We finally come to finance and how the guys at KOTTULABS found their way around that maze at the beginning. Don says that just like all other aspects of the business, when they first started out, they did not really give the financial aspect of things its due, by way of looking at it seriously. He says, at the beginning, they were quite free and easy thinking that since they had the capital it was fine to invest it in anything that needed to be done, whether that was building renovations, marketing collateral etc. He says this was a huge mistake they made as it obviously negatively impacted their bottom line.
He says as a rule, players in the food industry have a 70% gross profit margin on what they sell, and from that 70% they cover rent, wages, electricity, and other overheads. So, when KOTTULABS initially took this lightly the bottom line suffered immensely. Don says, it was when they needed to start thinking of the return on investment that all this really started sinking in; and so, with time and experience things have obviously changed.
Don says another mistake they made was to sink in a lot of their capital into infrastructure and very little was left as a working capital. As we discussed before, KOTTULABS did have some knotty situations to work out with certain third parties, and one such matter was that after KOTTULABS made a significant investment in the building to bring it up to the level required, they were asked to vacate – after just 12 months. That, says Don, is capital down the drain. The learning from that was, a) not to sink too much of capital into structural changes and b) you have a written agreement that you are renting the premises for a x number of years and any breach of this by way of asking to vacate, means that cost of structural improvements and renovations will be reimbursed. All this might be obvious to most business savvy people, but it all goes to show just how green these guys were at the beginning and what a steep learning curve they had to go through to get to where they are now – just 3 years on – and to be so successful at their business.
We also know that KOTTULABS have partnered with a several small, home based businesses from time to time, by promoting and selling their products on the menu. Some of these were home grown ginger beer, home made gelato ice cream, cookies, curry paste (which was used in the preparation of the dishes) and desserts. Don says, they take a lot of pride in supporting other small business owners like themselves, simply because they know how hard it is to make it and be successful. Helping to build up another small business owner’s dream is their way of giving back to the community. Don says to make it in this industry, sometimes it does take a village - as in local support from various parties is important. He also says that using small, homegrown businesses to supply a few products also impacted their bottom line positively as the overall cost is not as high as some of the high priced, high end players out there. However, he know that they also need to work with large organization like well-known and world renown beverage brands, for example, to provide the customer with what they expect to get from a restaurant. Therefore, says Don, it is a balance of working with both types of suppliers and business partners. Ultimately the customer should be happy, and their expectations must be met.
Written by Shali Jayasuriya
Shali is a freelance writer and blogger. She has written articles for clients from various fields, as well as developing content for websites and social media as well as copy writing for press releases, collateral and internal marketing. She has extensive marketing experience and has worked in various industries including aviation and hospitality, education and e-commerce. Read her blog at http://wellwornhushpupps.com/