First year losses?

[villagejoe]

I just wanted to put the question out there to owners of independent shops:

For those of you who struggled through a first year of business, about how much was your net financial deficit for the year?

I ask because we are currently in our fifth month of operation and are predicting quite a substantial loss for our first year. Sales are steadily increasing, but it's taking a lot of time and effort to win over our loyal customer base. I predicted numbers like this from the start, but my superiors are panicking and (wrongfully) suggesting that we drastically cut hours and labor to temporarily staunch the financial bleeding. I know that it is completely normal for businesses to not break even for the first year, or even the first few. What has been your personal experience?

 

[ElPugDiablo]

How close are you to breakeven point? Are you meeting your business plan's projection? And most important of all, how much working capital you have left assuming current bleed rate? You might need to make adjustment in order to conserve working capital. You don't want to wait until there is no money in the bank, and you are so close to breakeven before making change. By then the change will have to be drastic and can impact the business negatively. What are the hours that he is suggesting to cut? If let's say you do very little from 7pm to close. Changing the closing time to 7pm is not a bad idea. Also if you are staffing 4 when 3 can handle the current traffic, then you may not need to have the extra person on. Cutting hours for just trained people is a painful thing to do, but it may be necessary. For what it is worth, my first shop broke even after 6 months. But I had very tight cost control, and my wife and I worked insane amount of hours during that period.

 

[Alun_evans]

EPD, as always, makes some excellent points. One I would like to focus on is the effort of the owners themselves. The Independents I know of that have broken even quickly, have nearly always without exception had the owner/owners actively working fulltime++ in their cafes. Ok, so in someways this can blur the returns the cafe makes, but financials aside, having the owners on the floor is part and parcel of building a succesful business. IMHO, not enough cafes I see where I am have the owners there, let alone actually working to make the business what it is.

 

[villagejoe]

Thanks for your input guys. I would say that one of the major contributing factors to our losses is that my pay as a manager is fixed and is factored in. If we were to exclude my salary completely (putting me in a place similar to an owner who works his own shop) then we would be close to breaking even. I too would hate to have to make drastic changes to our business at this point just to appease our owners, when we are in the middle of the process of building our loyal customer base.

The short answer to the question about our working capital is that we basically don't have any. That sounds crazy, but what is actually happening is that our umbrella company is just taking the hit - our working capital is there, but just not labeled and earmarked as such. Like I mentioned earlier, I shared my accurate projections from the get-go, but our owners are simply worrying at this time when they aren't seeing a positive bottom line.

Regardless, it's nice to know that we're not that way off from the average new startup out there.

 

[villagejoe]

Oh, and I definitely work about 50 hrs a week behind the bar, in addition to taking care of managerial duties.

 

[559624]

managers pay

I had similar problem with my coffee shop. I really couldn't afford to pay a manager even if that manager was me.

One thing you could consider is promoting a couple of people to shift supervisors (pay them a couple extra bucks an hour) and you find another job. That job becomes your primary source of income and at nights and on weekends you manage the shop for until profit is obtained. Then you can take you cut from that.

That really depends on how invested you are in the shop. If you aren't part owner then forget that idea. Also the other owners could contribute their time as well. Even just dropping in to check on things has a major impact on the shop as a whole. However I don't like the idea of an owner not actively there but you could have a second job and still be there 30 plus hours a week.

Sadly I don't think 50 hours is very much. I used to work 80 hours plus managing my shop in the beginning. The guy I sold it too is still there probably 60 hours a week or more if you include the things he does from home (books etc). It's a fairly busy coffee shop and he mostly mans it by himself because employees are expensive on so many levels.

That might be another option. You could increase your hours and cut employees. Leave only 1 on during certain hours of the day if the traffic isn't there. That 1 might have to be you or another owner depending on state laws etc.

Cutting hours isn't a bad idea if there are hours you aren't getting any business. Maybe the community isn't available to support a coffee shop on those hours. The market will really determine when you should be open and what your menu looks like. But cutting hours wouldn't be my first choice. You pay rent 24/7, if you can make money during those hours stay open.

Finally, losses during the first year are normal. I broke even at 14 months. However there is a lot I would've done differently if I could take it back. Number one thing would have been spending less that first year.

By the way if it's not obvious, I sold the coffee shop because the financial and 80 hour work week turned my dream into a nightmare. I'll do it again and am already planning too but it will be a lot different.

 

[John P]

B.E. after first month. Open four years.

We had a few employees for a few months a long time ago. no more. I would rather pay off loans and continue to reinvest first. We've put about $28K back into the business and are doing another $5K remodel this month. There's no one better to invest in than your own business. While employees are a definite investment, our model is high quality, higher price, lower volume, and we've grown every year.

Your vision should always extend beyond "now".

 

[roaster dave]

Time and effort is definitely what it takes. The number one killer of new, independant businesses is lack of capital. Theres not much you can do about that except trundle along, struggle for a while and hope for the best. From my experience, you'll probably be looking at 2 to 3 years of ups and downs before you see things level off.