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It's tough to say without seeing the actual financial statements to get an idea of what needs to happen. Usually, in the restaurant industry when management ma

by jakarta 16y ago

It's tough to say without seeing the actual financial statements to get an idea of what needs to happen. Usually, in the restaurant industry when management makes the mistake of taking on debt and opening up break-even/not profitable stores the way to reverse it is to basically close those locations down and cut costs (without impairing the brand) while paying down the debt.

marcamillion 16y ago
So you would say that the best bet is to focus on paying down debt, then trying to grow organically?
- jakarta 16y ago
  It's difficult to say without figuring out what their big problem is. If they have always been struggling to break even then there is either an issue with volume/pricing (depending on the structure between fixed and variable costs). If they were doing well and then took out a loan + executed the expansion strategy, which caused costs to rise (esp. due to the fixed costs of new locations + increased interest expense) then maybe that is where they need to focus their attention.
  - marcamillion 16y ago
    Another issue has been their pricing strategy. Do you have any resources on how to figure out pricing? i.e. how to calculate COGS - from both variable + fixed costs. The more I think about it, is the more I think pricing/volume is the bigger issue.
    - jakarta 16y ago
      Well, let's think about it. So a bakery is basically a big box where people visit and purchase bread (which is usually made on site). So the price per loaf * number of loaves sold = Revenues The food costs (flour, yeast, ingredients) and packaging costs = Cost of Goods Sold. But then restaurants have a whole host of other costs which might be somewhat fixed. Interest expense, Restaurant Wages, Rent, Restaurant Operating Expenses (utilities, maintenance of the building, repairs), General/Administrative (corporate level costs), Advertising/Marketing expenses. So the key is to figure out what is going wrong. If you have a bakery housed in a location where the rent is just really high, you'll either need to raise prices on bread (could hurt volume), increase volume, or reduce rent. If the interest expense is the issue then you need to either restructure the loan or pay the loan off asap. If they are not profitable, they will want to determine how to become profitable. That's either going to come from increasing volume, increasing prices, or reducing costs. But any of those strategies could have their own drawbacks. Price hikes can reduce volume. If you switch to inferior ingredients you might reduce volume if it alters taste. If you increase volume you will be baking more bread which will require more by way of labor. They need to first establish what their problem is, then they can analyze potential solutions.
      - marcamillion 16y ago
        Thanks for the feedback and this feels so simple on paper. Yet when I dive in, the problems just feel insurmountable. But I guess taking it one step at a time. Perhaps rather than trying to decode their existing pricing, it might be best for us to come up with a brand new pricing strategy that includes profitability from the get-go.
        jakarta 16y ago
        What I would say is that if they aren't figuring out a way to keep basic financial statements (which seems to be true) then you should get them to start. I think it is important to understand what got them into the mess before coming up with a profitable pricing strategy. Figure out how much bread/baked goods they typically sell. Is is trending up/down/sideways? Figure out how much it costs to produce that much bread (ingredients + any packaging). Then the other costs (wages, utilities, advertising, rent) should all be fairly easy to find out since they are typically paid once a month or so. Get that into a spreadsheet and then start figuring out what the problem is and how to solve it. For example maybe the bakery has been producing too much bread which has forced them to have a lot of waste. So it could be a leakage problem. Maybe the prices are set so low that after COGS, there isn't enough left to pay for those operating expenses such as rent, wages. It's best to think of a business like an organism where every change will have some kind of effect in response.
        marcamillion 16y ago
        You are right. That's what we had initially set out to do, but I think what happened is we went in and rather than coming up with our own numbers, we were trying to make heads and tails of theirs. But perhaps we should have gone in, and used a clean slate to start analyzing everything - for a month say. Then go from there. Thanks for talking this through with me. It really helped. Out of curiosity, what do you do? Have you run a bakery/restaurant before? Where'd your experience come from?
        jakarta 16y ago

by jakarta 16y ago

marcamillion 16y ago

So you would say that the best bet is to focus on paying down debt, then trying to grow organically?

jakarta 16y ago
It's difficult to say without figuring out what their big problem is. If they have always been struggling to break even then there is either an issue with volume/pricing (depending on the structure between fixed and variable costs). If they were doing well and then took out a loan + executed the expansion strategy, which caused costs to rise (esp. due to the fixed costs of new locations + increased interest expense) then maybe that is where they need to focus their attention.
- marcamillion 16y ago
  Another issue has been their pricing strategy. Do you have any resources on how to figure out pricing? i.e. how to calculate COGS - from both variable + fixed costs. The more I think about it, is the more I think pricing/volume is the bigger issue.
  - jakarta 16y ago
    Well, let's think about it. So a bakery is basically a big box where people visit and purchase bread (which is usually made on site). So the price per loaf * number of loaves sold = Revenues The food costs (flour, yeast, ingredients) and packaging costs = Cost of Goods Sold. But then restaurants have a whole host of other costs which might be somewhat fixed. Interest expense, Restaurant Wages, Rent, Restaurant Operating Expenses (utilities, maintenance of the building, repairs), General/Administrative (corporate level costs), Advertising/Marketing expenses. So the key is to figure out what is going wrong. If you have a bakery housed in a location where the rent is just really high, you'll either need to raise prices on bread (could hurt volume), increase volume, or reduce rent. If the interest expense is the issue then you need to either restructure the loan or pay the loan off asap. If they are not profitable, they will want to determine how to become profitable. That's either going to come from increasing volume, increasing prices, or reducing costs. But any of those strategies could have their own drawbacks. Price hikes can reduce volume. If you switch to inferior ingredients you might reduce volume if it alters taste. If you increase volume you will be baking more bread which will require more by way of labor. They need to first establish what their problem is, then they can analyze potential solutions.
    - marcamillion 16y ago
      Thanks for the feedback and this feels so simple on paper. Yet when I dive in, the problems just feel insurmountable. But I guess taking it one step at a time. Perhaps rather than trying to decode their existing pricing, it might be best for us to come up with a brand new pricing strategy that includes profitability from the get-go.
      - jakarta 16y ago
        What I would say is that if they aren't figuring out a way to keep basic financial statements (which seems to be true) then you should get them to start. I think it is important to understand what got them into the mess before coming up with a profitable pricing strategy. Figure out how much bread/baked goods they typically sell. Is is trending up/down/sideways? Figure out how much it costs to produce that much bread (ingredients + any packaging). Then the other costs (wages, utilities, advertising, rent) should all be fairly easy to find out since they are typically paid once a month or so. Get that into a spreadsheet and then start figuring out what the problem is and how to solve it. For example maybe the bakery has been producing too much bread which has forced them to have a lot of waste. So it could be a leakage problem. Maybe the prices are set so low that after COGS, there isn't enough left to pay for those operating expenses such as rent, wages. It's best to think of a business like an organism where every change will have some kind of effect in response.
        marcamillion 16y ago
        You are right. That's what we had initially set out to do, but I think what happened is we went in and rather than coming up with our own numbers, we were trying to make heads and tails of theirs. But perhaps we should have gone in, and used a clean slate to start analyzing everything - for a month say. Then go from there. Thanks for talking this through with me. It really helped. Out of curiosity, what do you do? Have you run a bakery/restaurant before? Where'd your experience come from?
        jakarta 16y ago