I hate to admit to failure.
I absolutely believe the conventional wisdom that we learn more about business (and life!) from our failures than our successes. It’s completely logical. The problem for me is that I believe the theory on an intellectual level – I just struggle to embrace it in my own work.
So how could I get better at it? Well, I tell my kids all the time that “practice makes perfect.” So I’m going to take that advice and tackle a question in this post that I don’t enjoy answering:
Why do some Great Harvest bakeries fail?
It’s always painful when a Great Harvest bakery closes its doors – for everyone involved.
We recently discussed this topic in meetings with some of our most valued customers, our Advisory Council. (The council is made up of 7 bakery owners who agree to come to our office twice a year and spend 2 days reviewing reports and advising us on a range of issues.) We all hate to see small businesses close, but especially when the owners are part of our Great Harvest family. We wish we could prevent every closing, though with 200+ bakeries in our system, that probably isn't realistic.
So what can we learn from our failures to help prevent them from happening?
We know that in almost every case at least one of these factors was present. By identifying and sharing these factors, it will hopefully be easier for all of us to avoid these traps.
Mismanaged Sales, Labor expenses or Ingredient costs. This first item is the flip side of the keys to making money with any retail food business – grow sales while managing labor and ingredient costs. I teach a session to new bakery cafe owners during training and stress over and over that we need to stay laser focussed on 3 numbers – sales, labor costs and ingredients expense. When we look at financial reports from the strongest and weakest performers in our system, differences in these 3 areas account for the vast majority of the difference in the results. Of course, if a business owner can’t produce an income statement to see if he is above or below the benchmarks for these 3 numbers, that’s a major problem too.
Too much debt. The importance of setting a realistic budget at the beginning of the launch phase and then tracking the progress through the build out and start-up process cannot be over-estimated. The unexpected will always happen, but when a business owner carefully tracks the costs as she goes, she can make trade-offs. For example, if plumbing costs come in higher than expected, adjust on fixtures or put off an optional piece of equipment to purchase out of profits later. In order to adjust, you have to be tracking expenses closely and your reports must be timely.
Lack of Working Capital. A good plan has to allow for the unknowns. A hurricane could strike 2 weeks after you open your doors. A wildfire could destroy the neighborhoods around your business. A costly repair to a key piece of equipment might be unexpectedly necessary. Sales may start lower or grow slower than expected. Without the funds to whether these events, the business is at risk.
Personal spending habits. All of us have been tempted to live beyond our means. Especially if a business owner doesn’t have reliable and timely financial statements for his business, it can be easy to fall into this trap. The seasonality of sales and expenses can be deceiving as well. Unfortunately, this is a common mistake that can start slowly, snowball over time and eventually lead to a financial crisis.
Mismanaging the business sale to a new owner. Small business ownership, and specifically running a retail whole wheat bakery cafe, isn’t for everyone. When the owner realizes early enough that she needs to transition out and works effectively with potential buyers, a smooth transition can happen so that the business stays open under new ownership. One of the first things potential buyers will ask to review will be current financial statements for the business. Without these, the discussions can’t progress. Also, pride is a powerful emotion and ego can unfortunately get in the way of negotiations. Our sense of self is often tied up in what we do. It’s not easy to navigate these emotional issues, but without separating them, the business may close before it would have sold. And sadly, we’ve seen it happen.
Did you notice a common thread through this list? Accurate and timely financial reports can help prevent a lot of problems.
I believe the lessons to be learned here apply to any small business, not just a bakery cafe. What do you think? What else can we learn?
Debt image courtesy of renjith krishnan / FreeDigitalPhotos.net
Dollars image courtesy of David Castillo Dominici / FreeDigitalPhotos.net
Lapto image courtesy of jannoon028 / FreeDigitalPhotos.net