The 20 Dumbest Things Music Retailers Do

Are you a veteran music retailer or new to the business? Financial gurus Alan Friedman and Daniel Jobe of Friedman, Kannenberg & Co. say it doesn’t matter—smart financial management is required to grow your business regardless of your experience. At 2016 Summer NAMM, Friedman and Jobe gave retailers a list of what not to do in the fiscal running of a music store. Friedman offered that you might think your situation is unique, but it’s not. These problems are more common than you might think—and easily fixable.

Here are Friedman’s and Jobe’s 20 financial problems to avoid. Watch the video for the full session and for solutions to each of these problems.

1. Too much inventory. According to Friedman, this is the most glaring problem in music retail, with 90 percent of music retailers carrying too much inventory. “You only want to be carrying inventory that you know you can move in 30, 60, 90 and maybe 120 days,” Friedman said.

Jobe commented that a good practice in the music industry is to sell an item for a profit before you have to pay for it, but only 30 percent of retailers tend to do that.

2. Using the wrong accounting methods for rentals. Financial statements can be misleading, especially when it comes to improper rental accounting. When you buy rental instruments and book the rental income up front, that’s a problem, according to Friedman and Jobe. Using this method, you can actually run out of cash and be paying your taxes incorrectly.

3. Mismatched financing. If you picture your balance sheet, good financing is matching cash flow coming in with money going out to pay for certain assets. The stores that survived the recession often had very little debt.

Although cash is king, you may think you don’t need a bank. “The time to get a banker is when you don’t need one,” Friedman said. Even if you’re flush with cash, take out a loan, especially for rental assets.

4. Aging A/R and rental receivables. Collections is not fun, but it has to be done. With rental businesses, instruments are often at stake. Find someone in your store who’s patient and good at talking with customers. “Print out a list every month and attack it,” Jobe said.

5. Not knowing who your customers are. Friedman advised retailers to be what you say you are, and make sure you can afford to be that. If not, change your business model.

6. Poor compensation plan. If you’re looking to get more profitability out of your sales staff, consider a compensation plan that rewards the entire team for the results you want. Friedman and Jobe stressed that you have to tell your staff what you expect, train them and give salespeople the information and tools they need to feel empowered.

7. Internal theft and fraud. Friedman shared shocking stats: In U.S. retail today, 30 percent of theft comes from your customers, and 70 percent comes from your employees (often your most trusted employees).

“I don’t think you can prevent internal fraud, but you can minimize it,” said Friedman, adding, “One of the best ways to do that is to be involved in your store, so your employees see that you’re taking an interest.”

8. No physical inventory. If you’re not doing it, do it. It has to be done.

9. Non-integrated accounting software. You should have software that tracks your rentals, inventory and accounting, all in one platform. Friedman recommended software that lets you easily print a balance sheet and P/L (profit and loss statement) at the end of the month. You shouldn’t have to pull from different places.

10. Outdated technology. No verified backup. No continuity plan. Pretty soon, you won’t have servers to back up your data. Everything will be cloud-based, and the No. 1 leader for cloud-based technology and resources is Amazon. Be aware of what’s coming.

11. No separate measure of revenue profitability. If your P&L looks too good to be true, that’s often due to reporting. On a properly formatted music retail income statement, all revenues and all direct costs should be shown. (See the sample in the video.)

12. No budgets. According to Friedman and Jobe, their most successful clients have a budget and a plan. “You wouldn’t build a house without a blueprint; why would you manage a business without a budget,” Friedman said. You can download budgeting resources from the Friedman, Kannenberg & Co. website,

13. Excessive debt. Debt can be a good tool—at least if it’s the right kind of debt. But excessive debt is the No. 1 issue Friedman and Jobe identified as getting retailers in trouble.

14. Poor vendor relations. Friedman and Jobe mentioned that this has improved in the music products industry. Friedman stressed calling your vendors when business is in a slump. Don’t wait for them to call you.

15. No timely review of financial data. If you don’t have a P&L statement, you can’t guide your business. “Profitability is much more important than cash flow,” Friedman said. You can’t borrow money without profitability.

16. No tax planning. Friedman and Jobe said they see this issue all the time. It can be easily solved: Before the end of the year, talk with your accountant. He or she is your partner and can help you strategize.

17. Poor professional advice. Friedman and Jobe stated that you should always have these four advisors lined up to help you: an accountant, banker, lawyer and insurance agent.

18. No succession plan (i.e., exit strategy). Start early. Speak with an estate-planning attorney and succession-planning counselor.

19. The emperor is wearing too many hats. There’s not a lot of added benefit to you doing everything as the owner. Make your store is self-sufficient and able to run without you. Empower your people.

20. Work/life balance. Many employers today recognize the value of this concept. Get your people involved in this approach.