Case Studies

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Each of these case studies are based on composites of real life events from experiences of ourselves and our close professional acquaintances, or have been compiled with and are published with the permission of the subject businesses.

The Case of The Surprise Dismount – partnership dissolution
This story is compulsory reading for anyone venturing into business for the first time!

Owning your own business! At first things seem great, positive, exciting! You’re your own boss, in charge of your destiny. All the decisions are yours. The days of being a cog in a wheel are over. You will do this for the rest of your life and retire rich.

But what happens when things don’t go as planned? What happens when you come across situations you have neither the experience nor the skills to deal with them? What happens when you realise that you actually don’t know what you are doing and don’t know how to deal the challenges your business is facing?

For many people, going into business is a great escape, a chance to change your life for the better. You want to open a hair salon, own a coffee shop, a travel agency or something similar. You may have worked in a similar business and think you can do a better job. Or maybe you like the thought of owning a business that you may have been a client of and thought “I could do this!” In fact you probably think you can do it better!

So you find a shop site or you search the papers or the business broker web sites for any potential business to buy. You find what you’re looking for. You convince someone who loves you or believes in you to back you. Or you sell your house so you can afford it. And pretty soon you are diving head first into owning your own business.

STOP!!

STOP RIGHT THERE!!!!

Yes, the thought of being in business is exciting. You will probably be good at what you do, which gives your business every chance of being successful. You probably have a very supportive family and friends who think you will be a superstar in business. But what have you done to ensure your business will be successful in the long term? What strategies do you have in place to grow the business, to deal with the unpredictable nature of being in business? Have you asked yourself questions such as?

  1. How will this business be successful?
  2. Can I actually run a business?
  3. Do I know enough about the type of business I’m about to embark on to ensure some chance of success?
  4. Do I know how much money this business can make me in a week, a month, a year?
  5. Will there be any return on my investment?

I’d like to take you through my experience in business.

My wife and I had always liked the idea of owning our own business. We wanted to open a café/coffee shop/deli or something along those lines. We loved spending weekends and evenings in coffee shops. We loved the buzz of a busy café and one day we thought ‘we should do this!’

Despite never working in a café, never making a coffee professionally, never doing any bookkeeping, and never having experience at dealing with leases or suppliers I dived right in. With the backing of a supportive family member, we bought a café. It wasn’t local either. It was in a whole new town. A town we had never lived in. We thought buying an established business was less risky than renting an empty shop space and fitting it out and starting from scratch. The café was also part of a new, but unproven, coffee franchise. We signed the franchise agreement, signed a lease, handed over a large sum of money, sold our house, moved our family to our new town and started to trade.

The first few months were wonderful. We were paying the bills, turnover was reasonable and I was full of pride. After all I was a business owner! I owned my very own café, my dream job! But then the cracks started to appear. The reality was we weren’t making money. In fact we were losing money. When we sold the house we made a small profit. This was our buffer. But we had been living off our buffer which was really masking the financial performance of the store. Slowly the buffer was getting smaller and smaller and it wasn’t till the end of the financial year that the Profit & Loss statement showed a significant loss. My accountant challenged me to take this to the franchisor and get their thoughts on what was going on. The response was, “Don’t worry about it mate! All businesses go backwards in their first year. That loss is nothing. You’ll get it back soon”.

So I continued. Not really changing anything, just hoping things would pick up. Not really evaluating my staff, my business, my customers or myself. The figures began to get worse. This time the franchisor suggested instead of managing the business, maybe I should get behind the tools and work in the business more to save labour costs. So I did this. I began to work behind the coffee machine, everyday, 7 days a week. Paperwork started piling up. I would be up into the early hours of the morning trying to stay on top of it all. The bills were piling up too. Supplier payments, franchise fees, rent payments and tax payments. Phone calls demanding payment and threats of supply lines being cut if payments weren’t made were becoming a regular occurrence. Some suppliers demanded cash on delivery to maintain supply. I stopped answering my mobile phone, letting all messages go to voice mail and only when I had worked up enough courage would I play them back and then work out how to deal with the more serious ones first. I hated my business. My dream job was now my nightmare. I tried to sell my business, but the reality was who would buy my business? In fact no-one! My business remained unsold until the inevitable. I had to shut up shop and declare myself bankrupt. There was no white knight. No miracle turn around, just the harsh reality that I got myself into a mess and did not have the ability, skill or business knowledge to turn things around.

Where did it all go wrong?

They say the definition of insanity is doing the same thing over again and expecting a different result. If that is so then I was insane. I didn’t know how to change things. I lacked the required skills to deal with the challenges that came my way. Could it have been different? Absolutely!

The problem is when we start out in business we only want to deal with the warm and fuzzy. We don’t want to have a good hard look at what we are about to do and ask if we can in fact run this business successfully. We listen to our support network of family and friends, who are also just as unqualified as us, who tell us, ‘Go for it’, ‘You’ll be great’. We block out people who may think it’s a bad idea, that we should get some experience first, that we should really get some sound professional advice before we dive in. Looking back on my experience a few key people, experienced in business, advised me to do a number of things first. They advised me to work in a similar type of business to see how it worked from behind the counter. They advised me that I should talk to other business owners and seek their advice on what I should be prepared for. They advised me to do my research about a franchise or a brand before I go into business with them. That I should prepare a business plan and submit it to the scrutiny of professionals and seek their opinion before I proceed. Did I do any of this? Not really. I paid a bit of lip service to some of it. But all I wanted to do was get stuck in. I didn’t want to listen to sound advice. For me it was negative and I wasn’t going to let anyone crush my dreams. And that’s the problem. We get so emotionally attached to our dream business that it clouds our judgement. We don’t listen to voices of reason. Looking back I wish I had done some business training. I wish I had taken some leave from my work and done some experience at working in a café. I wish I had not up-rooted my family and moved them to a new town. I wish I had not got myself involved with an unproven franchise. I often say If I had a ‘do over’, I would do things so differently.

But the reality is I would not have listened to any of this advice. And this is where so many businesses fail, before they even start trading. It’s like going on an expedition without seeking the proper advice first. Looking and studying the map! Planning the journey! Working out a plan of action and devising ways of dealing with any issues or problems that may arise! Basically getting professional help and advice!

Business is hard! If it was easy everyone would do it. You need to get as much professional advice as you can. Seek out your accountants thoughts. A good accountant will help you plan your journey. Some even offer business coaching & training. Make sure your solicitor specialises in the type of business venture you are about to embark on i.e. franchising, trademarking, leasing etc. Talk to business owners in similar businesses as you. And most importantly, don’t filter out the negative. Look at it objectively. Is it valid? Are there points of concern that have been raised that you should look deeper into? Better to walk away from a business that doesn’t quite add up despite how appealing it appears from the outside. If you prepare yourself the best you can and surround yourself with a trusted and knowledgeable support network, your business has more chance of success.

The Case of The Sleeping Dragon – balancing expansion, strong growth and stability
The Case of The Hidden Hero – didn’t really need to rely on all those salespeople
The Case of Ambitious Expansion – growth brings need for more working capital to fund inventories
The Case of The Pied Piper – tax schemes