I’ve been planning this note for a long time, and recently I started reading the bestseller “Think slowly, decide quickly” by Daniel Kahneman, which from the very first pages confirms all my words and guesses. In particular, about how our brain can pass off what we want to be true, and how we can deceive ourselves without even realizing it.

Therefore, I decided not to delay any longer, but to describe another interesting situation in one of our businesses.

My friends and I have a toy store that we opened not so long ago. I already mentioned him in the article: How we opened a store and also launched a startup. In fact, thanks to this store and precisely for it, we started work on our warehouse and financial accounting service HugeProfit. 

As it seemed to us, in general, our business was quite successful. We had sales both in the store and through the website, Instagram, and various marketplaces. We paid quite a lot of rent, related expenses, salaries to sellers, and purchased goods. There were days when there were very few sales in the store, and there were days when they were downright excellent. The number of new customers in the store gradually increased, we issued membership cards to people every day. They were very much looking forward to the New Year holidays, as they believed that at this time the store would more than compensate for all expenses. And when we waited for these holidays, quite a lot of people came to the store, and the sales made us happy! In general, business was going pretty well 🙂

But the problem was that the phrase “it seems that everything is not bad” was built purely on feelings, and the feelings of different partners were different 🙂

  • Are there any sales?
  • IS!
  • Are there more customers?
  • Of course!
  • Is there enough money?
  • Well, there were difficult months, but, in general, enough, as it were!
  • Well, does that mean that everything is fine?

But no… business does not tolerate approximation in numbers. Everything should be clear! And if you can’t answer the question exactly:

  • How much did you earn yesterday, week, month?
  • What is your gross profit?
  • How much did you spend last month?
  • And where did this money go?
  • Which sales channel is the most profitable?

Then, most likely, your business will not last long or, at the very least, you cannot fully develop, but simply made yourself self-employed for a while until you go bankrupt.

Naturally, our service for financial and warehouse accounting was developed in more than one day. We launched and continue to launch many sections gradually, so to speak, as the case progresses. For this reason, the reports section appeared almost a year after opening the store, and when we entered it and opened our own reports, we were in for an unpleasant surprise.

As it turned out, not everything was as good as it seemed:

  • We worked in the red for 9 out of 12 months! You may not believe it, but unfortunately it happened… you ask: how could it not be noticed? As it turned out, it’s easy. Goods were sold with a high price, but a rather small profit. That is, the revenue is good, but the gross profit is weak. Instead of more expensive goods, cheaper ones were purchased, and free money seemed to remain on hand. Also, 3 profitable months, which alternated with unprofitable ones, partially masked the losses, well, etc.
  • Sales from the store did not cover even 30% of the costs related specifically to the store (rent, utility costs, utility bills, replacement of rugs, Internet, etc.). All store expenses were covered by other sales channels.
  • The profit during the season of the New Year holidays increased significantly, but at the same time, it still could not cover the costs directly related to the maintenance of the physical point even for one month;
  • There was, of course, an increase in customers, but most of the sales were still due to regular customers. At such a rate of growth of new customers, it would take us at least 3-4 years for the income from the physical store to cover at least monthly expenses, not to mention the profit.

After even a cursory study of the report, it became clear that keeping a physical store with such a rental cost is absolutely not profitable. All our sales channels, instead of bringing us profit, were just trying to somehow plug the cost hole called “rent”.

Looking at all these numbers, the brain still did not want to accept it.

Well, how come … we have so many buyers, so many customers who love our store, we, as it were, drag it! Well, maybe it’s because of quarantines? Maybe if you convince the landlord to lower the rent, the store will become more profitable? Maybe it will be more profitable if the salary of the sellers is reduced?

Unfortunately, the numbers are ruthless. Even if the landlord halved the rent, and the number of visitors to the store doubled, we still wouldn’t break even. And how do you understand doubling the flow of customers in a small residential area to a small store, where in a year, in principle, everything was already known about us – it is quite difficult. And I am completely silent about halving the rent.

It is pointless to attract a huge rent in an unprofitable area at the expense of other sales channels. It is better to spend this money on the development of an online store or other sales channels. Therefore, the question arose about moving the store to a cheaper premises.

And fortunately, we were lucky, we quickly found a new retail space with 3 times less rent and in a very promising area! Let’s hope we have better luck here! So subscribe to my Telegram channel and stock up on popcorn. 🙂

Any business needs to enter accounting. It is better not to mix statistical analysis and personal feelings. Such phrases as: “I keep everything in my head and control everything” – do not lead to anything good. It’s good that we kept records this whole year and were finally able to analyze the collected data. Otherwise, at some point, we would find that there is no Product in the store and no money in the cash register.

So, if you haven’t started yet, start keeping full records in your business immediately!

Good sales and successful business to all!