Q: I've been open for eight months, and at this
point, I may have to close my doors. When I first started, I took
out a $35,000 second mortgage on my home and made a lot of mistakes
that cost me a lot of money. I've been unsuccessfully trying to
recover the lost money unsuccessfully. My location killed my
business, and I'm currently looking for a new location I can
move to and still try to cut my costs. I'm the only bakery in
the whole county, and there's no reason I can't run with
this opportunity. Is there any kind of funding available out there
to help me keep my small business alive without going for another
loan?
A: There's a commonly held myth that can destroy your
business: Do what you love and the money will follow. As you've
discovered, that's not true.
Don't despair. I wouldn't advise borrowing any more
money just yet. Put yourself in "emergency mode!" You
need to educate yourself as a businessperson-fast! Don't beat
yourself up for what you don't know about business.
Unfortunately, business basics aren't taught in school. (Heck,
I graduated with a degree in Business Administration, and I
didn't even know how to balance my checkbook.) Financial and
business information is available in books, on tapes and at
cool Web sites such as Entrepreneur.com You can do this.
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First, put the brakes on any unessential spending. I don't
imagine you're being extravagant right now, but watch your
checkbook carefully. Your next step is to crunch some numbers.
Using the data you have from your business, put together a budget.
How much is it costing you to be in business?
Are you using an accounting software program? You can create a
budget with that program. Or use a columnar pad and your checkbook
register. You must confront your costs. List the overhead
costs (those that must be paid whether or not anyone buys anything)
and the direct costs or cost of goods sold (those costs that are
directly related to product sold, such as flour).
Now how much can you generate in sales? Play out five or six
different scenarios for sales. Use your current pricing structure.
At this point, I bet you'll find exactly why you aren't
making any money: Your selling price isn't high enough to cover
your costs and allow for profits, which means less of a salary for
you.
Crunch the numbers again using higher prices. How high can you
go when it comes to prices? Consider the price range on a
watch-$2.99 to $50,000. Who would've thought that we would pay
$4 for a cup of coffee, but that's what Starbucks charges. I
know you can charge more than you think you can. You're the
only bakery in the county. If you choose to stay in business, I
imagine you'll have to raise your prices. I'd need to see
your financial data to be certain, but 99 times out of 100, I find
that owners set unrealistically low selling prices.
From here on out, I want you to run financial reports every day.
Run an income statement and a cash flow requirements report. Enter
the bills that come in every day. You don't need to pay them
until they're due. Just enter them as "Accounts
Payable." You don't need any surprises.
If you choose to raise your prices, you must develop your
marketing and sales skills. The market will bear all kinds of
prices. It's the marketer, not the market, who sets the price.
Remember, you don't have to stay in business. Winners
make mistakes, but they keep bouncing back. It's just a
business; it isn't you. Meditate on this and listen to your
heart. What do you want to do?
Before you sign a new lease or borrow any more money, get out
your calculator and get busy number-crunching. That's where
you'll find your answers.
One more thing: Read The E-Myth (HarperBusiness) by
Michael Gerber. The heroine in the story is a baker. You're
going to think he's talking about you on every page of this
book. It should be required reading for every business owner.
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Author Ellen Rohr nearly starved in her family's small
contracting business-until she learned how to manage money.
"Do what you love, certainly," she says, "but the
money won't just take care of itself." Ellen's pricey
college education didn't prepare her for real-world business.
"Financial business basics aren't that difficult…but
where do you learn them? Unfortunately, business literacy isn't
taught in school. I teach the basics and take the mystery out of
making money." Ellen's mission as an author, columnist and
seminar leader is to help people make a living doing what they
love.
The opinions expressed in this column are those
of the author, not of Entrepreneur.com. All answers are intended to
be general in nature, without regard to specific geographical areas
or circumstances, and should only be relied upon after consulting
an appropriate expert, such as an attorney or
accountant.