Going Into Debt as a Small Business--Looking For the Light at the End of the Tunnel
RANDY: This morning you heard from Rayanna Anderson of Missouri State University’s Small Business and Technology Development Center about some of the tools they can provide small business owners to help them avoid crushing debt... and becoming one of the fifty percent of small businesses that fail within five years. Now, it’s one thing to start up a business totally from scratch—but if you’re interested in licensing a FRANCHISE from an established national company, isn’t it somehow easier to make it? Not necessarily... that’s the lesson learned by Jenny Heulskamp, who since 2007 has owned and operated the local franchise, #845, of “Edible Arrangements.” With some 1100 stores worldwide, Edible Arrangements, headquartered in Wallingford, CT, was the originator of the fresh-fruit gift bouquet, with chocolate-dipped fruit and assorted other goodies arranged in gift baskets and available for pickup or delivery seven days a week. Jenny’s store is the ONLY Springfield location, situated in a small storefront in the Fremont Shopping Center on Battlefield Road.
JENNY HEULSKAMP: I am a Home Ec major, so I’m used to the food area. So that was one of the things that drew me to this business. Besides the gifting issue, I liked the presentation.
RANDY: Did you have to do a lot of research into the company?
JENNY: I was researching, I was Googling, what businesses were out there, franchises that were out there. And I did not know this one at the time. It was a fairly new franchise... so I was researching it in early ’07.
RANDY: Make no mistake, Jenny tried to go about starting this Edible Arrangements franchise the right way. She tried to educate herself on the business, the market; and she financing up front. We learned this morning that family and friends are the number-one source of small business start-up money... and that was certainly true in Jenny Heulskamp’s case.
JENNY: I have a partner, my brother-in-law in Nebraska. He was looking for investments—he’s got a lot more money than me! So what we agreed was, he would put the initial cash amount down and then I would take care of the rest of the financing on my end. And that’s kind of how we built our L.L.C. in percentages and such. We did a lot of budgeting, a lot of business-plan writing, a lot of projections. We were very organized. And what we were told at the time—by a booming franchise—was that it would cost us between $116,000 and $136,000 to open... and it ended up costing us $250,000! But we did not KNOW that until we were a half to two-thirds into the process. So there was really no choice but to continue.
RANDY: So the parent company underestimated Jenny’s start-up costs by about HALF, in terms of acquiring the equipment, store decorations, inventory and other details specified by the company. Jenny went through the arrangements with a bank to secure her own financing... and had to go BACK to the bank and increase her loan amount. Even basing her financing on the corporation’s own projections, Jenny still went way over budget.
JENNY: So that’s how we got into trouble. It totally blew all our projections out of the water... so we started kinda UNDER water!
RANDY: As Jenny is quick to point out, Edible Arrangements’ current start-up projections, as found on their website, are MUCH more realistic—they “figured it out,” she says. But 2007 and ’08 were a major boom period for the company, and they were growing faster than they could keep up. Jenny feels there wasn’t that much the parent company could really do to help. Some of their franchises couldn’t stay open... luckily Jenny’s wasn’t one of them.
JENNY: We have been very blessed—we have grown every year we’ve been open. We’ve grown 9 to 11 percent every year.
RANDY: Still, the financial situation was grim, especially since by August of 2008 the markets crashed!
JENNY: Our problem got worse because the bank we were at had their own problems. So they went to a lot of their clients, including us, and said, “You need to leave!” We had NEVER missed a payment, and they’re just saying they had to cut loose a bunch of people.
RANDY: At the worst of her financial issues Jenny says she was as much as $290,000 in the red. Scrambling to figure out what to do, Jenny called the local Chamber of Commerce, and they suggested she contact Missouri State University’s Small Business and Technology Development Center. The Center helped Jenny build her loan package—but because banks simply weren’t making loans, it took more than TWO YEARS for Jenny to be approved for a new loan. Meanwhile her brother-in-law did invest additional capital, which helped provide cash flow. But as of today, Jenny says that, while she’s still in debt, things are looking up.
JENNY: Our goal is to get the business loan paid off in the next five years. We’re trying to make bigger payments than we have. You know, it’s going to be a while, but we’re on a good track. We’ve got our new loan now, and we’re down—we’re in the 120 (thousands). So we’re doing good.
RANDY: To be debt-free in five years is the goal, and Jenny continues to consult with Isabel Eisenhauer at the MSU Small Business and Technology Development Center. I asked Jenny if she had any advice for anyone wanting to start a business.
JENNY: The biggest thing I learned through it, even with all our homework we did: be prepared, it’s going to cost more than you think! And to make sure you’re prepared for that, that you’ve got enough of the working capital to get you going. That’s huge.