Reflect & Respond

It’s that time of year where many managers and owners in our industry are either hard at work finalizing their financial information to send off to their accountants or breathing a sigh of relief that they’re done ahead of the April 15 tax deadline. No matter where your business falls on this timeline, now is the perfect time to review the data and make plans for proactive changes in the current year. To help get you started, here’s are five common issues that a year-end review may turn up and some ideas for turning them around:

Issue No. 1: You have too much inventory. Identify if you have excessive inventory by calculating your Gross Margin Return on Investment (GMROI). This straightforward calculation involves dividing your total sales margin by the average inventory for the year. A higher GMROI indicates better profitability, so the bigger the better on this metric. Separately evaluate your GMROI for each inventory category to pinpoint areas for improvement. The sales departments with the lowest GMROIs are the best places to start when deciding to make changes to your stocking levels this year.

Issue No. 2: Your inventory is growing stagnant. Building upon issue No. 1, if you’ve got more inventory than you need, you’re not turning it into sales and generating cash from your investment. Now’s the perfect time to do some spring cleaning. As the weather begins to warm, it’s the perfect time to hold a seasonal clearance event, tent sale, or simply some promotional discounts on the things that have overstayed their welcome. Not every aged item will require a huge discount, but you should get comfortable with the idea of letting some things go for less if it means freeing up the cash to stock something your customers want right now.

Issue No. 3: Your store needs a reset. Analyze sales trends to identify declining inventory categories. Customer tastes change, so your store should adapt. If the most high-visibility areas of your store still hold products that sold less this year than last, it’s time to shift things around. Highlight products aligning with current trends, and relegate items that are losing appeal. Ensure your prime real estate showcases items that are in demand.

Issue No. 4: You have underperforming departments. In addition to reviewing the overall profitability of your company, if you’ve got multiple streams of income — sales, rentals, installations, lessons and repairs — then you should be regularly analyzing each of these separately to gauge the overall health of that income stream. Examine revenue and expenses for each income type to pinpoint underperforming departments and make a plan for improvement in 2024. Be cautious with cuts: consider how different departments interact, as cutting in one area may impact others. The key here is to focus on improving rather than jumping to drastic changes.

Issue No. 5: You need to share the workload. If the thought of tackling these projects mentioned above is overwhelming and you’re starting to wonder where you’ll find the time to take on these projects, I’ve got you covered! If you have employees, you have someone to help shoulder the burden. Now is the time to review the year as a team. Meet with your key employees or even your company as a whole to discuss what opportunities for growth you’ve got and work together to come up with a plan to improve. You’d be hard-pressed to find a music store that lacks creative thinkers, so put that collective brain-power to the test and make a plan that your team is a part of from the beginning.

Conducting a thorough financial review provides valuable insights into your business’s strengths and weaknesses, but it’s addressing the issues and creating a plan that will set the stage for a more successful and profitable year ahead. This year is the year to be proactive rather than reactive when it comes to the financial health of your company. MI