Achieving profitability takes time, patience

Dear Bruce: In November 2001 (right after 9-11) I started a small retail business. Although my timing was awful, it had been in the works several months. I opened this store on a shoestring with an initial investment of $25,000. We live in a town with a population of 98,000 and growing. Most are middle-aged or retired. In the past three years, I have increased my inventory twofold, which was desperately needed. Every extra penny I have made has been reinvested in inventory. Because of this, my last three years of taxes have posted a loss. My monthly profit-and-loss statement shows a small loss about four months a year. I find most often that I at least break even for a month. I have one part-time employee and I work the rest. I also work at another job for my benefits, since I cannot afford to pay them on my own. I have not made any money on this venture. But I hate failure. I don’t want to have my personal feelings get in the way of what could be a bad situation. I feel after three years I should have seen some headway, which I have in my

inventory, but not on my bottom line. I am still in debt for my initial investment. Do you think I’m spinning my wheels? It is difficult working seven days a week, 70 to 80 hours a week, but I do it because I want this so badly and would feel defeated if it didn’t work out. I am in my late 40s, and I wonder if I’m working so much for nothing? I had hoped this would be something I could retire with. Am I wrong? People have told me it takes five years to begin seeing a profit. – R.K. from Florida

Dear R.K.: I understand your frustration. Since you have not told me what kind of an operation you have, it’s a little difficult to be specific. People who have told you it sometimes takes years to show a profit are not blowing smoke in your face. Many major corporations don’t expect to see a profit for years. I can tell you this: I have been involved in enterprises where I thought I was drowning. Eventually they became profitable. I have often said that I believe in painting people into a corner so they have no parachute, no way to get out, except to fight. You are a relatively young guy, and other things being equal, I would keep on slugging. It isn’t easy, but then, if it were, everybody would be doing it. Good luck.

Dear Bruce: I have three ideas that I wish to capitalize on, but I don’t know how to go about doing that. The three ideas are in the automobile industry, the fast-food industry and the movie-theater industry. In the automobile industry this would curtail, if not stop altogether, something that has happened to me twice, my sister once and was even addressed in a newspaper column. With regard to the fast-food industry, they are overlooking a major population of the fast food “eat-it-on-the-go” crowd. With the movie-theater industry, the idea could be planned into the blueprint of new construction and possibly retrofitted into existing theaters. I would like to be compensated for my ideas, but on the other hand, I don’t want these companies to say here’s a pair of fuzzy dice, a movie ticket and an order of fries, let’s call it even. I’ve talked to a few people about how to protect myself and at the same time be as up front about the ideas as possible without giving the entire idea away in the process. What do you think I should do? – G.P., Winchester, Ky.

Dear G.P.: The long and the short of it is, you have nothing to sell. Ideas are a nickel each, waiting for change. There’s nobody in any industry that I know of that is willing to just say “We’ll pay you for an idea,” or for a market that is not appropriately being served. I wish I had better news for you. With regard to the fast-food idea, open your own fast-food restaurant serving that part of the market that you feel is being neglected. You may be the next Ray Crock (of McDonald’s fame). Unfortunately, I know of no way that you can protect these kinds of ideas.

Dear Bruce: I would like more information on how to appraise a restaurant in which I am a partner. Attempting to value cash flow is what I’m finding difficult. The business is not managing an operating profit, but for some reason, I feel that the fact that part of the monthly expenses are being covered creates some type of value. For example, if the monthly operating expenses are $10,000, it is better that the business generated $9,000 and the owners only have pay $1,000 out of pocket, as opposed to the entire amount. My question is, is there an algorithm for calculation of net present value of a business that incorporates sales as opposed to net operating profit? – C.N., via e-mail

Dear C.N.: You and I have a fundamental disagreement. Aside from any real estate equipment and whatever, businesses that are losing money generally have no value (the fact that it’s not losing a whole bunch, notwithstanding). It may be that an operator may look at your situation and say, “I know how to fix it so it can make money,” and they may find some modest value. On balance, when your business is losing money, there is very little, if any, real value. A million dollars in sales doesn’t mean much if your expenses are a million and one.

Dear Bruce: I am selling a dry ice distributorship that has been established for more than four decades. I’m only selling the accounts with $340,000 gross, netting in excess of $200,000. How do I price it just selling the accounts and not the assets? Some have purchase orders and some don’t. – M.R., Houston, Texas

Dear M.R.: It’s more complicated than just purchase orders. Do you have contracts that can be transferred? I’m curious as to why you’re not selling the assets of the company, just the accounts? On a transaction of this kind, ordinarily a savvy buyer is going to want some kind of guarantee that the business is going to stick for a few years. Otherwise, they are literally buying a pig in a poke. The numbers you suggested are impressive, but unless you are prepared to carry a good deal of paper and guarantee the income for a reasonable period of time, I think you’re going to have a tough time selling it. It could be that you are thinking of selling to a competitor, and that puts a little different complexion on it, given the fact that they understand the business, have existing accounts and might more easily transfer your business to them. As to the numbers, this is an area where I think you will have a difficult time finding anybody to nail it down. It’s a question of the value to the prospective buyer.

Bruce Williams is a national radio talk show host and syndicated columnist.