How Strategic Planning and Government Support Can Save a Small Business from Crisis.

Today, I got a flustered call from a client I worked with a couple of years ago, as her business coach.

It looked like both her businesses were about to go under, driven by an increase in costs, and a slowdown in sales thanks to the cost-of-living crisis.

When we started working together, she had a cool, albeit small, bar in outer Sydney and was interested in starting a distillery - not only to sell the spirits she crafted through her bar, but also to other bars in the areas and perhaps even nationally if she could get stocked in some of the big chains.

Given I had deep experience in the distillery industry, having run two well-known brands in Australia and one in New Zealand, I felt I could guide her first to the decision whether this was a good business idea or not.

We put together the 10 year financial model for the potential distillery business and the numbers looked good, especially as in Australia the Federal government provides a $350,000 rebate on spirit excise, every year.

Australia has the 4th highest tax on spirits in the world - in a 700ml bottle at 40% ABV, there is about $30 excise (then there is GST as well, so if you sell the bottle for $99, there is a further $9 GST).

This rebate means she would need to sell more than 12,000 bottles in a financial year before having to pay the excise.

So, especially with the excise rebate, the business model for a lifestyle-sized distilling business stacks up.

It is terrific Federal government support to help the growing craft distillery industry in Australia set a solid foundation, as happened with wine in the 1980s (for decades, they had a $500,000 annual rebate until recently, which was wound down to match the $350,000 brewers and distillers now get).

Her distilling and bar business crisis, in a nutshell.

I love this scene in Austin Powers, watch it to add a little joy to this dark topic.

OK, this is where she got to after I last worked with her a few years ago:

Opened the distillery in early 2022
Started by selling bulk vodka in 20L drums to local bars, while developing the products she wanted to retail and wholesale. While she had to price this so low, to compete with the large distilleries in Australia, she basically made no profit - the silver lining was she was pocketing that $30 excise per bottle, so it was great cash flow and profit, until she had her products developed and in the market
The bar sales and profits were steadily recovering after COVID, and she had a good team in place - even a full-time marketing coordinator working on both businesses
In mid-2023, she was approached by a cashed-up buyer interested in taking the bar off her hands. She was keen to not only unlock some cash to then pour into growing the distillery, but also have the single business to focus on. We had a few calls, and I gave my two cents and pointed her to the best resources to consume when considering selling (including the best book on how to negotiate). One big piece of advice from me when we looked over the numbers was “don’t be greedy - know what a bar usually sells for, a multiple of the last year or three year average profit, negotiate well but don’t open with a stupid price.” Unfortunately, she did, and the buyer walked away
Soon after the buyer said ‘yeah, nah’, the hit from the relentless interest rate rises in 2023 started to bite. Not only did the cost of labour and goods increase, but trade slowed down - punters were feeling the pinch and going out less, to make it through the cost-of-living crisis
To make matters worse, the awesome bar manager and marketing coordinator quit around the same time, which threw the owner back into working in the bar
The bar started to lose money, about $6k a month - even with the owner back in there working
Already with some debt in the business before the perfect shit-storm that was mid-2023, the debt grew to around $100k by the time she called me
She even asked the potential buyer if they would take a much lower figure, but he had already moved

To compound this mess, from mid-2023 she was hit with some personal distractions, which added to her lack of attention on the numbers, and accelerated the tailspin.

FY23 sales were down 20%, and when we spoke this morning, year to mid-February 2024 were down another 10% on that - a full 30% down on FY22 sales.

All the hard work we had done to build her 10 year financial model, and the handful of main KPIs on her Scorecard she had to keep on track, went by the wayside just as the serious problems in the bar business began.

She didn’t keep an eye on that Scorecard, and didn’t take action fast enough to fix the trajectory (we build a 10 year financial model for each small business owner that goes through our 80 day Business Transformation Program - a different way of small business coaching, as we believe small business strategic planning should start with the numbers).

When she rang I could hear the panic in her voice, the fear of possibly losing both businesses was clouding her judgement, and wanting to make sure she paid the debt back - to the 3 Fs (friends, family and fools).

Thanks to my 5th espresso just before the call, what she needed to do to get out of the mess was pretty clear to me.

My advice as an experienced business coach and small business owner, to stop the business going under.

I’ve seen others, and myself have been, in crisis-mode like this - many times before.

Here is the advice I gave her, and have given to other small business owners over the last 25 years I have been growing my own businesses:

1. Put your oxygen mask on: look after yourself first, otherwise you can’t help the business. Ensure you get 8 hours sleep a night, eat well, socialise with friends and family, exercise and keep a lid on the alcohol. If you exercise well, you will sleep better, will be more focused, have greater energy and be happier.

2. Up your PD: I am huge on PD, Professional Development - I invest around 10 hours a week in it. And as a bonus, as we talk about in our free small business course - Transform Your Performance, you can fit this in during ‘dead time’ (driving, cleaning, walking the dog or like me, shooting hoops in the sun). By listening to books and podcasts you not only feed your brain with new business ideas, but also get the inspiration to keep pushing through. A great cast I listen to every day and I highly recommend is The Game by Alex Hormozi. His topics range from sales and marketing, business growth, personal growth, fitness through to philosophy. He thinks and communicates differently and almost always has an interesting take on a topic he chooses. And, there is great inspo in his vignettes too - he worked his way out of a few shitty situations, including needing to find $150,000 USD in a month or go under personally, after his business partner ran off with all the money in the bank, then two gym clients started cancelling memberships. It’s a great story told at the start of his two impressive books:

a. $100m Offers: How to Make Offers So Good People Feel Stupid Saying No

b. $100m Leads: How to Get Strangers to Want to Buy Your Stuff

3. Write a plan: once the anxiety has subsided, and you have greater clarity, write a simple plan - what are the 1, 2 or 3 big things you know will get you out of this mess. Write them down and work down the list, in order, every weekday.

4. Focus: clear the decks and just focus on the plan. Work it every weekday, don’t let distractions or procrastination veer you from that plan.

5. Hope is not a fucking strategy: I stole this quote, slightly modified for my style and emphasis, from James Cameron (director of The Titanic, Avatar, Terminator etc) to owners I coach when they say “I hope to hit the sales plan this quarter”. Hope is not a fucking strategy - write a plan and take action, every, single, weekday until you are out of the hole. The sister-retort when someone says "I'll try to hit the KPI", is "do or do not, there is no [ fucking ] try". - Yoda (slightly modified by Troy)

Specifically for her situation, the plan I suggested she consider, was:

1. Sell more bulk spirit to other bars: she said a large bar nearby was interested in 300 litres of vodka a week. The large spirit companies sold it to bars at $49 a litre (at 40% ABV), and $40 of that was excise. I said, even if you just charged $42 a litre (there would be about $2 in utilities, ingredients and labour costs), you pocket the $40 excise as you don’t pay excise until you sell just under 9,000 litres at 40% in a year. I also pointed out that, at 300 litres a week, that volume would max her $350,000 rebate in just over 7 months (it resets on 1 July, the start of the new financial year). Even if you did nothing else but sell almost 9,000 litres of bulk spirit to bars, and cash in the $350,000 rebate, take out say $50,000 in annual overheads, that means you make $300,000 profit. “How many hours a week would you need to make 300 litres?” I asked. “About 10” was the answer. To close this idea out, I said “$300,000 a year for 10 hours a week work doesn’t sound too bad to me - that’s $1.2m at a 40 hour a week, and no team to manage!”. At 7.5 months into the current financial year, she has only used about $50,000 of her annual rebate, so if she puts her selling skates on and gets some contracts in place, she can cash in the remaining $300,000, which will sort out point 3 below, and quickly

2. Decide what you’ll do with the bar, then do it: fix the sales problem and keep it, or sell it. Or shut it down. It’s not just the cash drain of $6k a month that’s the issue, it’s also the time she works in it each week, and the energy and focus it is sapping from the distilling business

3. Cash up, then pay down debt: once you lock in that 300 litre a week contract, or get others so you will max the rebate out each year, say to the bar who wants 300 litres a week that you will save them $7 a litre (if she agreed to $42 a litre) - this is a very compelling $2,100 a week, or $109,200 saving a year for your customer. So, tell them to be able to get that price and savings, they need to pay each order upfront. That’s $12,600 per order, each week. Build your cash buffer and when you are confident that cash flow can be sustained, go to the 3 Fs and commit to a payment plan - and pay it all back sooner than you commit to

4. Have a break: take some time off, reset and recharge, and

5. Decide what you want the distilling business to look like, then do it: do you want to work the 10 hours a week to earn $300,000, or (after your break) you may have the energy and inspiration to get back into creating and launching your own products.

While this is a cautionary small business tale, and a little scary, what I took joy from was the SMS she sent me soon after the call.

To have someone to bounce ideas, and the stress off, she now has a clear plan she is going to focus on - and the anxiety has disappeared, and will stay away if she continues to act on that plan.

If you feel you or your business is under extra pressure at the moment, book in a 20 minute chat with me. I love talking about small business, and helping owners grow them (or get out of a crisis).

Cheers,

Troy | Founder | Grow A Small Business

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