A Passionate Businesswoman, Having a Blast and Enjoying (Almost) Every Minute
An interview with Shelly Goldenberg
Interview by Jeff Yoskowitz and Kathryn Gordon at Hesperides Incubator Kitchen, Hawthorne NJ
Kathryn: So Shelly, I know from being your Mod 4 instructor at The Institute for Culinary Education (ICE) for chocolate and decorated cakes that you make absolutely stunning cakes, but now you have added chocolate to your repertoire. Can you explain that transition and your vision for your business?
(A note from Kathryn… When Shelly told me “she made cakes,” I postponed looking at her website, because I didn’t know the quality of her cakes. Shelly’s were actually so beautiful, that as soon as her externship chef, Francois Payard, took a look at her portfolio she was asked to create the cake for the opening of his store at The Plaza Hotel).
Shelly: I love learning. I love learning new techniques, challenging myself artistically, and setting challenges for myself. I had a successful cake business before I ever started at ICE, but I was highly motivated to learn more about chocolate during my externship and post-externship training.
Jeff: Okay, so let’s start with talking about your cake business. How did you get started?
Shelly: I used to be a lawyer, and for 10 years I had a high profile, nice job in Israel. Then 6 years ago, we moved to NYC “temporarily” for my husband’s business, which gave me an opening to drop my old job and to start doing the more creative things that I was interested in doing but was too scared to do in Israel because it would have meant leaving the security of my lawyer’s salary.
When we moved here, as a mother, I wanted the best cakes for my 3 kids, so I took some classes with Toba Garrett and Betty Van Nostrand. I volunteered to make cakes for friends, then I sold my first one for $40 and my business began.
Kathryn: Why did you begin the pastry & baking program at ICE?
Shelly: From the beginning, my cakes were gorgeous but I got feedback that they should be moister. My baking initially kind of sucked! Clients weren’t getting the same enjoyment eating the cakes as they were looking at them.
So, instead of creating the whole cake from scratch myself, I hired a professional baker to make my cakes, which I then decorated. It was cheaper for me to do just the fondant work. That didn’t work out though.
Jeff: That sounds like a pretty reasonable set up. How come it didn’t work out?
Shelly: I realized that the baker wasn’t quite following my buttercream recipe. My pistachio buttercream recipe, for example, is delicious. I really worked hard on it and I felt the tastings I did for the clients myself didn’t match the final product.
I wanted complete control of the process and the technical knowledge to get there, so I went to ICE. At the time, I also wanted to learn how to do chocolate, and I thought I would eventually start selling chocolate to my cake customers as party favors.
I wanted people to eat my product and react with “Wow -- that’s what it’s supposed to taste like”!
Jeff: You’re still doing cakes, although now you’re focusing on chocolate?
Shelly: Actually, I believe I can do both. They are both seasonal businesses. I find the highest demand for chocolate in the winter, and now that it’s summer, the wedding season cake orders naturally pick up.
Right now I have two websites, although I am thinking of merging them into one and presenting a cohesive artistic vision for my business. At the moment, I work alone until we’re in the high demand for each season, and then I take on interns and seasonal employees. (I use the free ICE career placement services when I need people).
Jeff: So what’s the vision for your business, since demand is growing in both segments?
Shelly: I am at the point where I can see my success, and what I need to do now is sit down and make some plans. The chocolate and cake businesses do run a bit differently from each other. To continue to do both, I need a business map to visualize for myself what kind of experience I want to give to my clients. I need to be the one to innovate, to bring out a new collection each season (like in the fashion industry). But I think I’m “done” being the only one in the kitchen. To be successful, I need to spend more time marketing. Other people under my supervision can execute my formulas especially in the cake baking, and production line for the chocolates. I will always retain final creative control over the cake decorating, though.
Kathryn: You have pretty chocolates and you’ve modified your packaging for the various chocolate holiday seasons. Did you design it all yourself?
Shelly: Yes and obtaining packaging in runs of less than 5,000 is never easy. But in the end, I found a great small company who will do a small quantity of custom print boxes.
Kathryn: In starting your business, did you take advice from anyone?
Shelly: I actually did everything myself! I did my own market comparison of competitors of artisan chocolates and then priced out my chocolates by lowering my prices by 10% compared to my competitors. I built my own websites and I took my own photos. I drew my own logo of a cocoa bean and gave it to a graphic designer to digitize it. I designed my own packaging to be eye-catching. In short, I took no advice from anyone.
Jeff: How did that work out?
Shelly: I’ll tell you honestly, I started my chocolate business as a way to thoroughly learn the way to produce chocolate, school myself in new techniques, and see if I was able to build a high production line of something I never did before, but always wanted to learn. I started in September, 2011 with no specific plan beyond having as many people as possible love my chocolate! Luckily, because people do like my chocolate, it has grown into a small profitable business.
Now I have some challenges, and an urgent need for a more structured business plan. I sent out my own online newsletters through Constant Contact. Through that, I was able to sell $10K in chocolates in the first 3 months and was able to buy a tempering machine with the profits. I also sell directly at gift fairs, and find that a very good way to move my product so I will continue to do that through the fall.
I was introduced to a broker, who got me into 6-7 retail stores in NYC like Garden of Eden and West Side Market. That gave me volume, but I had to sell at half price for wholesale versus what I can make with direct sales via the internet, or in gift fairs.
Kathryn: Right now you’re producing in an incubator kitchen. Is that working out for you, and how did you get there?
Shelly: When I went looking for a space to produce the chocolates, I started in a “warm kitchen” in the back of a cookware store. It was tiny, but only $20 an hour and the very nice owners didn’t charge me for using the space past 5 pm! I got myself a real bargain, but it was hard to work there for any production efficiency. I Googled incubator kitchens online and found this space.
The best part about this contract is I can rent a small amount of permanent space with no ovens nearby, and rent additional cold storage space for chocolates and/or production space for my cake orders as required. It’s very flexible and cost-effective.
Kathryn: Given the type of production spaces you need, do you think it makes sense to focus on only one of your businesses?
Shelly: I find the high end, custom cake business to be easy for me to manage. You have ample notice for a project, and there’s nothing to stock. Since I’m pretty much the only one working on the cake, I’m under tons of pressure just before the project, but there is no overhead except for rental of the kitchen when needed. For artisan chocolate, it’s more complicated. I need stock, have to care about shelf life, need to have more marketing and sales follow-up, and there are more people involved.
Jeff: A very experienced business person once told me you can’t truly run a business successfully if you have to manage every single detail and aspect of it yourself.
Shelly: I am seeking a partner who will help me with the business part of the business. I have lots of ideas and I know that I can sell the product because people love it, but I need someone to help with the financing and marketing, because I am not good at it.
Jeff: Do you have time for your family?
Shelly: You know, I wrote up a plan of how much time I wanted to spend a day with my kids, my husband, the gym, my businesses etc. It added up to more hours than are in a day so that didn’t work and I threw the paper out!
Recently, I started working with a branding company that gave me a long list of questions to focus on things that are very relevant, and will help me structure my plan to grow my profits and balance my life commitments.
Jeff: OK Shelly, thank you very much for your time today. And thanks for the chocolates! How about we plan on talking to you in a few months, when you’ve finished your branding survey analysis. We’d love it if you can share it with us.
Shelly: Yes, that would be great!
Time Management Challenge
Interview with Marisa Iapicco
Chef/Owner of Semisweet
By Chef Kathryn Gordon
Kathryn: Hi Marisa, so I met you a month ago here at the Hesperides Kitchens when I noticed your beautiful, decorated sugar cookies! How did you get into doing this style of cookie with royal icing?
Marisa: I started doing custom cakes as soon as people found out I had graduated from pastry school (Institute of Culinary Education/ICE in 2008). I worked at a bakery in PA, and then my friends asked me to do holiday cookies that year. This business grew from that demand. I later moved to NJ, formed an LLC and found the incubator kitchen here in Hawthorne. I still do small custom cakes and some cupcakes but my main business is decorated cookies.
Kathryn: How long have you been here at Hesperides and how much time do you spend here a week?
Marisa: I’ve been baking and decorating at Hesperides incubator for a year. Typically I am here in the bakery 4 days a week, 6-18 hours a day and the rest of the time I’m doing paperwork in my office and home. I currently live 45 minutes away and that’s too far, so I’m moving soon to be 10 minutes away, so I can pop in to make dough when I need to, or package up cookies that have finished the drying process.
Kathryn: When you sell your cookies, what kind of packaging do you use?
Marisa: I am in the process right now of changing it, but I offer a clear top gift box with the cookies in shredded paper for the standard decorated cookies. ‘Minis’ are packaged in clear plastic cylinders. For custom cookies, which tend to be hand-delivered, my clients typically want them presented on a platter or an individually wrapped party favor. I have tried heat sealing each cookie but I don’t feel it looks quite right so I put the cookies in a craft box, and seal the box. It also works better to ship them that way.
Kathryn: I heard that you tried selling in a local mall but now you’re not there anymore. Can you tell us about that process and decision?
Marisa: There was a local mall that was (supposedly) trying to promote local businesses. They offered a 3 month trial for a cart and in exchange I paid a percentage of my sales to the mall. After that, a monthly rent would have been established based on my sales record. I brought cookies and cupcakes over from the kitchen, and used my phone for credit card transactions.
The cart had limited electricity, so I couldn’t put anything in a refrigerated case. The problem was the mall placed my cart inan area where the sun came in through the roof. Per the mall’s rules, I wasn’t allowed to put up an umbrella. The cupcake icing got soft, and some of the royal icing colors faded on the cookies. It became clear that my product and the location in the mall were not a good “fit.” There were just too many obstacles and restrictions. I didn’t have the “clout” as a trial customer to argue with the mall but it did give me a heads-up that maybe I wouldn’t have wanted to sign a long term lease with them if they were going to be so difficult to work with.
Kathryn: Besides the mall-selling experiment, how do you market your product?
Marisa: I have a website, and people find me on the internet. The biggest part of my business is through word of mouth. My business has grown exponentially without me spending anything on advertising. My biggest customers are moms and brides-to-be who order cookies for engagement parties, bridal showers, baby showers, and bachelorette parties. I also do some corporate orders.
Kathryn: I see various sizes and shapes of cookies here in your kitchen. How do you organize your product offering and pricing?
Marisa: I have 2 lines. The first is a standard collection with holiday and seasonal specials. I offer vanilla, chocolate, orange-almond and gluten free for those cookies, and they are iced with royal icing but these are the standard shapes and colors. I have different sizes, including ‘minis.’ I can work on the standard cookies pretty quickly because I know the designs. My second line is custom cookies. I have lots of different cookie cutters, and I work with a client to develop what they want. Based on the detail required and the number of royal icing colors on each cookie, the price for custom cookies increases ($5.50 is typical per cookie). It takes more time to design each of the icing effects for a custom cookie.
On top of the cookie prices, I charge for delivery. Within NYC, I charge a $30 fee to cover the cost of tolls and gas. I also deliver within 3 counties of NJ. Other than that, people can either pay for a situational delivery charge, or pay to ship the cookies. They do ship fine.
Kathryn: Marisa, are you doing all your own deliveries?
Marisa: At the moment, I am the only one working on the whole process. I’m making the dough, rolling it out, baking, and icing both the standard and custom lines. I am trying to persuade my husband to help, because he’s very good at the artistic side, but he’s in graduate school. My mother helps a lot – sometimes she assists me in the kitchen, and she’ll organize or clean, or help with the finances.
Kathryn: That’s not sustainable. Either you’ll burn out, and/or you’ll max out the income you can earn off of your business. I’ve watched you, here in the kitchen working and I see your labor time for these hand-piped cookies is incredible. Can’t we get you some externs from ICE to help you?
Marisa: I need to have standard production days where I do the same thing each day before I can bring in an extern. Right now I don’t have a standard production schedule and each week varies.
Kathryn: I think someone could be trained by you to make your doughs, roll them out to the thickness you need and cut and bake them. Maybe even after you’ve piped them, an extern could come in and pack the dried cookies for you and get them ready for delivery or shipping? You could retain the “control” of the icing, at least for the custom cookies?
Marisa: Luckily, to date I’ve been able to do everything myself. It has meant that I haven’t had to worry about paying someone else. The labor time to make these cookies is enormous. Between rolling the dough, and the drying time for the icing to set, it takes 18 hours per cookie order over the course of the week.
Now I’m pretty much maxed out, doing everything myself. I do need to restructure my time, have better production organization, and have a standard schedule in order to take on more work.
My busy season starts in the fall with “back to school,” birthday parties and then all the string of holidays. I am planning to restructure this summer, tackle my time management, and take on some externs and be ready to gear up.
I’m starting with having someone re-work the website. I’ve also been starting to target new distribution channels for my high end, custom work in an effort to gain more corporate clients. But you’re right; I have to be able to remove myself from doing all of the production to also be able to tackle these goals.
Kathryn: Okay Marisa, thank you for your time! Why don’t we talk again after the summer, when you’re geared up for a new phase of growth? We’ll be able to review your new operating procedures!
Interview with Margaret Wong and her sister Suzy Wong
80 Riverside Café (expected open January 2013)
Interview with Jeff Yoskowitz and Kathryn Gordon
Kathryn: Hi Suzy, Hi Margaret. This space is so open and airy, and with the plants and the overhead fans it reminds me of a stage-set for a Cuban café. How did you find this space, and what are you planning to do here?
Suzy: We’re sitting in the hotel lounge area and this is where we will set up our cafe. We are located at the corner of 80th St. and Riverside Drive in a Landmark building hotel. There are no cafes along Riverside Drive and there are 120 rooms in the hotel. Hotel guests have to walk 2 blocks to Broadway if they want coffee and breakfast in the morning. Based on a survey I conducted of guests staying at this hotel and based on the overwhelming positive response of guests wanting a cafe on premises, we’ve decided to open a breakfast café here. The owner is a very dear friend of mine. He wanted to have a restaurant/outdoor cafe here many years ago but it was very difficult in the past to get the Landmark Preservation Committee to approve an outdoor cafe. We are in a sense fulfilling the owner's dream - many years later.
Jeff: Landmark status is difficult to work around. How are you managing that?
Margaret: We’ve used the hotel’s architect, because there are very few landmark specialist architects. He has now obtained permission from the NYC Landmarks Preservation Committee for us to create a new door opening facing the park. That will allow us access to neighborhood foot traffic, in addition to hotel guests. We’re hoping to attract customers throughout the day, then transition to light lunches and finally to afternoon snacks and treats as mothers and nannies take kids to the park after school.
Kathryn: So Margaret, we know you from when you were a Chef Instructor at the Institute of Culinary Education (ICE). Obviously, you’ll be managing the kitchen. Suzy, what’s going to be your position?
Suzy: I'm the day-to-day manager. Once the cafe opens I will be front of the house and barista/counter person.
Jeff: Margaret, what’s it like to work so closely with your sister?
Margaret: Well actually, there are 2 more siblings involved! My other sister will be in charge of the Café’s aesthetics and when we open she will be doing the sandwiches and wraps for lunch.
My brother Simon, who is a architect, will be in charge of the inside renovations (and the hotel architect is working in conjunction with him for the outside modifications under the landmark rules). There is also a pre-existing bathroom that we will spruce up and are sharing with the hotel.
Kathryn: Wow, that’s an amazing group of resources to be able to draw upon. So where will the kitchen that your brother is designing be located?
Margaret: Right now, it’s the suitcase storage area for the hotel. It actually was a kitchen once so there are pre-existing gas hookups. There is good solid floor tile, and windows and I’m thinking we might open up the art deco archway and have an open kitchen view from the café. I might be able to host some demos and classes here eventually.
Suzy: Can you visualize a kitchen in there?
Jeff: I can visualize a kitchen anywhere! It’s really tiny though!
Margaret: It’ll be even smaller since the lease requires us to carve out a suitcase storage closet. But I will have a Hobart mixer, convection ovens and other equipment.
Jeff: What kind of terms did you get on that lease?
Suzy: It’s a 5-year lease with a 5-year renewal option. We don’t begin paying until we are actually in business.
Jeff: Those are fantastic terms to have negotiated.
Kathryn: And there really is nothing like this around you in this whole very residential neighborhood.
Suzy: We are fortunate as we already have a captive audience - the hotel guests!
Margaret: And especially in the summer, the amount of foot traffic passing outside is amazing! The baking aromas should help draw them all in, and there’s visibility to the kitchen thru these tall windows.
Kathryn: Margaret, for the 9 years I’ve known you, you’ve been a pastry and baking instructor. You’re making quite a transition from teaching. How do you feel about that?
Margaret: I’ve always wanted to have something of my own, and I’m the only member of my family in the food business. I told my students what I was planning to do, and they were very supportive. I needed something more. This is the time to do this, for myself and I couldn’t teach and focus on the business at the same time.
Kathryn: It helps immensely to have support from your family, as well.
Suzy: We’ve pooled our resources to finance everything and we are reluctant to take a bank loan. Having Simon overseeing the architect/design portion of the business has been a tremendous help in keeping our costs down.
Jeff: Sometimes that’s risky, because you’re risking your own family relationships.
Margaret: I think at the end of the day if this fails, we’ll still be ok as brothers and sisters.
Suzy: As a family we are very close and each of us will work very hard to make this dream come true. We’re in a bit of shock today, because we just got our first bill from the hotel landmark architect. We should probably double the estimate for each project moving forward.
Jeff: Did you have a concern that you were leaving a salaried position for a business that was going to take a long time to get off the ground?
Margaret: Thankfully I have somewhat of a cushion and obviously, having an architect in the family will ultimately save on costs.
Jeff: Do you have a business plan?
Suzy: Yes, we do and I find SCORE's website to be very helpful. You have to do a lot of your own work, but they give you guidance. We welcome any guidance/suggestions as this is so new to us.
Margaret: We’re sort of all over the place, because we’ve never done this before.
Kathryn: In your business plan, how many customers are you expecting once you’re open?
Suzie: I tried to be very conservative. We need on average of 75 customers a day, estimated from the hotel. There are 120 rooms, and we believe based on my surveys that roughly 80% of those will get something for breakfast. Throughout the rest of the day, if another 45 people total come in thru foot traffic from the neighborhood that would not be unreasonable. We’re located right on the park! On average we need each customer to spend about $4 to break even.
Jeff: That’s pretty reasonable for a break-even projection, given the cost of coffee and a croissant or danish!
Kathryn: Have you figured out your menu?
Suzy: We’re going to focus mainly on breakfast items, sandwiches and coffee for now. If we could expand we would ultimately want to do wine and dessert.
Jeff: Since this is a hotel, are you planning to be open 7 days a week? What are your business hours going to be?
Margaret: 7:30 am till about 6 pm. I think we can handle that every day, between all of us.
Jeff: Besides the process of working in a landmark building, were there any surprises for you that you had no idea you were getting into?
Margaret: No, not yet. We thought we would have to go all electric, but then we’ve been told that we have the ability to go gas, because there once was a kitchen here.
Jeff: There’s an existing bathroom – have you determined how you would share the responsibilities with the hotel of updating it, cleaning it?
Suzy: You’ve just brought up an important point! Like what happens with the shared space – that we have not thought about. I think that we’ll be able to work out some plan with the hotel staff.
Kathryn: Is it a concern that people might just hang out in the space here off the hotel lobby, and you won’t be able to turn tables?
Suzy: The hotel guests usually come in and check emails and go off to do other things in the city. I am noticing more and more hotels in Manhattan share their lobby areas with something like a Starbucks.
Kathryn: Can we come back and see how the space comes out after the build out, before you open?
Margaret: Sure! I’d love to share my menu with you when it’s ready, too!
The Right Tools For the Job
Interview with Ed Delandri, Food Equipment Technical Advisor at Interline Brands
By Kathryn Gordon and Jessie Riley
Kathryn: Ed, I’ve known you since 2005 but can you tell our readers exactly what you do?
Ed: I help sell commercial kitchen plumbing and food service equipment. I am in the corporate office of an equipment wholesaler. Our sales force sells to the end user, the restaurant or bakery. I am the technical advisor for both our sales people, and the end customers. In other words, the salesman will start to talk to a customer – but if the customer doesn’t know what they want or need – I get involved, and source it and get it for them. I’m on phone, email, video or teleconferencing all day and occasionally I travel.
Jessie: Do chefs and owners typically agree on what they need?
Ed: No, it doesn’t usually mesh! What would be ideal for the chef may not be affordable to the owner, so I need to help both of them figure out how to do something else. We work with vendors around the world so there are infinite options regarding what can be arranged for any customer and given the variables, every situation is unique.
Kathryn: Why do customers generally come to you about custom design vs. stock, already available equipment?
Ed: We’re the 4th largest wholesaler in the world, so people know our name. I take pride in helping people find the right fit. We will not sell a new chef or baker something we do not think they need, won’t help them, or will cost them too much in the end and create risk. We have a good reputation, and people know we can customize equipment. The customers drive the demand, not our salespeople and actually, even our competitors use us sometimes to sell to third parties.
Kathryn: How do you start the process of determining exactly what a customer who is designing a new retail (brick & mortar) location needs?
Ed: Videos and photos can go a long way. It helps to have an integrated team of the architect, engineer, electricians and plumbers.
Jessie: For custom designs, do customers have to pre-pay?
Ed: Not if it’s a repeat client who provides us good business like purchases of $500K per year. Bottom line: we want happy customers. If it’s an all-new customer, some sort of a deposit will be negotiated based on what the vendor for that type of equipment requires.
Jessie: But what happens if the customer specifications are wrong?
Ed: Someone has to sign off on the contract before the work is started. It could be the end-customer, or the architect. Custom items are non-returnable but if the vendor is wrong, they will take the responsibility to fix the situation. Occasionally an architect or engineer has to take the responsibility if they were the one to provide the incorrect specifications regarding space, etc. on behalf of the client.
For big ticket items it’s key for you to be involved hands-on in making your own decision. If you know your own business, don’t let anyone push stuff on you, standard or custom, or you’ll wind up with the wrong equipment.
Kathryn: What are the most common mistakes you’ve seen in terms of wrong equipment selection?
Ed: A lot of novice people screw up ordering ice machines. They don’t provide enough specifications on how they want it to work, and there are a lot of options.
I’ve also seen a lot of errors around fryers. Experienced chefs know they are purchased in pounds per hour. New businesses don’t always know how to project how many covers they will have, let alone peak frying volume and we need to know that and how many items on their entire menu will be fried to be able to help recommend a specific fryer that will actually work for the customers’ needs.
Sometimes, refrigeration is ordered because a restaurant chef loves the equipment design, but nothing was measured correctly and when they arrive, the reach-ins don’t fit under the counter.
Kathryn: How can customers best help an equipment purveyor understand what they need, especially since you can order from wholesale equipment purveyors all over the world?
Ed: The more specifications on how they want everything to work, the better. Allowing time for custom work is also important. Customers have to be articulate and videos and photographs help immensely. I can also go out and visit a difficult situation if necessary but remember you may be forced to select domestic vs. international given the shipping costs (like for a heavy espresso machine, or an AGA-type stove).
Jessie: What do you do with equipment that’s returned, or cannot be sold?
Ed: Periodically, our locations will host sidewalk sales!
Kathryn: Do you think that custom versus stock is the way to go, especially since you’re in that side of the business?
Ed: Actually, no I don’t. Blending custom and stock is usually the best thing but owners should never jump in with huge dollar investments without prior understanding of their business. We take pride in what we do, and we want the businesses to come back to us so we will not sell them equipment that’s wrong for them no matter how much more we could make. I am also a chef, and I will try my best to help steer them in the right direction. You have to remember, the artistic side of fancy custom equipment appeals psychologically but does not ever translate to commercial quality.
Jessie: So where should people start?
Ed: There can be a benefit of a seamless, integrated team recommendation – but that’s often impossible. So don’t just use “too many cooks” to make key decisions. You can start directly with calls to manufacturers to determine some of your initial possibilities, and you can do that yourself. Look at websites, communicate with equipment engineers and start making your own decisions. If you’re stuck, use a knowledgeable middleman and trust us to help guide you. It costs too much money to take the risk of wrong equipment selection, especially if you’re new to this part of the business.
Kathryn: Thanks Ed!
Everyone Needs Someone to Call
Interview with Enid Hoffman, CPA
By Kathryn Gordon and Jessie Riley
Kathryn: Enid, we’ve been discussing various tax aspects of new businesses while we’ve been driving around in the van in rural France! (Check out Kathryn’s trip under www.moulinbregeoncuisinecourses.com or trips through www.iceculinary.com).
I know you are a partner in a company with 250 accountants or so, so you’ve seen lots of food businesses over the years. Let’s try to formalize some of the great recommendations you have for food start ups.
What’s the biggest accounting issue you’ve seen for start-up bakeries, cake/chocolate specialists, etc?
Enid: The most constant question I’ve seen over my 34 years in the accounting business is: you need help, but are you going to pay this person as an employee or an independent contractor? There are legal and illegal ways to pay workers. The legal way adds an average of 15% to your cost structure, and that is a huge expense for a new company. By law, if you hire an employee you have to pay workers’ compensation, disability, and you have to match the employee’s Social Security contribution. If you pay the worker as an independent contractor you do not have to pay this extra 15%, but this method of payment is illegal if the person is working as an employee in your place of business.
Kathryn: Is the cost of processing an employee’s payroll also an issue? Like costs an employer would have to pay to someone through ADP?
Enid: No, that’s small potatoes, maybe $20 a month per employee. And I would definitely recommend someone with more than one employee to use a service for the payroll, because a payroll service can and should impound the payroll taxes. If you utilize this service, the tax and insurance liabilities are withdrawn from your bank account immediately. That guarantees the start up business will actually have the money paid to the various government agencies when the debt is due.
The business may not use a payroll service but still must remit the money on a monthly or quarterly basis. Too many businesses think they will have the funds available but then spend the money for other business needs. A new business cannot survive if they are not able to pay their bills on time, and you don’t want to accrue penalties from the government.
Jessie: Speaking of survival, I think new businesses are also afraid of having to pay an accountant on a monthly basis and what those accounting services will cost them.
Enid: Sole proprietorship income and expenses are incorporated in a personal tax return. If you have a good computerized general ledger such as Quickbooks, and no payroll, the return should run $700-$800 if there is no employee payroll.
Kathryn: So you recommend people use Quickbooks?
Enid: Some sort of accounting program should be used daily or weekly to assess your cash flow. You could post entries into Quicken, but it is less robust than Quickbooks. Either will tie to your bank account, but Quickbooks will allow more long term flexibility and growth with your company. You still need an accountant to help you set up the books correctly, conduct a review of the books and records every 3 months for the first year, then semi annually thereafter.
In any business you must reconcile the books and the bank statement which Quickbooks does as a byproduct of the program. If you do not reconcile, the books become unreliable because one does not know if all items have been posted and therefore you may or may not be reporting more profit or not showing the proper loss.
Kathryn: I gather you recommend people absolutely hire an accountant.
Enid: A lot of food-oriented businesses are cash businesses. One of the biggest mistakes I’ve seen people repeat over the years is that if it’s a cash business – and you either pay too many people in cash, and/or take out too much cash yourself – you can’t justify to an auditor that you’re making enough money to justify the expenses you’re claiming such as food costs or your personal living expenses. For example, you need to take money to live on, or your business will never be sustainable, and auditors know that. You do not want to create a risk of a longer, more extensive audit because your expenses, sales and labor costs do not tie.
Let’s say you operate a 24-hour a day pizza business. If you claim expenses for vast quantities of flour for your pizza dough, and you don’t show commensurate sales or payroll for the workers, then a government auditor would clearly know you are hiding sales and will conduct a tougher audit – and you could be facing criminal charges and would lose more than the cost of hiring an accountant to provide advice in the first place.
Jessie: I know several small food-related businesses that don’t seem to handle everything exactly correctly, like co-mingling personal and business funds or might have questionable practices paying their employees…
Enid: If you are co-mingling funds into one checkbook, the IRS or the state could audit all of your personal and business transactions which can be a costly and tedious audit. If the business has a separate account, the auditors will audit only the business account and will not review the personal expenses.
It can also create a risk if an employee pays the staff without a W-2 (generating the 15% additional overhead for the workers’ compensation, disability and matched Social Security). This can result in a penalty for the business. Another problem is if you pay the worker as an independent contractor (also known as a 1099 worker) – unless the worker truly is an independent contractor. And for independent contractor status, the worker has to: a) work for more than one employer doing this type of work, and b) “hang a shingle out” advertising that you are in this type of business. For example, if you’re in the yellow pages as a freelance chef, only then, whether you work 1 or 30 hours for a company, you would get a 1099. Only if you are a corporation, you will not get a 1099.
Jessie: So what should businesses be aware of that might be a red flag for getting audited?
Enid: “Invisible employees.” A red flag is raised as soon as a company has a pregnant “invisible employee” who files for disability because she can’t stand in your bakery 12 hours a day. Other examples are someone washing dishes, who is paid as a “invisible employee”, gets hurt on broken glass and goes to the hospital thinking he/she has worker’s compensation, or the work is cyclical and the “invisible employee” files for unemployment in a down period after making seasonal chocolates.
There’s no record of the “invisible employee,” because the business hired the worker as an independent contractor (1099) therefore the company didn’t pay the required workers’ compensation, disability or match the Social Security – and that’s a risk for opening an enormous can of worms. Worker’s compensation alone can issue 5 years of financial penalties and close down a business!
Kathryn: I know that at some times in the past that I’ve been an “invisible employee.” I also know I’ve worked for someone who never issued me a 1099. Where do these lines get legally drawn?
Enid: There’s something called “20 common law questions” regarding having to issue a 1099 for someone who is truly working for you. The question has to do with who can generate the ultimate profit from a scenario. Someone is considered truly freelance and will receive a 1099 if they are in business for themselves. Then this person is not an employee.
For example, if I am hired to make a wedding cake and I hire you to do the work for $300, you can make the profit/loss depending on the ingredients and time it takes you. This person is an independent contractor. If I ask you to come to my bakery and bake a wedding cake and I give you $30 per hour and supply the ingredients, you are an employee, as the bakery is going to make the potential profit or loss.
Kathryn: What’s the threshold someone has to earn from one company to get a 1099?
Enid: If a company pays someone more than $600 in a calendar year, they should issue a 1099. Not all businesses do, but the burden is on the taxpayer as the taxpayer must report all income whether the taxpayer received a W-2 or 1099. An employer can get a $50 penalty – but it is rarely issued, so it’s a risk some businesses are willing to take. (By the way, if an independent contractor did not receive a 1099 and they feel that they should get one, they can report the business to the IRS via a complaint form you can download on the IRS website – and that’s a better way to get action than just making a phone call to the IRS).
Jessie: How often should I be contacting my accountant to make sure my business is doing everything the correct way?
Enid: As an accountant, I accept calls all the time. Every business needs someone they can just call. I truly enjoy helping new businesses establish themselves – what could be more rewarding? Eventually though, someone has to realize that time equals money for professionals, and you might be sent a bill if you continuously ask questions during the year.
Kathryn: So you might get a bill if you’re calling your accountant 5 times a day, I guess?
Enid: People ask questions all the time. It comes with the territory, and I like sharing my expertise. I’ve always liked helping young businesses, and have found that ones owned by women especially need pushing. I like doing it and it has become my niche, with over 70% of my client base being women business owners.
Kathryn: Do you ever make field calls and visit your clients?
Enid: It can actually be more cost effective to visit a business at least once so you have a better understanding of what the client is talking about, but on a routine basis for a single proprietor it probably makes more economic sense for them to come into the accountant’s office.
Hint from Chef Kathryn: Always enter your receipts on a timely basis into your accounting software, and scan them. After a period of time, most check register receipts fade. I've seen one (failing) small business not file their taxes for a long time, because they knew they wouldn't owe anything because their expenses far outweighed their receipts. Eventually garbage bags full of 5-year old, illegible receipts were brought to the accountant... Not a great business procedure.
Time to Expand?
An interview with Master Boulanger Philippe Soulard by Kathryn Gordon
Name of Business: La Maison du Pain
At location # 1 of 3, Angers France
Kathryn: So Philippe, I’ve been coming here to visit with you at la Maison du Pain for the annual ICE culinary course to learn about artisan, levain leavened breads since 2006. Now I hear that you have opened 2 additional locations of la Maison du Pain?
Philippe: Our city, Angers, underwent an extensive 3-year construction project for a tramway. After the first few years, the construction really impacted our business. Nobody could really drive through the city so demand for our product was limited to neighborhood walk-in customers, so we were forced to expand to other locations.
Kathryn: Do you offer the same products in the new locations as you do in the original location, or does it vary by neighborhood?
Philippe: We sell the exact same products at each location. We make 65 different bread products from 29 different doughs! The second location is a second production bakery that I took over – and the third location is retail only. Honestly, the third location is in a better neighborhood (people with more income) than the second location, and the demand is steadier there across the product lines.
Kathryn: If you took over a production bakery, how did that go, if you changed a pre-existing product line over to your products and renamed everything to the name of your business, “la Maison du Pain?”
Philippe: The transition was a bit rough at first. For example, there was a type of bread people wanted, but I didn’t want to make it so I didn’t bake it. We lost some people at first but since then, demand has stabilized. We’ve been open in that second bakery location about 6 months. The third location has only been open a few months.
Kathryn: I know you use a lot of organic (biologique) flours – but you’ve also said your customer base is not affluent enough to solely demand organic products because of the higher retail price. What are your food costs?
Note: the stone-ground, water-driven mill that produced Philippe’s organic flours is Moulin de Sarre, www.moulin-de-sarre.fr and is very interesting to visit if you are in the Loire Valley.
Philippe: My food costs are about 25%. I don’t look at it on a product-by-product basis, but overall that’s what it is.
Kathryn: You and your wife Catherine live here with your family above the original location, and she manages the retail shop. And that has allowed you to tell if your staff are starting work on time at 4 am! How on earth are you managing the other full scale production bakery you are now operating?
Philippe: I only need 4 hours of sleep a night. It was difficult at first, because I needed to find very good people, including a very friendly retail staff. In France, firing employees is difficult so you have to be very careful making sure you are selecting the right employee… For the production staff, I moved over one of my sous chefs as the manager of the second production bakery. I kept the bakers who had been employed by the bakery I acquired and brought each of them to work here with my staff to learn my product. Gradually everyone was trained.
Kathryn: Your specialty is levain leavened breads – you seem to try to only use commercial yeast minimally, like for the rich yeast products (brioche, croissants) and for one of your 10 different baguettes.
(Philippe produces one cheaper, machine driven, yeast risen baguette for the older generation who lived through WW II and don’t care for the more chic/nutritious/high end breads with whole wheat, rye and grains. That customer base likes the commercial white flour).
Kathryn: Are the breads truly the same in each location, because I’ve tried making “your” breads in NYC and they work. They’re great breads, but they’re not exactly what you make here in Angers. And your 3 locations of la Maison du Pain are all within the Angers city-limits (or about 5 miles apart).
Philippe: It’s true. I try to have the same product line at all 3 locations but at the second bakery location, even using the same brands of flour, and having trained the staff myself, – some of the breads come out a little different.
Kathryn: And within the same city, the available city, water in the bread doughs is presumably the same! For instance, if I try to make your formula using water from NYC (which has chlorine, fluoride and who knows what else), I should expect a different result! Of course – you have a bit more of the “wild yeasts” available here in a location that has been a boulangerie for decades, than some people have at their US bakeries (or their homes).
Kathryn: How much commercial yeast to you use in your dough formulas?
Philippe: There’s nothing wrong with using a bit of commercial yeast and I use the fresh variety in some of my doughs.
If you strictly use levains for all your doughs, the levains and the doughs take up more space in your bakery. You need space for longer fermentation of the levain and space for longer fermentation of the pates (doughs). And space equals money.
Kathryn: How did you finance your expansion?
Philippe: In France, you can get a bank loan for 7 years if you file an application that includes your resume.
After 7 years of operating a business, I would have to pay a higher tax to the government than for the first 7 years.
It is more economically viable in France to re-mortgage and expand a business, or at least try to expand until you retire and sell your business (where you would then pay less taxes because you are in retirement).
I was able to get the bank loan for the expansion because we were successful with the first location.
Boulanger Philippe showing how his ovens work in a class; we visit Philippe for an artisan bread lesson in the annual ICE Cuisine Course in France (www.moulinbregeoncuisinecourses.com)
Kathryn: And you have quite a resume! You even come from a family of bakers.
Philippe: My father was a baker, and my brothers are bakers. I went to school for several years for bread, and then I travelled around the country to boulangeries working for a flour company. I had to help work at different bakeries every day. I really learned a lot about bread doughs, in different environments, and what I wanted to produce for my own line of levain leavened bread.
Kathryn: With all this expansion, you need a website! You have all this cute stuff in the retail shop: aprons with your logo, bread baskets with your logo, reuseable shopping bags…
Philippe: Yes, we know! As we’ve been discussing for years. It will be live this summer.
Kathryn: OK Philippe, thank you! And we’ll follow-up again with you in a few months when the website is live.