Are We Doing Something Wrong?

Business By PaulineG Updated 3 Oct 2010 , 1:25pm by Marianna46

PaulineG Posted 28 Sep 2010 , 10:04am
post #1 of 17

Hi There,

Firstly, let me apologise as this may be a long post. I am feeling really sad and frustrated right now, and am hoping for some advice.
Basically my best friend and I started up our own business in February, and things have been going quite well. Our shop is on the Main Street, and is in a great location, and we have been going from strength to strength. The trouble is that we are sailing close to the wind with money. We opened the shop with the help of a business loan, which was mainly used up to buy equipment etc. Now the loan has dwindled down, and each month has been cutting it fine financially. Is this normal?

We are taking a very small salary each, and we have one other full time employee, and one part-time employee (she works 10 hours per week). We take on about 20-22 orders per week. It's definitely not for lack of customers, as we have been overwhelmed from the beginning. Do you think we are doing too few cakes per week?

My business partner is seriously considering giving up, as our new lease (rental contract) is due to be signed at the end of October for 12 months, and she is terrified of money being so tight and bills not getting paid. I'm not sure I am ready to give up yet though. We have made a good name for ourselves, and we get so many referrals. Our only real local competition is even referring people to us if they can't fulfill an order.

Is there anyone out there with advice? For thos of you who have shops, I would really appreciate any info or advice.

Thanks
Pauline

16 replies
Nusi Posted 28 Sep 2010 , 10:27am
post #2 of 17

i think the number of orders are fine.. . the real question is how much are you charging for each cake.. have you calculated your pofit margin properly ? you may need to consult with a friend who knows about finance to figure out those details

Marianna46 Posted 28 Sep 2010 , 10:36am
post #3 of 17

I'm only just starting my cake business, so this is not the voice of experience, but I do have a couple of observations. First, in this precarious world-wide economic climate, the fact that you can stay in business at all is amazing. Congratulations! The first year in a business is always very hard because of capital outlays, loan payments, etc. On the other hand, you have customers and are even getting referrals from your competitors. This is also amazing in a first-year business. You're obviously doing something right. Two things to think about, perhaps: 1) could you handle more business (and, of course, do you want to or would you risk burn-out)? 2) are your prices too low? If you're not charging enough, you'll never be able to stay in business. On the other hand, what is your projected profit for the next year or two, when your initial investment begins to be amortized and you're getting more clear profit to pay yourselves decent salaries and have more money to put back into the business? Since having a cake business is a dream of mine, I don't want to see anybody go under. If I were you, I'd try to stick it out for as long as possible - things will get better! I wish you the very best in this and I hope things start to move for you!!!

cakesbycathy Posted 28 Sep 2010 , 1:01pm
post #4 of 17

You may want to PM some CC members who actually own or have owned shops to get some more specific feedback. Off the top of my head:
Leah S
Indydebi
Snarkybaker.

Hopefully others can recall some of our other members and give you their names as well.

leah_s Posted 28 Sep 2010 , 1:36pm
post #5 of 17

Although I don't actually own a retail shop, I've been in a legal biz and caking for a long time. (Yes, I do the volume I do from a home kitchen. I do nearly half the volume listed above.)

My first impressions:
1. You're doing VERY well with a steady increase in business.
2. You're getting referrals - AWESOME!
3. It's probably way too early to be taking salaries out of the biz. I just started taking a regular salary - 11 years after starting my cake biz. Sure I pulled money out as the only stockholder, but a regular salary, no.
4. You've got way too much staff for your volume. Your partner and you really should be able to handle that amount of cake volume. Yes, it might mean 12 hour days, but the alternative is no biz at all.

cakesbycathy Posted 28 Sep 2010 , 1:39pm
post #6 of 17

I wanted to add that I just read in the lounge that Indydebi's husband had emergency surgery to have his appendix removed so you might have to wait a while for a response from her thumbs_up.gif

cakesdivine Posted 28 Sep 2010 , 2:13pm
post #7 of 17

What Leah said. I too think you don't need that many staff only one part time employee running the counter/front end. You and your partner should easily be able to handle that load of orders per week. If you do a production day or two productions days where you just bake the cakes for the upcoming week, make common gumpaste/fondant flowers, leaves, bows, pearls, etc ahead of time and keep those in stock and add that to your production day duties come decorating time if you need those elements they are there ready to go. If you two are already able to take a small salary then you are ahead of the game. Most businesses especially food industry business will not even see black ink in their books until after the 5 year mark. And owner salaries can't even be considered until the black is large enough to handle the salary amount you want but even that is tricky. The IRS expects after year 5 for you to show profit consistantly. If you don't be prepared to be audited at some point. Doesn't mean that you aren't telling the truth about your business income, it's just that you know the IRS...they want their cut and if you aren't giving them a big enough one because you show a loss or break even each year after year 5, they get nosey...LOL!

Now if you would like to get some free labor, contact a local culinary school and hire interns. They are usually there only about 6 months to a year as part of their training and sometimes you grade them on their work they provided or sometime you just log that they did X number of hours at your establishment so they can get credit towards their culinary degree. When one intern leaves there is generally another waiting in line to come work. AND IT IS FREE! icon_smile.gif Yes you will have to invest a little more time in training somewhat an intern but they won't be sheer beginners who know nothing about cakes either, some will absolutely amaze you with their abilities.

Tell your partner to hang in there. Y'all will have to revamp the manhour issue and you and she work more hours, revamp your production schedule so it flows more efficiently so you can use less employees to accommodate the same amount of man hours you need to produce 20-30 cakes in a week. And you might want to consider looking at your price point again. You could have it too low. You could raise it slightly depending on how you charge (per slice or set whole cake price) then every 6 months raise it slightly again. ie: your per slice rate is currently $2 you could raise it to $2.25 and probably not see too much issue from your clients or if a whole cake price raise it by a $1 or $2 nothing significant to ward off clients, but enough that it will impact your bottom line positively.


Edited to add: icon_eek.gif OOPS just realized you aren't in the states, but I am sure you have government taxes on some level that you have to pay and that there is some regulatory entity that handles all that...disregard the IRS stuff, won't apply to you...LOL! thumbs_up.gif

PaulineG Posted 28 Sep 2010 , 4:49pm
post #8 of 17

Hi Everyone,

Thanks so much for the replies! Cakesdivine - Regarding the IRS things - our equivalent is the Inland Revenue, and everything that was mentioned still applies, so thanks for that info!

I am sure that our pricing structure is good, and I don't think that is the issue. I think you are all right, I think we have too many staff. The trouble is, that almost all of our cakes require modelling work (gumpaste characters), and some cakes even have several modelled items. As you all know, this is very time consuming. This is our weekly routine, just to give you an idea of how our shop runs:

Mon -Tues : bake day and modelling for the week

Wed : finishing off of modelling, if we have more than usual. We start torting and filling cakes, and then crumb coating. Once our fridge is full with cakes chilling down, we start icing the cakes in fondant.

Thurs : As per Wed, however we also start finishing the decorating of some cakes.

Fri : Finish off decorating of all cakes

Do you think our routine is all wrong? I think maybe it is just a case of too many staff. My business partner and I obviously just have to put in more hours.

Thanks again for all the advice and support.

Pauline

hsmomma Posted 28 Sep 2010 , 5:07pm
post #9 of 17

As a business owner...
You definitely have too much staff. Work more hours yourself and do not take a regular paycheck until you are more established. Sometimes it is beyond frustrating how many hours you put in...for free (in a sense). But, it is the only way to get things going and not having things be so tight all the time. You can't get payroll back...

Good luck and hang in there...

bakingpw Posted 28 Sep 2010 , 5:11pm
post #10 of 17

I would agree that you are over-staffed. One of the biggest expenditures businesses face is that of staff. Though you seem to be doing well for your first year (typically 2-3 years to break even!), you should not be paying yourselves yet. As partners, you really need to work toward having your investment increase in the years to come by all the hard work you put into your business. It really could be years before you are making enough to take a "cut". I know that sounds discouraging (believe me!) but really it is the end goal that you must keep in mind.

Keep in mind, though, you are doing amazingly well for such little time in the business! If you are interested in my partnership/business story, PM me and I'll be happy to share some of my experiences owning retail bakery business.

KoryAK Posted 28 Sep 2010 , 5:13pm
post #11 of 17

I'm telling you: raise your prices. Same $ for less work or more $ for same work. Can't be beat.

dreamcakesmom Posted 28 Sep 2010 , 7:37pm
post #12 of 17

I am also not the experienced shop owner but I have a long term business history and know enough about running a business to make these observations. I alone can do 10 cakes in a wekk so I agree that you may be overstaffed for your work load- you spoke in # of orders but every order is not the same. 22 $1000 wedding cakes vs 22 $25 event cakes makes for a huge differential in gross income so don;t think in terms of # of cakes- think in terms of gross sales. Do you know how much you have to sell every month to make a decent profit? If not crunch your #'s and start looking at where you can cut back and I think salaries may be where you need to cut back. Most businesses do not have the luxury of taking weekly/monthly salries right away as owners and they typically have to put in lots and lots of excess hours to get the work load done.
If you and your partner truly want to make it succeed they I would say sit down and have a serious discussion about how much time you need to put in and how much $ you realistically should be pulling as a draw every month.

leily Posted 28 Sep 2010 , 7:44pm
post #13 of 17

i come from a family of many small business owners and on avg most were not even seeing a profit from their business until after year 3. So i think you're already doing well if you're paying yourself. But i'm also assuming you're paying you and your business partner last, not before paying the bills.

As dreamcakesmom mentioned 20-22 orders can mean a lot of different things. I have broken down what i need to sell per month to dollars. Whether it is cookies, cupcakes, rice krispy treats, or wedding cakes it comes to a total $ amount. For instance i could sell a qty of 10 - tiered cakes and make the same amount as selling 25 single tier 8" cakes. (i don't know if the numbers really work out, just pulling numbers for an example) I also have it figured out how many cake serving i can sell in a week if i don't take on any other type of orders (cookies, cupcakes, etc..)

As a couple of others have mentioned, raise those prices!! If you're overwhelmed them raise the prices. you'll get fewer orders and have less work, but you'll be making the same amount of money (or more if you don't loose to many orders)

leily Posted 28 Sep 2010 , 7:49pm
post #14 of 17

I forgot to ask, what is your partners expectations of the business? Were they expecting it to be a 40 hr a week job with a regular salary? If so it sounds like they're being unrealistic about owning their own business.

Did you two do a business plan before you opened up to know how much you were going to get paid, how much you had to sell, what you're bills were going to be etc??

It sounds like you have the work coming in, you just need to restructure and organize everything.

Do you have a counter with things for sale all the time or are you special order only? If you have things for sale all the time, are you loosing a lot of product? Maybe you need to lower the number of options or the qty in your case to help with profit and waste

jason_kraft Posted 28 Sep 2010 , 8:08pm
post #15 of 17

You also may need to re-evaluate if you really need a retail storefront. When we started our business, we looked at having a retail storefront, but the numbers just didn't work unless we had a crushing volume of orders. Instead we went with a rented commercial kitchen with no storefront, and we're doing very well with far more flexibility than a retail store would allow.

PaulineG Posted 3 Oct 2010 , 11:07am
post #16 of 17

Hi There,

Sorry it has taken me a few days to respond to all of your comments. There has been a lot happening for me, and for our business. My business partner has made the decision to pull out of the business. At first I was devastated and really worried at how I was going to cope, but I have kind of made peace with it all now.
I think everyone's comments were spot on - we are over-staffed. I am going to make a few changes, and with my business partner leaving, that's one less salary to pay. I will need to re-think a lot of things, but I think I will manage. I believe in my business, and the dream is still there for me.

Thank you all so much for your advice and support. It has helped me to make some important decisions.

Marianna46 Posted 3 Oct 2010 , 1:25pm
post #17 of 17

As hard as it may be to work without a partner, I'm sure it's wonderful to finally be moving forward. I wish you the best in your business and may you be successful beyond your wildest dreams!

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