Home' Trinidad and Tobago Guardian : May 18th 2017 Contents BG18 | FINANCIAL ROAD MAP
BUSINESS GUARDIAN guardian.co.tt MAY 18 • 2017
Keeping a young
Stephen, 34, is on the verge
of closing the doors of his
small retail gentlemen's
clothing outlet, not be-
cause of the effects of
recession but for reasons
he simply cannot wrap his head around.
As is with any start-up Stephen faced
the usual teething problems but, as soon
as customers realised his value propo-
sition of carrying items that looked like
a fortune without costing a fortune, the
word got around and clothes started
flying off the racks.
In three short years he built up a cli-
entele of 350 customers, half of whom
patronised the store every month with
several spending as much as $1,000
Early in the game Stephen installed a
state-of-the-art, point-of-sale system
with built-in inventory control, cus-
tomer loyalty and accounting features;
all allowing him to track stock and know
who was buying what.
The stats showed that in the first two
and a half years Stephen's sales grew
consistently at an average rate of 10 per
cent per month on the previous month.
Then suddenly there was a precipitous
drop of 15 per cent in the 31st month
with a downward trend since then.
The paradox is that Stephen can
scarcely keep up with customers' de-
mands and now has a running list of
special orders with some of them out-
standing for up to three months; some
clients simply resorted to doing busi-
ness with his competitors.
In the first 18 months of business,
Stephen anticipated that he would
eventually need more space and moved
the operation to locations costing twice
Monthly overheads jumped to
$35,000 inclusive of a business loan
payment of $3,500 with a balance of
Fully stocked the new store could
carry up to 3,500 items of clothing but
existing inventory levels only occupy
about a third of maximum capacity.
Currently gross monthly sales average
$40,000 and the average selling price
of a piece of clothing is $350 after a 100
per cent mark up.
When things were booming Stephen
would frequently make trips abroad to
buy in bulk, timing the seasonal sales of
50 per cent off regular prices.
Today, he is only able to place orders
online bringing in only a few pieces at
a time depending on cash resources.
With cash flows and inventory lev-
els mysteriously shrinking Stephen is
desperate to turn things around and is
looking for winning strategy inclusive
of finding an investor or a financing
package that could fill the store and
regain his eroding market share.
To raise the capital Stephen is willing
to offer as collateral a lot of land cur-
rently being held against his business
Root cause of problem
Regardless of how well a business is
doing in its early stages it is critical for
the owner to keep a tight reign on his
or her cash flows.
Quite often rookie entrepreneurs fo-
cus purely on driving sales without pay-
ing close attention to operating costs.
Whilst more square footage meant more
product variety and increase the op-
portunity for greater revenue, doubling
his rent overhead may have been a bit
premature especially if he did not have
adequate reserves to cover bills until the
business broke even.
Stephen may have misjudged the cost
of outfitting the new space with product
so as to make the store look properly
stocked as a sparsely stocked store could
convey a struggling business and serve
as a deterrent to potential customers.
Capital from cash flow
When the business was doing well
Stephen may have had enough retained
earnings to travel abroad and purchase
stock at deep discounts to widen his
profit margin and strengthen his fi-
With the dramatic increase in over-
head his gross profits would have been
diverted away from replenishing or in-
creasing inventory levels.
During slow periods the situation
would have worsened and he might
have seen shrinkage of inventory levels
and downward spiral of sales. With less
investable funds Stephen was unable
to buy in bulk and would have had to
purchase smaller quantities online with
narrower profit margins.
With the new larger store revealing
more "white space" (barer racks and
shelves) customers would have had
fewer choices and hence the reason for a
growing special orders list. Some cus-
tomers would have simply gone to the
competition to get what they needed.
There is still hope
The good news is that the essence of
Stephen's early business success still
resides in "his value proposition of
carrying items that looked like a for-
tune without costing a fortune." He
still possesses the talent to identify the
customer's needs and where to find the
Even if the business were to close its doors he could
still make a comeback and achieve even greater success
than before. Stephen also has valuable data about
the business that could be leveraged to construct a
financial or business plan to turn the business around.
We were told that Stephen owns a property that
has $570,000 in equity (market value: $650,000 -
$80,000 debt), if he were to sell off this asset and pay
off the related debt he should have enough capital
to inject into the business. If this is not an option
he could consider moving back to a smaller space
and downsize the overhead but he may still have to
spend some cash to reconfigure the space. The other
alternatives would be to find an equity investor or
approach a lender.
Continued on Page 17
Links Archive May 17th 2017 May 19th 2017 Navigation Previous Page Next Page