Advice for small business owner with high quality product
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
Then the business owners are stupid and didn't figure out all their costs before deciding on pricing. That means they didn't come up with a business plan, which a bank will require. So technically this never happened because they wouldn't have been loaned any money.
They weren't loaned any money for a business, banks don't give loans for restaurants. What they got were mortgages on their homes.
Even with a SBA, you still have to have skin in the game.
The small business owner has a gelato product that is persistently rated #1 in every Magazine and zagat rating.
The ingredients are imported from Italy, freshly made every day, produced by an Argentinian chef who has been producing the product for years, produces cakes and even to-die-for smoothies and malts.
The place is absolutely packed. The store inside design is a replica of something you would see in St marks in Venice.
The problem is due to some poor cost management...rent costs that have gone up ....extremely high expense overhead ...and the packed crowds are not bringing in sufficient revenues to balance costs of space and costs of compliance with regulations, interest on borrowings, etc
Due to price elasticity, there is no hope for raising the price of the product as this will reduce marginal revenue by reducing quantity demanded more than the revenue per quantity sold
The business is turning in high crowds but behind the scenes, operating at a loss
What are viable options to protect the owners of this business from inevitable bankruptcy if the business is unsellable?
In a nutshell, you are looking at a novelty store with a huge loyal customer base and a financial disaster all in one.
Selling marijuana was never about profit. "It's like, all for th' peeple, Man".
Why do I feel like I am doing someone's homework assignment for them? Remind me not to hire people with no ideas of their own after they finally graduate with that business degree.
I've already said that there is nothing in gelato what can't be purchased with better quality in the USA, Absolutely no reason to ship in ingredients.
However, to generate more income and not have to hire more clerks, I'd look into getting a sales contract with one of the Belgian chocolate companies. Put in a refrigerated counter with imported chocolates.
Gelato customers should have money to spend on luxuries. If the customer base is really high income, see about carrying the freakishly expensive Mozart chocolates.
If prices can't be raised, costs must be reduced. It is probably too late. Lease for the rent was not negotiated well. Decorating was way over the top expensive. It's kinda hard to cut back on employees if the business has lots of customers.
I would not increase the sales of baked goods, because that would mean hiring even more employees. It take labor to produce top quality baked goods. Unless the baking can be contracted out and the business buys a finished product at a price that leaves them a good profit.
I suspect that this business is doomed because of mistakes at the start-up that are snowballing.
The owners are physicians (wives of physicians). It did happen.
1) There was a business plan. First year there were above expected sales. Profits were seasonal and offset slower months of the year. Second year was good too but not as strong as year 1. Expenses rose every year
2) first year rent was lower
3) both owners assumed joint and several assumed liability for all debts
4) houses (both with mortgages all paid in full) were put up as collateral
5) physicians cosigned, both with handsome 6-figure incomes
Loan term of 20 years was negotiated and signed
Which proves that you don't have to be smart to be rich - or a doctor.
Decor, equipment (why buy new when you can buy used at auctions?), and undoubtedly labor costs. I can't picture a "physician's wife" actually rolling up her sleeves and getting her hands dirty. I'm sure they sit there and look pretty while they pay someone else (several someones) to do the work.
The small business owner has a gelato product that is persistently rated #1 in every Magazine and zagat rating.
The ingredients are imported from Italy, freshly made every day, produced by an Argentinian chef who has been producing the product for years, produces cakes and even to-die-for smoothies and malts.
The place is absolutely packed. The store inside design is a replica of something you would see in St marks in Venice.
The problem is due to some poor cost management...rent costs that have gone up ....extremely high expense overhead ...and the packed crowds are not bringing in sufficient revenues to balance costs of space and costs of compliance with regulations, interest on borrowings, etc
Due to price elasticity, there is no hope for raising the price of the product as this will reduce marginal revenue by reducing quantity demanded more than the revenue per quantity sold
The business is turning in high crowds but behind the scenes, operating at a loss
What are viable options to protect the owners of this business from inevitable bankruptcy if the business is unsellable?
In a nutshell, you are looking at a novelty store with a huge loyal customer base and a financial disaster all in one.
1. Hire a cracker jack operations consultant.
2. Renegotiate the lease. The traffic your store creates helps other merchants. They'll lose that if you close up shop.
3. Drive margin by flogging the more upscale products not readily duplicated by competitors. You only have so much capacity in one store. Might as well devote more time to producing the more profitable products.
4. Make sure no one is tapping the till. As in audit your own books.
5. Once you're stabilized and are making a profit again, hire a really good franchise consultant. If it's really that unique and different, if there's really that level of demand, then you want to go larger with it.
The product is typical Luxury class not drawing the class that buys the product at price supporting it for what ever reason. Might be anything from location ;to facility to not being able to compete in that class.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.