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Operational changes needed to
save struggling coffee shop
Dear Small Biz Adviser
We own an espresso café in a fairly small town. We bought
the business three years ago and realized after purchasing it that
it was not doing as well as we thought, or were led to believe,
it was doing. We have poured all our finances into this business
and it has done better, yet we still cannot catch up from past debts
that were too much to pay. We are at a crossroads. There is a couple
that would like to invest and form an LLC, but we feel like we need
to find a way to increase sales by about $180 a day. I am ready
to throw in the towel, but my husband feels it is a viable business.
It is very popular, but it cannot support us. It has 14 employees
who are needed, and we have cut costs in many ways. If you have
any suggestions, I would appreciate it.
Thank you,
DB
Dear DB:
It is unfortunate that you didn't take steps as soon as you realized
the business was not what you expected when you bought it. However,
all you can do years later is focus on solving your cash flow problem.
Believe it or not, I do see hope
in your situation. You suggest that an increase of $180 in daily
receipts would eliminate the negative cash flow. Therefore, your
target should be to cut costs and increase daily sales to the point
that you reach what is commonly termed 'breakeven.'
Let's consider a combination of
alternatives to get there:
Staffing:
Nobody likes to consider the elimination of personnel in a small
business environment. That is especially so for a small business
located in a small community. Everybody knows everybody else. Typically,
the employer feels very uncomfortable due to attachments to personnel
beyond the workplace. It also sends a signal to the local community
that you may have financial difficulties. No one likes their business
matters to be the town's hot topic of discussion. Regardless, you
need to consider the possibility of laying off personnel or cutting
back their hours.
Advertising:
Advertising dollars spent in the wrong media is a very common occurrence
in small business. You must be certain that advertising dollars
are resulting in sales that exceed that expense. Otherwise, you
are wasting money. Likewise, you may be missing opportunities to
send advertising and promotional dollars in a direction that immediately
results in increased sales. Give some thought to evaluating where
those dollars go and the sales they generate.
Overhead: Examine
your operating overhead for ways to reduce or eliminate unnecessary
expenses. Start with the small items that have little or no impact
on sales. For example, can you buy a cheaper quality napkin? Similarly,
have you noticed some fast food restaurants will not put napkins
in the bag of food at the take-out window unless you request them?
Utilities:
Are your electricity, telephone and water bills too high? Explore
alternate systems and rate-reduction options that already exist.
For example, electric companies across the United States offer plans
that allow for periodic shutoffs of electricity to a site, usually
when the business is closed. Also, utility companies are very happy
to conduct energy surveys to help reduce your costs.
Owner income:
Deferring compensation is a very common practice of banks considering
the issuance of loan proceeds to a business. In other words, the
owners are asked to cut back or eliminate personal compensation
in the enterprise until a positive cash flow is sufficient to pay
all indebtedness and build up cash reserves. You may want to impose
that on yourselves, if you haven't already done so.
Expert advice: Finally,
you may want to get some independent outside opinions. Go to the
nearest Small
Business Development Center or SCORE
chapter. Take your financial books with you and tell them your
story. These advisers may be able to recommend some solutions I
haven't listed. And if some of their suggestions mirror mine, then
start looking at ways to make the necessary changes.
There are other matters, such as
pricing and product offerings, that I have not addressed. Bring
these concerns to the attention of the counselor at the SBDC or
SCORE. With your precise company data on hand, they will be in a
better position to evaluate those matters with you.
I wish you well.
-- Updated: Oct. 27, 2004
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