3 Lessons from a Business Owner on The Brink of Failure
Buying even a successful business can go downhill without much warning if you’re not prepared. That’s what happened to Rhys Jeffery when he bought the salon Arrowtown.
On October 1st, 2016, Rhys purchased the salon for $128,000. At the time, the business was generating $599,459 in revenue with an operating profit of $87,538. On paper, the deal was very promising. Then, his head stylist quit before his journey as a business owner began.
The stylist believed she was underpaid and attempted to renegotiate her pay up 30%. She was firm. Believing she was bluffing, Rhys declined. When she left, the salon lost 90K worth of business overnight. Soon after his senior stylist approached with a similar proposition, and Rhys knew he could not afford to lose her. He had lost any kind of leverage in negotiations, but he was very fortunate that she was not issuing an ultimatum as the head stylist had done. She was willing to work with him.
These difficulties hit the business hard. “Within the first month of owning the salon, revenue was down 40%, and our operating profit dropped below zero,” Rhys wrote of the experience. Eventually, however they turned the business around, and he gained a few insights along the way.
Lesson 1: Do your due diligence.
Rhys later learned that the previous owners left the business to run on its own, creating challenges for the employees who felt underappreciated and underpaid. During the selling period, the owner also refused to let Rhys speak with or meet the staff until he signed the purchase agreement — a red flag.
These are the kinds of things that the due diligence phase is designed to uncover. Speak to as many people involved with the business as you’re able to beforehand and ensure you’ve gone over the paperwork, financials, and legal.
Lesson 2: Good staff are worth more than gold.
Taking care of your staff is critical to your business’ success. Attracting and, more importantly, keeping good people requires competitive pay, vacation time, benefits, as well as intangibles like an enjoyable work environment and trust in you as a business owner. The performance of your business is dependent on this.
Rhys eventually lost all but one stylist and the business fell into a slump. What did he do? He promoted the remaining stylist to a management role and she helped turn the place around. They hired two new full-time stylists and a third part-timer. After a painful several months, revenues were back up.
Lesson 3: Know your worth.
Two of the changes that helped the business rally significantly did not, in fact, come from Rhys but from the staff. Based on their feedback, they introduced a loyalty system to ensure existing clients felt valued and made the decision to raise their prices (at one time the manager noted that they were the cheapest salon within 50km; she didn’t think it was right).
The idea of raising prices can be frightening if you have dealt with losses already. It could upset current customers or drive away new ones. But based on his team’s feedback and trusting the quality of their service and experience, “We decided to increase our prices by about 10%.” The result: A noticeable increase in revenue.
“The thing is if you truly believe in what you’re selling, people will be willing to pay for it,” Rhys wrote. “Increasing prices isn’t greedy; it’s just common business sense. Over time if we didn’t increase them, we’d end up out of business.”
Rhys wrote that the things he learned in his time as the owner of Arrowhead wasn’t anything new or innovative. “I’d heard all these (lessons) before myself and yet I didn’t follow any of them,” he wrote. “I stumbled onto them by trial and error.” Two and half years after buying the business, Rhys sold the business for $170,000 + stock ($185,000) and generated a total of $282,000 in cash.
Sometimes the best advice is common sense. For more insights on buying and selling a business, tap into our community of experienced entrepreneurs or explore our marketplace today.
Opinions expressed here by contributors are their own.
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