Break down major decisions into steps
Experts recommend breaking down major business decisions into a series of steps. You need to know how much a decision is going to cost you and how much you expect it to return.
When the Schuermans approached BDC for advice on their plans, they decided to carry out a financial modelling exercise that would give the couple forecasts for all their options.
The first step was a “strategic visioning session”—a meeting with the Schuermans and top Chambar staff to brainstorm about growth ideas. They took an entire day and came up with about 20 opportunities.
The group then whittled these down to the best five options based on their feasibility and fit with the Schoeman’s’ business strategy. They settled on creating a second restaurant for breakfast and lunch customers, a cooking school, a line of packaged foods, a deli and a Belgian beer brand.
Create detailed financial projections
The Schuermans then had some homework to do. They had to create a business plan for each venture that included detailed financial projections.
All that information then went into a five-year financial forecast. A financial forecast includes setting a rate of return on the owner’s invested capital (typically about 15%). Any new venture should allow the business to exceed or at least match those targets, while not stretching finances.
A key challenge is how to do all this while minimizing external financing and not hurting cash flow.
An ambitious expansion
The couple’s first new venture was Café Medina, a breakfast and lunch restaurant. It was later bought out by a partner who moved the successful venture to a larger downtown location.
The next expansion was the Dirty Apron Cooking School. Here, the couple hit a snag. Their plan to open the school in a residential loft space got nixed when bank loan rules changed. They now needed to come up with the hefty 25% down payment needed to buy a commercial space, instead of just the five to 10% required for a residential property.
They went back to their financial forecast and plugged in the new numbers. Luckily, they found that the cooking school could still be financially successful.