Get Your Life Back

FSB helps a California entrepreneur expand her restaurant business, hoping to give her more free time.

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By Brian O'Reilly, FSB Magazine

fsb_MAC_owners.03.jpg
Executive chef and operations chief John Toulze and owner Sondra Bernstein at The Girl & the Fig restaurant in Sonoma.
The Experts
THE GIRL & THE FIG is a foodie empire in the making, but owner Sondra Bernstein's work has taken over her life. FSB's consultants crafted a plan to help Bernstein achieve her goal of automating the business so that she can spend half the year chilling in Provence.
Clark Wolf
is a New York City-based restaurant consultant.
Joyce Mallonee
provides marketing services to specialty-food companies.
Ed Levine
runs Vine Solutions, a Bay Area financial advisory firm for restaurant owners.
Solutions to Build On
The Girl & the Fig suffers from a "mommy culture." Bernstein's employees shouldn't run to her with every little problem.
Girl & Fig should aggressively market its location in beautiful Sonoma County, Calif.
By taking on limited equity partners, Bernstein can raise capital without losing control.

Sonoma, Calif. (FSB Magazine) -- Good luck getting a table for dinner at The Girl & the Fig Restaurant. It's in an old hotel on the town square in Sonoma, in the heart of California wine country. The menu features a pork chop you can eat with a spoon and a multilayered array of cheeses and charcuterie that destroys all willpower. Sondra Bernstein, who started the restaurant nine years ago, just opened a bed and breakfast down the street; has Big Pantry, a new high-end country store in town; owns the casual Fig Café a few miles away; started the Fig Foods line of fig-related processed foods; wrote a popular cookbook; and is getting ready to launch a catering business.

Fun and glamorous, eh? Well, no. Bernstein's business is exhausting, she admits. "I'm so busy I can hardly enjoy opening a new line anymore," she declared late one afternoon before heading upstairs to her modern office above the country store, where she would spend hours doing the payroll for Fig's 100 employees. Her immediate goal: to grow overall sales from $5 million a year to $10 million within three years. That means raising expansion capital, and she fears losing control of her business to investors. Bernstein also wants to boost the operation's net earnings past the meager $250,000 she reported last year. But she doesn't clearly understand which of her businesses make money and which don't. Her long-term dream? "I'd like to spend six months a year living and cooking in Provence," says Bernstein, 46, a tall, friendly woman who likes to wear baggy white shirts. "I want to work less and enjoy it more."

FSB imported three dining and retail consultants to help Sondra chart her course to Provence. Ed Levine, 51, runs Vine Solutions, a financial consulting firm for restaurant owners. He's also the co-founder of Left Bank, a group of five French bistros in the Bay Area. Joyce Mallonee, 55, founded Mallonee & Associates, a Lafayette, Calif., consultancy that runs marketing and merchandising programs for specialty-food companies. And Clark Wolf, 55, is a New York City-based food and restaurant expert whose client list includes Lincoln Center, the Russian Tea Room, Radio City Music Hall, and several Las Vegas casinos.

Wolf, Bernstein, and her executive chef and director of operations, John Toulze, settle around a kitchen table at Fig headquarters over a general store in Sonoma. Wolf sports short silver hair, purple-tinted glasses, and a tight black T-shirt. Friendly but businesslike, he puts out a bag of tangerines for all to eat but asks everyone to turn off cellphones and keep interruptions to a minimum.

Almost immediately an employee strolls in from outside and asks Bernstein a question about where to hang some paintings. By the time the worker leaves, Wolf understands why Bernstein finds managing the business a burden. "You need to be tougher," he says. "You need to set parameters. People bring problems to you and you take care of them. It's a 'mommy' culture. That's not good."

Marketing and pricing

He asks Bernstein to describe her operation. "We're a wine-country destination that incorporates the Sonoma lifestyle," she replies. Wolf frowns. Sonoma County rivals rural France or Italy for its rustic bounty and charm, he says. All of Bernstein's products, from the restaurant to the country store to her brochures and Web site, should embody Sonoma. "In your head, become the ambassador of Sonoma. Wear the tiara out in public. Not just the town of Sonoma, but Sonoma County," he emphasizes. "And the restaurant needs to become The Sonoma County Girl & the Fig Restaurant." (Bernstein nods politely at the tiara suggestion but says later that she lacks the time or temperament to evangelize for Sonoma. "And there's no way I'm changing the name of the restaurant," she adds.)

Bernstein mentions that she hasn't raised prices at the restaurant in a long time, and margins are shrinking. Wolf advises her to "raise prices invisibly. Don't charge more for the old chicken dish," he counsels. "Make up a new chicken dish that you can charge more for. You can charge anything you want for a grass-fed hanger steak. Offer a rare tequila that goes for $28 a shot. Let the customer spend."

Expansion

In addition to her flagship restaurant, Bernstein owns a smaller, more casual eatery called the Fig Café. Eight miles from Sonoma in Glen Ellen, the café earns about 7% on annual sales of $700,000. And it practically runs itself. Wolf suggests that Bernstein open three more café locations in the region and boost sales to $800,000 at each one. With economies of scale, margins would rise to 12% a year. Earnings would climb from $49,000 to more than $380,000 a year.

Over duck confit and a mound of cheeses, fruits, and charcuterie at The Girl & the Fig, restaurant finance expert Levine drills into Bernstein's balance sheet. What would happen to profits, Levine asks, if the main restaurant served 50 more meals a night? Bernstein and Toulze have no idea. If the catering business doesn't hit the $750,000 in sales they hope for the first year, how will they adjust the number of delivery trucks they use? Um, they don't know. Have Bernstein and Toulze drawn up a detailed budget for all their existing and new businesses? "We don't have one," admits Bernstein. Levine's eyebrows dart up briefly. "Nobody ever opened a restaurant because they said to themselves, 'I'm a great accountant,'" he says kindly. "But a budget raises awareness. It allows you to ask, 'Why did we order those 350 créme brulée dishes?'"

Raising capital

Bernstein laughs heartily when Levine asks how she plans to finance her expansion plans. "That's why you're here," she says. "We don't own anything. It's all leased. The only equity is the brand." Banks generally won't lend to restaurants because there's never enough collateral. And Bernstein fears losing control of the business to equity investors.

In a few deft strokes Levine sketches out how Bernstein can raise money by selling equity but retain full management control. First, create a new LLC for each line of business instead of the single LLC she now uses to run the whole shebang. That will make the balance sheet clearer and allow investors to pick which entity they want to buy into. Bernstein will be the general partner of each LLC, and the investors will be limited partners. "In a limited partnership, the only person with power is the manager," says Levine. "The other partners have limited liability and also limited control." Bernstein should negotiate a fee for managing the business - between 3.5% and 5% of sales. The limited partners will want a 20% to 30% annual return on their investments for the term of the loan, which means that 70% to 95% of earnings will go to them for several years.

Bernstein should receive the remaining earnings during that time. Once the limited partners are repaid, the payout ratios flip: She keeps half to 70% of earnings, and her partners divvy up what's left. "It's all negotiable," says Levine. If Bernstein ever wants to sell the business and move to France, she will have to delegate more authority so that it can run without her. "A business like this will sell for about four times the cash flow it will generate without you," he concludes. "You should be doing everything you can to develop a succession plan and have people trained to move into the next job on the ladder."

Cost cutting

Bernstein's biggest headache is Fig Foods, her specialty-foods business. That's what merchandising expert Joyce Mallonee discusses over a hearty lunch at The Girl & the Fig. Fig Foods got its start in 1998 after customers repeatedly asked for take-home samples of the honey-fig-nut compotes that the restaurant served with its cheeses. Bernstein started putting the compote in jars and gradually expanded the line to 13 items. Two years ago she started using brokers and distributors to get the product to grocery stores. Since then Fig Foods has chalked up about $100,000 in direct sales through Bernstein's restaurants and another $220,000 through retailers, including Whole Foods. Margins are great at the restaurants, but Toulze figures the grocery business has lost $16,000 overall. "I don't want to put any more money into it," says Bernstein. "The advertising, the slotting fees, the merchandising. It's too much."

Mallonee is astonished to learn that Bernstein pays 15% of sales to her broker, an outside contractor who pushes distributors to carry the line to grocers. "That's way too much," declares Mallonee, a pleasant woman with short hair, an infectious laugh, and eyes that grow huge when she gets excited. "It should be 5% to 8%, tops." Does anyone from Fig Foods travel with the distributors to see where the products are placed in stores? "These items have to be in the cheese department," Mallonee explains. "They're going to get lost anywhere else." No, they don't ride herd on the distributors, says Bernstein, adding that her products tend to get dispersed all over grocery stores.

Mallonee asks how Bernstein picked her $7 to $9 price range. Bernstein explains that she simply applied her restaurant prices to retail. Mallonee explains that food producers such as Bernstein often make money when selling a product locally, only to get clobbered by middlemen when they expand to a regional or national market. "Decide what your profit per unit should be," she suggests. "Then add the other costs on top to get to the final price."

Several weeks later, Bernstein reports that she's still overwhelmed with work but has begun to implement some of the consultants' advice. She thinks it might be smart to expand the Fig Café to new locations and combine each one with a Fig Pantry specialty food store. "People can have a sit-down meal and buy some cheese to go," she says. And she has already talked to her general manager about boosting sales by putting more expensive wines on the menu. But she's cautious about pushing prices too high. "I'll never do a filet mignon with black truffles," she says. "It just wouldn't fit in."

Like so many entrepreneurs, Sondra Bernstein still finds it difficult to separate her life from her business. But we'll keep in touch with Bernstein and see if her escape fantasy becomes reality. Who knows? Our next report could be from Provence.

The time to sell

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The Power of Profitable Thinking

Could your business use a makeover? In general, successful Makeover candidates are profitable small companies with at least $1 million in annual gross revenues. To submit your firm for consideration, please e-mail the FSB makeover editor here. Please describe your business briefly, provide your most recent and projected revenues, and explain why you think your company would benefit from a Makeover.  To top of page

Could your business use a makeover? In general, successful Makeover candidates are profitable small companies with at least $1 million in annual gross revenues. To submit your firm for consideration, e-mail the FSB makeover editor here. Please describe your business briefly, provide your most recent and projected revenues, and explain why you think your company would benefit from a Makeover.

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