The facts of the matter in the venture I have purchased are this.
I'm a little confused...why are you asking for advice on whether or not to purchase the business if you've already purchased it?
They have run the business in 4 months with a profit (after cogs and rent) of over $2000 a month.
Did the COGS include the labor for making the products and manning the booth, and if so how much was their hourly wage?
I asked for advice before I signed the papers. This was all brought to me 1 1/2 weeks ago and it was act fast or don't act at all. I signed the papers this past Thursday.
No, it did not include their time of manning the booth but included everything else. So, my hourly wage of sitting at the booth would be just over $17 hour.
The facts of the matter in the venture I have purchased are this.
I'm a little confused...why are you asking for advice on whether or not to purchase the business if you've already purchased it?
They have run the business in 4 months with a profit (after cogs and rent) of over $2000 a month.
Did the COGS include the labor for making the products and manning the booth, and if so how much was their hourly wage?
So my delivery is abrupt and to the point, but my intentions are to keep people from losing money.
Wanting to help someone is noble and admirable but using a scare tactic to make people feel like if they do not do it your way they will be 1 of 85% is not. While much of your advice indicates one way people can be successful, it is not the only way. The fact is small businesses with small business loans succeed all the time, small business owners are successful without going to business school. And prattling off a mythical statistic scary number is not helpful.
Absolutely true. If it was up to some people posting in this forum, you would never be able to start a new business. That advice about going to business school, saving money for the business, waiting years to do anything...until you're ready, is getting old. People start businesses all the time and succeed without all these "requirements." I hope that at least the 85% fail rate gets revised in future posts now. Good luck OP!
I asked for advice before I signed the papers. This was all brought to me 1 1/2 weeks ago and it was act fast or don't act at all. I signed the papers this past Thursday.
No, it did not include their time of manning the booth but included everything else. So, my hourly wage of sitting at the booth would be just over $17 hour.
Congrats! Assuming their accounting is correct (and labor for producing the products is included) it sounds like this venture might work, but your biggest risk will be customers of the old business following them to their new bakery.
Also don't forget to account for net profit that is reinvested back in the business. For example, if you pay yourself a more reasonable wage of $12/hour your labor cost for manning the booth would be $1536/month, leaving $464/month in profit.
Thank you! Yes, that's my fear is that their customers will follow them. I have a decent customer base now so hopefully, those customers will make up for the customers I loose to them. As long as the facility continues pulling in over 40k people a week, I think I will gain the customer base. That is the risk.
The figures also don't include any custom orders as far as cakes as they don't do cakes, well except the occasional sheet cake, which I prefer not to do anyway.
I asked for advice before I signed the papers. This was all brought to me 1 1/2 weeks ago and it was act fast or don't act at all. I signed the papers this past Thursday.
No, it did not include their time of manning the booth but included everything else. So, my hourly wage of sitting at the booth would be just over $17 hour.
Congrats! Assuming their accounting is correct (and labor for producing the products is included) it sounds like this venture might work, but your biggest risk will be customers of the old business following them to their new bakery.
Also don't forget to account for net profit that is reinvested back in the business. For example, if you pay yourself a more reasonable wage of $12/hour your labor cost for manning the booth would be $1536/month, leaving $464/month in profit.
That advice about going to business school, saving money for the business, waiting years to do anything...until you're ready, is getting old. People start businesses all the time and succeed without all these "requirements."
I don't think anyone is saying that it's a must to complete a business school degree and have all the money you need saved up before you start a business, it just makes things easier and less risky. The only real "requirement" is putting together a business plan, which does need a certain level of business acumen and an investment of time.
Luck also plays a big role in the success of a business, so it's certainly possible for someone to succeed with no planning if they are in the right place at the right time, or for a business with a rigorous plan to fail due to circumstances beyond their control. That doesn't mean you shouldn't do your due diligence as an entrepreneur.
The number supported by stats is a 60% failure rate in the first three years.
http://www.businessweek.com/stories/2007-04-16/the-restaurant-failure-mythbusinessweek-business-news-stock-market-and-financial-advice
And yet another mischaracterization of data. The number is 60% close or change ownership in the first three years that is not a measure of how many fail. A closure or ownership change is not necessarily a sign of failure. Any number of factors contribute to closing including people realizing their business is way more work than they anticipated and do not want to put in the effort to keep it running successfully. Citing numbers as if their meaning in self-evident contributes little to a robust discussion of what it takes to open a successful business.
A closure or ownership change is not necessarily a sign of failure. Any number of factors contribute to closing including people realizing their business is way more work than they anticipated and do not want to put in the effort to keep it running successfully. Citing numbers as if their meaning in self-evident contributes little to a robust discussion of what it takes to open a successful business.
I agree that the reason for a business closing or being sold is not always clear, but it's difficult to imagine that an entrepreneur would exit a successful business in the majority of cases (aside from health or family reasons). If a business ends up requiring too much work and effort to be successful, I would classify that as a failed business.
vpjane, and what is your advice?
I suggest a business education. This can be a few classes or can be self taught for the motivated person.
It's not a scare tactic... it's the truth.
Of course as Jason put it, some are successful in spite of a lack of education. But these are very few. And many of these successful people you speak of are in the disposable income category... plumbers, electricians, auto repair. Cake is in the discretionary income category. Not a necessity.
I had a marketing company for years. It grew out of my first job out of college as a sales rep for the local newspaper. Over the years, I watched hundreds of my customers start businesses and fail. Unless anyone has this kind of experience, it is unfair to paint a rosy picture. I just saw a former business owner working as a cashier in CVS a few weeks ago. People lose real money, assets, credit scores, and future income. This is not a scare tactic. It is demoralizing publicly on top of the personal losses.
And many more stay in business despite the fact that they are making no money or sub-mimimum wage.
And as far as my advice getting old, the banks have been saying this for years and they will keep saying the same thing because it is true.
The failure rate for food service is higher than any other. That's why there are no loans for this group. So your advice, vpjane, is the kind people do not need to hear.
And about education. It is the best advice anyone can get. In case you haven't noticed, vpjane, this country is squeezing out the middle class made up of people with high school diplomas. College degrees and masters degrees are becoming more and more necessary for employment. Others are being left behind with low paying jobs making barely enough to make ends meet. Where have you been through this recession?
Many factories are being run by a few people with college degrees, not laborers.
So turn on your TV or read the news. Do everything you can to make yourself recession-proof and don't let your skills become obsolete.
Remember too that the competition may have savvy business skills and extensive knowledge. How do you compete when your competitor can stay one step ahead?
Now is the perfect time to get a little education. There is federal money out there for those who want to educate themselves. Adult Education classes and local classes at a community college geared to non-degree seeking students are abundant. I have seen my share of online classes and they do not measure up. They will not give the information needed to run a business.
By the way, another big scare tactic: The IRS. When inexperienced business owners get into trouble, the first thing they do is to use tax money to fix the oven, pay the electric, pay employees, etc. We all know how that ends. So let's add businesses in trouble with the IRS to that failure rate.
I cannot imagine investing money without a substantial return. As an employee, there is no investment and no loss.
Oh, and about that bad advice of mine about saving... why are you attacking this? I did it. It didn't hurt me. In those two years my business concept, plan, and mission statement grew substantially stronger. I made so many positive changes. Jumping in is not good advice. Nor is borrowing money if it can be saved.
On a personal note, I adhere to the concept of "highest and best use", in my business plans. I actually have three completely different businesses separately responsible for the entire rent. I made each viable on its own. I have another fourth business that will be a small profit center. In a retail investment situation, I have the square footage working as hard as it can with no parts idle. Also having more than one product line will increase the probability of success. It helps keep the business going while adjustments that may need to be made in certain areas can happen without jeopardizing the overall business.
Time, and not jumping, in opens up opportunities.
I think that many on this site do not always remember that we are not "talking" face to face with one and another and therefore we are not able to hear if there is any sarcasm in the voice or if while talking with someone if there is a look of superiority on the face of the one speaking.
I myself usually try to answer as to the point as I can and sometime it may be misconstrued as thinking what I say is "The Final Word". Many valid points were given to help the OP to decide if there was anything that she may have needed to check on before going into this venture. I don't feel anyone was saying the OP did not know what she was doing.
So hopefully everything will be taken not as you are wrong or stupid, just that other points could be helpful.
Good luck with your new business!
Well, this has been an interesting read!
I am not beholden to anyone on Cake Central. I do appreciate the wisdom of those with unique/extensive skills and have learned so very much from many amazing individuals.
For the life of me, I can't understand how you can take something so personally when you ask for other people's input! Seriously, people are going to respond to your post BASED ON THEIR PERSPECTIVE.
In my years on CC as a lurker, then a member I've been aware of SCP and Jason's particular expertise or area of interest. In SCPs case, it is her years of marketing and business experience. I know less about Jason, but have always read his posts to glean tidbits of information I may not have come across before.
Kelly M, IMO has a lot to offer too! Several years ago I purchased Cake Boss, and would recommend it to any small cake business owner who needs assistance in setting up a bookkeeping system to keep track of everything.
You see, we all have something to offer! When I responded to the OP's original request for input, MY main perspective was based on MY experience. What is your core business? Does it make you happy? Do you want to change? etc etc. I know from MY experience that there is only so much you can do in a day, before you start spreading yourself too thin! All things being equal, I would rather do something that makes me happy, than drudgery that yields an extra $400 a month profit. I can make one more wedding cake a month and get that profit without changing one thing about MY routine, my family's lives and needs and my business model. See? We all have something to offer, folks.
One thing I haven't posted much about is my past experience as a young entrepreneur (aged 19-20). I had saved up $10,000 as a teen working in both family business and a department store. I invested money (interest rates were high in the 1980s) in term deposits/security bonds. I seized an opportunity to set up from the bare bones my first business at age 20. It was a commercial/industrial estate food business. We serviced workers for morning tea/lunches and takeaway dinners, plus did catering for all the local businesses in the area. I bought every single piece of equipment for my shop at auction (except for the oven/cooktop/deep fryer unit). I researched building codes and made everything compliant and legal myself. Devised the menu, did the publicity. Hired and managed staff. Everything. I did this while also going to university studying for an economics degree and then my physiotherapy degree.
I built up the business goodwill and reputation for the sole purpose of SELLING the business as a going concern to help fund my ongoing university studies. I had help from my mother with the portion of property on which the business was based. As her return for her initial support (providing the empty space for me to build in on her property) she has received the rent from every subsequent owner of this same business, for the last 20 years.
What is interesting to ME is how many times my little business has changed hands in 20 years. Probably 15-17 times. Probably 12-13 have been abject failures. My mother, the landlord, has seen it over and over again, in good economic climates and in recession...the excited, blinkered wannabes with no business concept, no food making knowledge or training, and no business plan signing a 5 year lease in order to run this simple "lunchtime" operation on the weird belief that it will be easy hours and loads of money for doing very little. Over and over, we have seen rent falling behind, food standards slipping (food being kept too long, menu choices diminishing), hours being shortened, staff numbers being cut and finally the business owners dipping into their savings to pay their rent and other bills, before closing their doors with a whimper (often before they have found someone to take over their lease! Meaning they still need to pay the rent without actually running a business in the premises). Heartbreakingly, several have purchased the business as a retirement plan, on their savings. Several have ended up splitting from their spouses who had been expected to contribute to the failing business.
Look, failing in business HAPPENS. Even if its 50%, do you really think you are BETTER off WITHOUT a business plan, an good grasp of bookkeeping, and full knowledge of the laws and requirements of your industry? I, for one, can understand a highly experienced business forum member wanting to lay down, in plain English, the truth about what you need to be aware of and what you might want to consider when you are handed a "hot business opportunity''. Frankly I am amazed when someone takes so much time out of their free time to write a comprehensive response to a complete stranger.
This is the business forum on Cake Central. Surely we don't need to sugarcoat things here? Please, when someone writes you a 6-paragraph response chock-full of points to consider, it is not because they are a troll who wishes you ill! Its because they are being helpful in their area of expertise. When we are posting on the internet, its hard to gauge another person's intent. Maybe its best to give the generous post-er the benefit of the doubt, eh?
To the OP, good luck with the new business. As per my original response to you - I hope it fulfills you and makes you happy 
110% what Evoir said.
Incidentially, I am just in the middle (or luckly, rather the end of) writing a business plan to substantially enlarge my current business. This is a lot of hard work, even though it is not the first BP I am writing, but by far the most comprehensive. I would give this advice to everyone who starts or invests in a business - write your businessplan and then go to a bank, applying for a loan for this venture, even if you don't need the money. They will tell you in no uncertain terms if your plan is viable at all and what you will need to work on to make it so if at all possible. This is the best reality check ever when it comes to risking so much (doesn't matter if it is money or "just" your time and hard work).
scp does much the same, just from her perspective. Her perspective might not be right for you, but everybody who wants to run a successful business will be able to pick out the information that is relevant for them.
And my two cent's worth of advise, for what it's worth: Don't underestimate the time it will take to
*Shop for ingredients and supplies
*Actually produce all the stuff you want to sell
*Clean up
*Transport to market
*Man the stall
*Clean the stall
*Take care of marketing
*Bookkeeping
*Make and deliver custom cakes (if you still want to do that)
*Keep up to all codes and legislations
*Respond to inquiries
*Take care of all the 5 million things that pop up all the time
How do I know? I own and run a cupcake shop and a custom cake business at 2 seperate locations. They are both sucessful but this means a 100-hour-week for me at the moment. Your business might not be as labour-intensive, but are you really prepared for this?
If all of this doesn't scare you then go for it ) Being your own boss compensates for a lot!
A "well said" to Evoir and all who offered points to look at, look for and to research. It was all given not as wishing you to fail information but rather in the spirit of wishing you to succeed.
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