According to Crowd Rules host Pat Kiernan, there are times when debt is good for business. That’s kind of hard to believe. The only time debt may be a good thing is when it gets you a slot on Crowd Rules and a chance to win $50,000.
Let’s meet this week’s business owners:Mystery Brewing
Erik Myers went from home brewing to brewing as a business. His company specializes in seasonal beers but without a flagship product, it’s hard to make a name for yourself. In his first year of business he sold $229,000 worth of product, unfortunately he still ended up in the red to the tune of $76,000.
Erik started the business with his savings, money from friends and a bank loan of $140,000. That money went into renting a space, buying equipment and salaries for the staff. Erik might have been okay if he had stopped there, but he decided to open a tap room where people could come and sample his beer. Now he’s tapped out and can’t even increase production to make ends meet because he doesn’t have enough equipment.
Will and Danielle Renke are fitness buffs who felt there was a need for a 24-7 gym in Myrtle Beach, so they opened one. After three years in business they grossed $206,000 with zero profit. To pay for the business, the couple opened and maxed out 23 credit cards. They say it’s their personal touch that makes their gym better than bigger gyms in the area but in order to compete they need to add services such as daycare and tanning. My feeling? They need to drop the 24-7 hours to cut down on staffing and utilities until they can turn a profit. (Turns out the electric bill is a problem but there is no staff at night, clients have their own keys. . . Doesn’t that sound like an insurance nightmare?)
Dirty Girl Disposal
Katherine Fairbanks runs this waste management company that is completely staffed by women (except for Katherine’s son who helps out). It’s a family business that wants to help train women to make it in the trucking business but they only had $30,000 in sales last year and were negative $15,000 in profits. Their purple dumpsters are cute but is that enough to make businesses choose them over the big “boys”?
The company needs to expand its territory in order to grow but it might have a bigger problem. A female marketer in the audience says she’s offended by the sexual connotation to the name. Katherine says it’s a non-issue because they never use their sexuality to promote their business. . . we’ll see.
Dirty girl — 43 Percent
Mystery Brewing — 33 Percent
Sky Fitness — 24 Percent
Time for the expert. This week it’s consultant Larry Winget. He visited all three companies and here’s what he found out.
Dirty Girl Disposal is suffering from poor accounting and family problems. Son says his sisters are lazy and mom sits at home – the passion for the biz is gone. What I noticed is that in spite of Katherine’s claim that the company is about female empowerment, their promotional merchandise is provocative. Not saying they shouldn’t use what God gave them, but don’t use a scantily clad girl in your poster then say you’re not playing the sex card.
Mystery Brewing went in with a third of the money the experts say you need to open a brewery. The upside is that the beer is great but instead of buying kegs to hold the beer, Erik spent the cash on the tap room. Big mistake. Erik thinks the profit margin on direct sales is higher – true, but only if he can finish the bar and get customers in. That’s a big if.
Sky Fitness is all about the personal touch but that’s not what Larry found when he visited. The door is locked at all times and Larry had to ring the bell over and over to get in. The one walk-in pointed out that the gym seems to cater to muscle-bound weight lifters. Larry agrees but the owners say he’s way off base. Trying to be everything to everyone is hurting them big time. What’s really hurting them is their insistence that they’re doing everything right. If this were true, they wouldn’t be in debt.
Overall, Larry says dreams are great but the plans are what make a business and these three owners are clueless.
Elimination vote: the Dirty Girls get the boot with only 8 percent of the vote.
Time to make a final plea:
Mystery Brewing is the crowd favorite. Erik says he’ll invest in equipment and back burner the tap room.
Sky Fitness is still planning on adding tanning beds and day care which he thinks will bring in more female customers. I still say, tanning beds in a gym with no showers? Weird.
The final vote is dead even! Insane. To break the tie, they remove the host votes and Mystery Brewing wins by 1 percent. That was a close call but seeing as he was the one who was willing to listen to the advice of the panel, he deserved the cash.
What Do You Think?
Is expansion the solution to a cash flow problem or does it only make it worse? Let us know your thoughts or your thoughts on this episode in the comment section below.
Photos: Screengrabs from CNBC