The more stores we open, the more money we will lose

We decided to enter the market with a multichannel strategy. We would have traditional retail shops and a website to sell our products. We only had three products when we launched. Each came in three sizes and three scents which was 27 skus. This meant we couldn’t have full retail shops but needed to rent boutique spaces or stores within a store.

We wanted to have a sales assistant in each store and needed 15 stores to cover the bulk of the market in the capital city, which is 45% of the volume of our retail sales. We built a traditional website which accept credit cards and direct payments by mobile.

We aimed for 60% online sales and 40% in store. Our costs, however, were 70% in-store. They were higher due to rent and labor costs. The average transaction value online was higher than in the store because people bought the larger sizes. We figured that people tried it in store and then bought online. The mix of sales by channel was critical.

We projected the profit and cash from the first three months data and it could never make a profit. The stores consistently lost money. We signed three years leases and each store requires our own sales staff. The more stores we open the more we will lose.

With inflation and currency devaluation, delays in payment are causing us to lose real money

When we wrote our business plan and figured out our working capital, we thought we would be paid within 30 days of sending out the invoice. To be safe, we used 45 days in our models and made sure to have funds available.

The inflation rate is now over 10% and there has been a 40% devaluation of the currency. This means it is really important to collect cash quickly.

We just signed a new agreement with a mobile platform and it stated they would pay within 30 days. They did on the first three invoices, but then they took 60 days and now are up to 120 days. They are much bigger than us and we need them to survive but with a 120 delay in payments we are running out of cash every month. The banks won’t help. In real terms, we never get our money back. We can’t delay our payments out to 120 days.

The CEO was setting unrealistic expectation with the board and investors

No matter how much time and effort we put into controlling our project costs everything always cost more and takes longer than we expect. We’re not dumb – we just can’t get it right.

We tried to figure out what was going on. After a lot of discussion, we focused on what the CEO expected. It emerged that the CEO made promises to the board and investors that he knew he couldn’t keep. He then tried to impose these targets on us and the projects. He just thought it was easier to manage the board this way.

We told him this wasn’t the way we wanted work. We needed honesty and transparency and it was better to face reality than to create expectations that we knew were unrealistic from the start. He and we couldn’t rely on this type of behavior as the business grew.

We didn't plan for currency exposure and are now facing major losses

We had a good harvest this year. This means we will have plenty of product. We bought everything we could from the farmers and moved it into our local warehouse. We planned to work three shifts in the factory and organized for more storage space in Europe and the US.

The production went smoothly and we started shipping product. We had never covered our currency exposure as we did not have enough volume. With the increased volume we thought about it but did not want to incur the expense.

By the time the shipment reached the warehouse the exchange rate had gone up which meant the wholesaler either increased his price in dollars or we made less in our currency. The difference was 4% and increasing. The situation with the Euro was worse.

By the time we finished processing the year’s harvest, our currency losses were greater that the profit from the increased production. If we wanted the breakeven we would needed to increase our US sales 12% and Eurozone sales by 15%.

The funding commitments haven't come in; how do I plan?

We presented a plan for a new business incubator. It was the first one that did not focus exclusively on technology. Everyone was incredibly excited and supportive. Funding was pledged through a public-private partnership. The total raise was $500k for the first year and $600 for the second. We had more applicants for staff positions and places at the incubator than we knew what to do with.

Six weeks into the new year, I had only received $75k. I contacted everyone else and they said the money was coming. After 6 months, I only had $200k. Everyone said they were having problems raising the money but it would come. My employees are on consulting contracts because of the uncertainty in funding.

We’ve gotten some extra sponsorship to cover the costs of business contests and weekend retreats. We started to do some consulting to raise some money, but I don’t have enough money to hire qualified staff to meet the demand for consulting projects.

Nine months in, we’ve only received received $400k of the money pledged for the first year. The local government owes us the rest. I have no idea how much of the money pledged for year two will actually come in.

How do I plan for next year? How do we get people to honor their commitments?