.

I’d also suggest that you put a drought disaster plan together to make sure that you react accordingly if the drought is severe. There may be planned expenses such as advertising or the number of seasonal employees that can be trimmed to help reduce expenses. Obviously, you cannot plan for every circumstance in business, but I like what former U.S. President/General Dwight D. Eisenhower said about planning: “In preparing for battle, I have always found that plans are useless, but planning is indispensable.” You should at least think about the possibility of drought occurring and not bury your head in the sand as if it will never occur.

#4 Be prepared for competition

Competition is always around the corner or at least you need to think that way! When a new dealership opens up in your vicinity, you need to make sure you are prepared to defend your turf.

Are you really satisfying your customers, or are you just selling them stuff? The new dealer will often use pricing to get new customers, thereby sacrificing profit to acquire the customer. Your best defense is to make sure that you are doing everything you can to take care of customers beyond the price. Service their equipment quickly, call them when a warranty repair is needed, and create an atmosphere that makes it easy to work with you. That means looking at how you do things and streamlining the processes to make it easier for customers to do business at your dealership. Obviously, you can always meet or beat the price of a competitor and sell the equipment. That is dependent on the customer and your needs as a business to continue that relationship. I like to look at new competition as a time to make the dealership better. Sometimes, we need a “kick in the pants” to take the business to new levels. Your goal should always be to make your business better even without competition, but sometimes motivation like this helps you move in directions you wouldn’t have thought of without it. I like the old quote, “What doesn’t kill us makes us stronger.” Increased competition can do just that.

I was a Boy Scout a long time ago, but I never forgot the motto “Be prepared.” It never said what to be prepared for, but really in life, if you are at least a bit prepared for future events, it make a big difference to us when they do occur. You need to “be prepared” to do the best you can at being an outdoor power equipment dealer. That means creating a business that can withstand the ups and downs of business cycles and life in general. No matter how prepared you may be, sometimes the circumstances will be greater than expected, but preparation will help you deal with it more positively. I hope this article gets you to think about these things to help you in the future. By looking to the future, you can affect the present in a very positive way too.

¹ Source: Association of Certified Fraud Examiners, Easy Small Business HR, Institute for Corporate Productivity, Jack L. Hayes International, Inc., 2012

Jeff Sheets is the founder and owner of OPE Consulting Services. Whether a business is thriving or struggling to survive, Sheets’ rich experience in both the corporate and not-for-profit sectors allows him to partner with business owners to customize unique strategies for their needs. For the past nine years, he has worked extensively with hundreds of outdoor power equipment dealers to create best practices in business structure, personnel management and financial profitability. For more information, he may be contacted at opeconsultingservices@gmail.com or (816) 260-5430. You can also follow him on Twitter @opeconsult, connect with him on LinkedIn, and visit his website at www.opeconsultingservices.com.