Capitalizing Your Shop for Growth

Capitalizing Your Shop for Growth

Managing cash flow is crucial for an expanding businesses.

Cash flow is a struggle for many businesses, especially as they grow. So how do you manage your cash flow while expanding your shop’s offerings or footprint? Let’s find out in this Tire Review Continental Tire Garage Studio video!

When we talk about business growth, a lot of business owners will take the profit out of the business to make that happen. But how much profit is safe to take out in order to grow?

Well, we give you some advice from Jon Zurcher, COO of Best-One Tire, on capitalizing your business. Of course, there are many different ways to capitalize on a company. For tire stores, when you talk about capitalization, it usually means how much capital, or money, you as the owner have put in to start the business, according to Zurcher. Another aspect of capitalization is knowing how much capital you have relative to store sales.

A good rule of thumb is to be capitalized around 15% of store sales, according to Zurcher. For example, if a tire store is doing $1 million dollars in sales, it would be a good idea to have $150,000 in the capital set aside whether it’s for current or short-term obligations or something you build upon for a long-term growth strategy.

Here’s a quick calculation to determine what 15% of store sales look like for you. Take your shareholder’s equity or your owner’s equity, which is your initial capital investment plus your retained earnings, and subtract from that treasury stock and distributions paid out to shareholders. Then, divide that number by your sales.

Of course, being well capitalized at 15% of sales is a safe goal. Many businesses run on 10 percent or 5 percent of store sales. But the lower that number gets, the harder it is to grow your business the way you might want.

Thanks to Jon Zurcher for sharing this tip with us.

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