Recovering From Financial Turmoil
“How am I going to meet payroll? How am I going to pay my vendors? Is this all worth it?”
Those are the worries that kept Sharon F. Johnson awake at night two years ago.
As the new head of Creative Cuisine Concepts, she was overseeing a staff of 25 that made and served 1,500 meals a week at American Honda Motor Co.’s bustling employee cafeteria in the carmaker’s Torrance headquarters.
Honda was her dream client -- supportive of her new venture, encouraging and generous with its resources. Yet, despite that support, her popular menu, a smattering of new clients and her former successful career at food service giants Aramark Corp. and Sodexho Marriott Services Inc., Johnson’s small company was failing.
Debt was piling up. Vendors were calling for payment. Financial accounting at the company, which was based at the Honda facility, was in disarray.
“I had to dig deep into my own soul and make some hard decisions,” Johnson said.
She cried when she cashed out her 401(k) retirement savings. She borrowed money from her husband’s small inheritance. Johnson used the funds to help finance operations and to pay off her company’s debt, which became her sole responsibility after she split with her business partner the year before.
The money bought her some time but did nothing to repair the financial chaos at the company, which had revenue of $1.8 million in 2004.
It took some recent breakthroughs for the food service and catering venture to clean up its mess.
Last September, Johnson’s mentor at American Honda urged her to get help with the company’s financial statements. Johnson hired an outside accountant and shifted her paper-based system to QuickBooks, an accounting software program.
To bolster her business skills, Johnson sought out specialized training, including a series of leadership classes sponsored by the Los Angeles chapter of the National Assn. of Women Business Owners, of which she was a member.
Ten months later, the company has turned the corner.
“We’re not at break-even but we’re recovering,” Johnson said.
She expects Creative Cuisine Concepts to hit the crucial break-even point, when the company’s sales equal its expenses, in September. Her goal is to eventually grow the company to $50 million in revenue from about $1.5 million this year.
Even then, her company would be a very small piece of the food service contractor market. Industry revenue in the U.S. totaled $25.5 billion last year, a 14% increase from the $22.3 billion posted in 2000, according to an April report by research firm IBISWorld.
Four players control 75% of the domestic food service contracting market, which includes service for corporations, colleges, and sports and leisure facilities. Aramark, which previously had the American Honda contract, is the largest operator in the industry, with about 28% of the market, IBISWorld said.
Competition among the thousands of smaller contractors, including the 3,000 or so that are about the same size as Creative Cuisine Concepts, will probably heat up as overall growth in the market remains modest, the report predicted. The industry is expected to grow at an average annual rate of 3.3% through 2010, IBISWorld said.
A competitive market in an industry with slim profit margins makes it important that a small company such as Johnson’s keep its financial house in order, experts say.
“Regardless of how good the food is or how good the service is, if you are not managing your financials down to the last detail, there is way too much room for slippage,” said Patricia Dailey, editor in chief of Restaurants & Institutions, a biweekly food service trade magazine based in Oak Brook, Ill.
Food service contractors of all sizes have to compete on sales volume and how well they manage their costs, she said.
Johnson believes she is in a better position to do just that, thanks to her revamped accounting practices and new leadership skills.
Her leadership classes this year have pushed her to build on her strengths, which are developing her employees and making clients happy, Johnson said.
Among other things, the business owner, who makes a practice of hiring at-risk youth and single mothers in need, learned to focus on an interview process that screens out inappropriate candidates.
“You can teach aptitude, but you cannot teach attitude,” Johnson said.
She has taken to heart the message learned from the leadership classes, a UCLA entrepreneurship workshop and her American Honda mentor, Anthony Piazza, assistant vice president of human resources and administration: Keep your eye on the big picture and your finger on the financial pulse of your company.
As part of her financial housecleaning, Johnson asked her website developer, Bonique Edwards of Kaleidoscope Consulting Group in Culver City, to recommend an accountant. The two met as members of the National Assn. of Women Business Owners, and the Web designer referred Johnson to another member, Abacus Financial of Los Angeles.
Johnson hired the company, which is run by Edwards’ sister, Belva. Johnson paid about $750 a month for six months while the accountant and an associate organized, analyzed and entered all of the company’s financial information into the new computer accounting system.
In April, Johnson took over the weekly data entry. Her accounting bill has dropped to $200 a month as the accountant’s daily visits have tapered off to weekly check-ins, and the results have motivated her to continue the tedious but vital job.
Now she can run the weekly financial reports she was used to from her days at the major food service contractors, where she had always done a good job meeting budget numbers.
“Once I got myself plugged into, and focused on analyzing, my numbers like I did for Marriott and Aramark, we started to be in better shape,” Johnson said.
The information was eye-opening. Vendors were overcharging and in some cases double-billing. Clients were unprofitable.
“I was calling clients and giving them notice,” Johnson said. That included backing out of a money-losing food service facility at another South Bay firm. She dropped some suppliers.
And, with American Honda’s blessing, she raised her menu prices 5% to 20% in January.
The lessons learned have been painful but worthwhile for the recovering business and its optimistic owner.
“Hire someone who is putting the numbers in front of your face every single week,” Johnson said. “You have got to keep your thumb on the pulse of your money.”
Cyndia Zwahlen can be reached at Cyndia.Zwahlen@la times.com.
