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We’d like to extend our sincere gratitude to Jim Counts of Counts Consulting, LLC for allowing us to post their previously published article. Permission granted VIA email 10/13/11. All articles are reprinted in their entirety as originally published.

Why Businesses Don’t Grow

We are in an economic and business environment that makes it very hard for a small business to keep their profits stable, let alone growing. Since our industry tends to be “mom and pop” businesses, we often have to deal with family dynamics and issues, as well as, all the other normal business pressures.

While it’s certainly not impossible to be profitable
and small, it is more difficult in many ways.

1. We often 
find that we have too many employees because we feel
 obligated to employ children and other relatives even
though we may not need another person or the relative
 may not be qualified for the job. When this happens, the
 business becomes the dumping ground to enable the 
family member(s), but the company has less money to
 invest in vehicles. Since about fifty percent of our sales
 come from the vehicles we purchased in the last 120
days, this is a VERY big issue.

2. We may have too many employees because we are 
trying to compete with the self-service recyclers’ prices by pulling parts for customers but selling the part for about the same price as what the self-service business charges. I don’t know of any way to make this work in the long haul. If your parts sell for less at the same time you are providing services the competition does not have to pay for, they are going to be the winners. When a U-Pull-lt opened up down the street from one of our businesses, we had to change the type of vehicle we processed, or let the customer go pull their own parts. We did both. We started processing newer vehicles, more trucks than cars and let the customer pull the low-priced parts.

3. We think all those parts out on the shelf will sell; this gives us the illusion that we have plenty of inventory. If it’s an engine or transmission, then we are probably correct. Other than those two part types, the chances of selling the parts drop extremely fast. Remember, half of sales come from what we purchased in the last 120 days, and engines and transmissions usually account for 35-50% of our sales dollars.

4. We say “no” too often. A lot of smaller recyclers don’t broker parts, sell extended warranties, etc. which means the vehicles we buy have to pay ALL the company expenses. We have customers who cover up to $500 per vehicle processed of their overhead by selling brokered parts, extended warranties, collecting for freight and core charges. This allows them to pay more for vehicles, which gets them more inventory to sell. It also encourages the customer to call you next time since they had a problem and you made it go away, at a profit, of course.

5. This may be the most important reason small recyclers stay small; INCONSISTENT BUYING. They stop paying bills so they can buy inventory, then the bills get behind so they stop buying so they can pay bills. If this is happening, the recycler has too much overhead, which usually means too many employees. I say again, HALF our sales come from the vehicles we purchased in the last 120 days.

6. We keep vehicle hulls too long so we can milk another $100 out of them. Right now that hull is worth about $250-$300. Crush those old vehicles, and buy fresh inventory. If you crush 10 hulls, you have at least $2,500 to invest, which should produce at least $5,000 in sales. If you keep those 10 hulls and they do, in fact, produce another $100 per vehicle, then you only get $1,000 instead of $5,000. For me the math makes the decision pretty easy.

7. We do the same thing over and over, and expect the results to be different. If what you are currently doing is not producing the results you want, then something is wrong. It may be time to for some good advice.

Bottom line: it’s not going to get easier to run the business unless something changes, and the longer we wait to make the needed changes, the harder it is to get the business back on track.

www.CountsConsulting.com   –  JimCounts@USA.com  – 817-238-9991