I MADE FIVE classic mistakes in the third year of my business. It's difficult to pick the biggest.
Mistake No 1: I employed an unqualified bookkeeper who, although a lovely chap, simply wasn't up to the job.
Mistake No 2 was using a small firm of auditors who were not really interested in our business.
No 3 was setting our margins too low. In my naivety, I confused turnover with profit, and that contributed to our near-downfall.
No 4 was failing to employ adequate controls. As a result, we suffered a lot of theft.
No 5: I allowed our overheads to get out of hand. Fuelled by my ego and ambition (I was 21 at the time), it made things potentially fatal for my fledgling business.
Although we broke even in the first year and made a modest profit in year two, at the end of the first nine months in the third year, we suddenly discovered that we had lost pounds 130,000. The figures were so desperate that one business friend urged me to 'throw in the towel'. I remember being shocked, not so much by the losses but at the suggestion we weren't going to make it - a dire prospect that honestly hadn't occurred to me.
Once I overcame the sinking feeling, I grew up very quickly, financially speaking. I realised that belts would have to be tightened, starting with mine. The first step I took was to stop drawing a salary. I was fortunate in that my wife was earning good money. The second step was to sell my flat overlooking Regent's Park.
I took on a qualified accountant in-house who put the books in order, and I switched auditors to an efficient, medium-sized West End firm that we still use. They assured me that they felt Richer Sounds was a going concern, despite end-of-year losses of around pounds 70,000. And by the end of year four, we succeeded in wiping out our losses, ending up with a profit of pounds 70,000.
I also learnt that it was all very well working on tiny margins, but customers and the company's interests would only be served long-term if we could offer first-class service back-up. So we tweaked margins, mainly by pressing suppliers for bigger discounts.
As far as thieving was concerned, I had not understood how staff are motivated. Because we were paying flat salaries and did not have effective controls, some staff became bored and fiddled - more as a diversion than through inherent crookedness. I am proud to say that today we have a generous attitude to employees. If staff are appreciated, and enjoy what they do, they do it better and are less likely to steal.
My driving ambition, and the mistake I made in not controlling costs, were perhaps the most difficult to put right. I am impulsive by nature and tended to jump at the first opportunity, nearly always ending up on my face. My mother cured this by telling me to count to 10 before saying yes.
Retailers should never forget fundamentals: you must give your customers good quality products, combined with good service at a good price. You must look after staff and run your business as you would run your personal bank account - that is, live within your means and don't risk more than you can afford to lose.
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