Friday, May 2, 2014

COGS

Like most reasonably sane people, I'll do almost anything to avoid bookkeeping and data entry. But the strangest thing happens once I actually sit down and start inputting numbers: they tell a story, explaining why we've felt short on cash or where we're been spending too much.

This past winter I applied for an SBA loan, a bear of a process. I managed to pull together the accounting information necessary to convince the bank that I was loan worthy, although it took most of my waking hours for a stretch.

I worked with a loan consultant, who also happened to be my real estate broker. I showed him a draft of a cash flow projection, which I had prepared to show that the business could pay the rent even if it didn't grow much. If I were a loan officer, that would be what I would want to see.

The loan consultant commented that if my projections didn't project real growth then the bank would assume I had no confidence, and he asked me to revise the projection to show that we'd grow by 20 percent annually.

This was a reasonable request: we have, in fact, grown about 20 percent per year for the past 10 years. But when I plugged in the numbers, the profit barely changed. Scratching my head, I revisited some of the other figures. In particular, I looked at the payroll cost, which had been 46 percent of the gross last year.

I knew that payroll percentage was too high and I had some ideas about why that was case and how we could correct it. I changed the projected payroll cost to 40 percent, which was still higher than what we'd typically spent, at least up until last year.

The bottom line tripled!

So I've developed a new fixation with COGS, or cost of goods sold, the accounting concept that measures the direct costs such as materials and payroll that go into creating what a business sells, as opposed to indirect costs such as rent and vehicle expenses, which are also necessary but peripheral.

I'm observing correlations between ways of organizing tasks and number of hours spent to achieve outcomes. I'm walking that fine line between managing and micromanaging, seeing connections between the accounting information and day to day processes. I'm actually finding it fascinating.

Monday, April 7, 2014

An Excruciating Question


 
I just read an editorial by a restaurateur lamenting that a $15/hour minimum wage would send his business into a tailspin. As expected, comments were scathing, mostly agreeing that anyone who can find the money to start and grow a business should be able to pay workers more.

It's difficult to talk about the issue of fair pay from the perspective of a business owner without sounding like a privileged, entitled jerk. The best pieces I've read have focused on specific parts of the proposal, such as some proponents' unwillingness to make any exceptions, even for tipped servers who earn well over $15/hour overall.

 For most of the twenty seven years that I've run small businesses, I've earned less than my employees, who are legally entitled to at least minimum wage--however low it may be--whether or not the business actually earns enough to cover these wages. When the business didn't earn enough to cover wages, I accrued personal debt. When the business didn't earn enough to pay me, I didn't get paid.

There are laws against exploiting other people but there are no laws against exploiting yourself. I've pulled all-nighters, worked consecutive eighty-hour weeks, and gone years without a vacation.

I'm not complaining. I love my work and feel lucky to have had a strong support system during the years it took to nurture my company into solvency. I've had social and economic advantages sufficient to break multiple falls.

I honestly don't know whether I'm for or against this minimum wage proposal. It's intriguing but drastic. I'm especially worried about the lovely farmers struggling to create successful business models in the context of an industry and infrastructure that sabotages them at every turn.

I'm certainly in favor of a living wage but I'm also all too familiar with the challenges of managing small business cash flow. Workers absolutely should be paid more, especially in the foodservice industry, but the money has to come from somewhere.

On some level every penny that an employee earns is a penny that a business owner does not earn. Whether you're talking about corporations and shareholders or independent business owners working grueling schedules and paying off heavy debt, this zero-sum scenario stands in the way of finding a productive solution to the minimum wage conundrum.

Last year Patty Pan became a worker-owned cooperative. I'm still an owner, but now I'm also an employee and most of the other employees are owners as well. Our cooperative hasn't always radiated sunshine and rainbows, but we have managed to successfully collaborate, building a business that is bigger and smarter than the company I created on my own.

In healthy workplaces the interests of workers and business owners are aligned. Fair wages motivate employees to give back in ways that bring in enough revenue to cover higher payroll costs. But  money is an imperfect motivator. Praise and purpose can yield even better results.

It costs little to show appreciation and build a work culture where contributions are meaningful and valued. These basic decencies can't stand in for a living wage, but they can keep workers engaged, improving a company's odds of success despite higher payroll costs.

The tragedy of the $15/hour minimum wage debate is that it pits workers against small business owners, especially if proponents insist on sudden, drastic changes and don't allow any exceptions. There's justifiable resentment on both sides, and this resentment will likely make employees feel less appreciated and make employers question whether their payroll dollars are well spent. Workers who don't feel appreciated are less likely to do quality work, less likely to help build the kind of thriving businesses that can afford to pay higher wages.

There's no way to know for certain how the proposed minimum wage hike will actually affect small businesses. It's useful to crunch numbers but the situation is really too complicated to predict. I only hope that once it's decided, we'll manage to find productive common ground and move forward without resentment and recrimination.
 

Friday, March 28, 2014

Permit Purgatory


We spent most of last week in permit hell, fending off a plan reviewer who kept springing new, expensive, time consuming requirements. Now we're in permit purgatory, waiting for final plan approvals and field inspections.

Believe it or not, I believe in the permitting process. I'd rather live in a world where plumbing and electrical work is regulated and inspected than one without oversight. But I suspect that nobody--including the plan reviewers and inspectors--would disagree that the process is deeply flawed.

The city creates a code based on national and international standards, and then hires plan reviewers and inspectors to enforce that code. They aim for consistency in situations whose specifics are far from consistent. They struggle with issues of safety and liability, balancing these concerns against the prohibitive costs that businesses like ours incur installing grease traps and fire suppression systems.

And then there's the human element. During my first encounter with the plan reviewer, he shook his head and told me that the building I'd bought was a small business graveyard. I walked away from the second encounter visibly close to tears when he informed me that we would have to install a vent hood over our under-counter dishwasher, delaying our project well over a month and doubling the cost of installing an already expensive machine.

I went home and slept, and awoke with a fresh perspective on power dynamics. Heading back to city hall, I suggested that, since the code required a vent hood but few restaurants have vent hoods over their dishwashers, the powers that be clearly had some leeway and discretion. Perhaps he could exercise that discretion in our favor?

He consulted with his supervisor, backed off about the vent hood, and came back with some additional questions about our project. I answered them respectfully and applied retroactively for an inexpensive permit covering some minor modifications we'd already made.

The other evening he called to say he'd been out of the office for some training work, and was catching up after hours on permit approvals. He had a stack of permit applications on his desk related to our project and only had time to review one at the moment. Which would we like completed first?



Sunday, March 23, 2014

Vision



We fill our work days washing pots, peeling onions, sticking labels,  organizing receipts, filling propane tanks, stocking coolers, tinkering with equipment.

Our kitchen remodel project has upended our routines and given us a chance to revisit the bigger picture. We're giving some thought to who we are as a business, and who we want to be over the long term.

We enjoy vending at farmers' markets. Our fellow vendors are free-thinking, creative and consistently unusual. Together we commiserate and collaborate. We also eat very well, especially during the summer. But Patty Pan already vends at most of the markets in the area so it's just a matter of time before we can no longer grow as a mainly farmers' market business.

We care about good food, fresh ingredients, and cooking from scratch. But we're not fanatical purists. We're fascinated by the challenge of making wholesome food widely available, but we run a for-profit business so we're geared towards building these concerns into our business model.

Our new kitchen will be a cooking and dining space where we'll host community dinners and group cooking events. We're planning a kitchen utensil lending library and a free herb garden so neighbors can pick what they need for their dinners.

We already earn enough from the farmers' markets to pay our rent, so we should have some leeway figuring out how to make our new gigs pay because we are, after all, a for-profit business. The neighbors seem stoked, and we're excited that they're excited.



Sunday, March 16, 2014

The Elusive Farmers' Market Parking Space


I've heard that parking rivals price as the top deterrent keeping consumers from shopping at farmers' markets. Once you've gotten used to the convenience of grocery store parking lots, a four-block trek to buy vegetables from your favorite local farmers can be a deal breaker, especially in lousy weather.

But parking issues don't affect all markets equally, even markets of comparable size with comparable parking constraints. Take the Ballard and University District markets.

I've often heard people talk about how difficult it is to park at the University District market, but I usually have to park just as far away when I go to the Ballard market in the middle of the day. Yet I rarely hear people complain about Ballard market parking. I think that's because Ballard is more of a party while University District is a serious shopping venue. You can do plenty of serious shopping at Ballard as well, but folks are more likely to head there than to the University District for a leisurely weekend outing. Leisurely weekend outings often involve parking and walking a few blocks while trips to the grocery store usually do not.

On Fridays during the summer we vend at the Madrona and Phinney markets. On sunny and cloudy days Phinney almost always outsells Madrona. But Madrona has on site customer parking, and on days with dumping rain it consistently outsells Phinney. Customers aren't as deterred by the weather because they can easily get back to their cars.

This past fall the University District market moved from its long-time home in the community center parking lot to the main street outside the center. We were excited about the move. Markets held on streets are almost always busier than markets held in parking lots. Our optimism was well-founded: we've had a wonderful winter there despite some beastly weather lately.

But the move has had another, unanticipated consequence. Like the Madrona market, sales at the University District market have been reasonably consistent in all types of weather, even though our numbers used to tank in the rain and the chill back when the market was held in the parking lot.

The market administration and the community center now offer parking in the lot where the market used to operate, fifty feet from the new site. They charge for the convenience, but the lot always seems to be reasonably full.

Speaking of parking, I used to find that I could improve my parking karma by dropping coins in other people's meters when they were about to expire. But you can't do that anymore with the printed stickers that have to go on the inside car window.

Tuesday, March 4, 2014

Building a Kitchen


We've been hard at work outfitting a new space for Patty Pan. Some of the work involves hands-on building, sanding, texturizing, painting, and installing. Other phases involve standing around and scratching our heads, ruminating, brainstorming and problem solving.

I've built kitchens before, and it's always been a lonely and stressful endeavor. I'm not especially handy and I don't know much about building materials so the process has always required making decisions involving large sums of money that I didn't really have, basing those decisions on scant information and insufficient experience.

It's so different building this kitchen as a coop. Between us we have construction experience, artistic sensibilities, networks to scavenge building materials, and plenty of camaraderie. We're sharing the burden and excitement of making decisions, the frustration of snags and the glory of breakthroughs.

When I built my first tiny kitchen in Fremont, I hired a friend of a friend to build a custom walk-in cooler in an odd-size space off the main kitchen. We submitted a drawing to the building department and they took six weeks to look it over before sending it back with the concerns about the format of the drawing, but no real issue with our actual proposal for the walk-in. We redrew the plans and resubmitted them, paying additional fees and delaying the project several weeks.

When I built the Lucky Palate kitchen on Queen Anne, I paid a professional $1000 to draft a layout drawing and help with contracting logistics. He presented the price tag as a good deal and he may have been telling the truth: compared to the revenue from drafting a floor plan for a full service restaurant, my project must have been barely worth his while. Still, $1000 was a lot of money to me.

This time around we bought cad software and drew up the plan ourselves. There was a steep learning curve but we learned new skills and the health department accepted the drawing the first time around. We've had similar experiences with everything from relocating light switches to moving heavy equipment.

It feels strange to say, but this time around we may actually be having fun.





Wednesday, November 13, 2013

Hiatus


Haven't been posting for a bit, but I just wanted to let you guys know that we're enjoying our cooperative business model, and we have some exciting things brewing.

Back soon.