The inside track to commercial property for food startups

Interview with Alfredo Fresnedo

Realtor, Century 21

By Kathryn Gordon

Kathryn:  Hi Alfredo!  You’ve been selling and renting commercial and residential properties for almost 30 years.  I was wondering how the economic downturn affected commercial business turnover, at least in your (New Jersey shore) area?

Alfredo:  What we’ve seen generally is that it’s become harder to sell businesses.  If they’re not viable to run, they’re hard to sell.  That means that some businesses have closed and the owners have walked away from their leases.

Kathryn:  If that happens, and a business closes, does the business generally sell their equipment to an auction house, or on eBay/Craig’s list?

Alfredo:  Some businesses strip out the equipment.  Some actually leave it all behind.  It depends on why someone is leaving. If they owe a lot of people a lot of money, they sometimes just want to disappear quickly, and abandon everything.

Kathryn:  From your experience, what do you think is the primary reason someone goes into business, invests so much money, and then can’t make a go of it?

Alfredo:  I really think everyone jumped on the "TV cupcake bandwagon” and cannot put out a really good product.  The fundamentals aren’t sound.  They may or may not have financial resources, but they don’t necessarily know how to bake or how to run a profitable business.

Kathryn:  If someone has to close, does it happen pretty easily that someone else comes along and wants to open up?   I know that there’s a bakery around here that seems to have been on the market for awhile.

Alfredo:  It depends.  People still want to open businesses, so a business will move if the business is priced right for sale.  Some people would be just lucky to get their initial investment money back, but they can have unrealistic expectations that they will double their money back.  That is very difficult in today’s economy, and if the business was doing so well that they could double their initial investment it probably wouldn’t be up for sale.

Kathryn:  What are the worst mistakes you've seen made in the food business over the years?

Alfredo:  There was a lovely restaurant in our town, Raspberry Café.  It had good food, friendly and reliable service, a fun atmosphere and a line of customers around the block on a summer morning! (Note:  this is a beach resort town and that’s prime time).  Then when the owners expanded with another restaurant and sold the café because they didn’t have time to correctly manage both, the new people who took over didn’t handle the cafe well.

Unfortunately, the new owners took out some of the original fixtures that had provided a lot of the café’s charm.  They placed an ice cream / soda fountain counter and a service window format that limited the number of table space inside.  In combination with the physical space change, the new owners had bad staff and mediocre food.  The remodeled format never took off.   If a place doesn’t have a good reputation, it will remain empty.  It sold twice fairly quickly and it’s now transitioned into a clothing store.

Kathryn:  In our town, most businesses for sale are for on a lease basis, right - not to purchase the actual building?  Do you think more businesses would sell if people could buy the building as well as the business enterprise?

Alfredo:  No, I don’t.  The majority of new start up business owners don’t have the financing to also be able to purchase the underlying real estate.  They may be able to come up with the money for the start up for business, but that’s all. 

Over time, however, I have turned several business renters into building owners.  When a building comes up on the market, I approach them first and they often do decide to purchase it if their business is doing well financially after the start up point.

Kathryn:  What’s the most typical way you see people financing new food businesses?

Alfredo:  Lately it’s been home equity loans.  It’s very unusual nowadays to qualify for a business loan.

Kathryn:  What’s the typical term of a commercial lease with renewal options? Do you, as a realtor, have any "words of advice" for someone trying to negotiate better lease deals with the landlord?  

Alfredo:  I see the most leases with 5-year with 3-year renewal, or 3 and 5, or 5 and 5.  It’s a big investment to start up a food business. You need a long lease to be able to justify the financial investment.

Some landlords will work with tenants when the market is down, and even if the lease terms are for the rent to increase, they will hold it constant if times are bad.  Others won’t, and I think that’s a big mistake. Rent increases can weaken a weak business and force it to close down.  Empty businesses don’t help generate foot traffic.

Kathryn:  When you're showing a commercial property, do you try to scope out the background of the applicant "differently" than you would for a residential transaction?  Are you trying to help assess viability of their future business?

Alfredo: I do ask if they are an experienced baker, to help gauge how serious they are.  I will say to people that “this may be a mistake,” if they want to buy something they’re not (apparently) qualified to run because it’s not good for the town tourism industry if businesses fail. 

Kathryn:  What words of advice would you as a realtor give to a new business start up owner?

Alfredo:  The best business formula is to know all aspects of your business.  If you have to, like if staff calls in sick, you should be able to handle all positions.  If it’s a restaurant or cafe, you should be able to be a host or wait tables.  If it’s a bakery or restaurant, you should know how to bake all of your products or produce every dish.  No employee should know more than you do.  When someone has that kind of experience, it helps businesses survive.

Kathryn:  Thank you Alfredo for your great insight!

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Interview With a Bread Expert: Ciril Hitz of Breadhitz.com

Master Boulanger, Teacher and Entrepreneur

Interview with Ciril Hitz

www.breadhitz.com

By Kathryn Gordon of Foodstartuphelp.com

Kathryn: Why did you decide to start your business?

Ciril:  In the past I had spent a lot of my summer vacation time traveling throughout the USA to teach workshops. At the time, I was primarily focused on decorative breads and there seemed to be a great interest in learning about these techniques. The problem was that I couldn't be everywhere at once, so I filmed and produced a series of educational bread baking DVDs to share my knowledge with those who couldn't attend the workshops personally. Breadhitz was born and has evolved ever since. Together with my wife, Kylee, we developed a website for our products including my DVDs, books, and a small selection of baking tools.  

As time went on, I was finding that the energy involved with prepping, packing, traveling, and teaching was starting to take its toll. I still wanted to teach workshops, but I also wanted to spend more time at home with my family. We decided that creating a small teaching and baking facility on our rural property would be a good solution. That way, I could still travel to teach workshops if I wanted to, but I also had the flexibility of hosting some of my own. In addition, I also could hone my production skills by running an occasional bread sale. 

Kathryn: What did you do before?

Ciril:  I am still employed full-time as an associate instructor of Johnson & Wales University at the Providence Campus.

Kathryn:  What's the name, location and website of the business?

Ciril: The business is called Breadhitz and we are located in Rehoboth, MA. The website is www.breadhitz.com

Kathryn: How old is your business? What's the focus of your business, and who is your customer base? 

Ciril: Our first DVDs were produced in 2005. We have been hosting workshops and bread sales since 2011.  Our focus is on bread baking education and services, with our customer base ranging from the baking enthusiast to the industry professional.

Kathryn: Do you sell retail/wholesale/internet?  

Ciril: Our main retail sales are generated through our website; we also sell retail at our workshops and wholesale to select accounts. 

Kathryn: How did you finance your business: Investors, savings, loans? 

Ciril:  My wife and I made a pact not to take on any loans in order to finance this business. We financed our business through personal savings and limited corporate sponsors. 

Kathryn: Did you have a business plan, and if so, do you find it valuable, or are you just winging it?  

Ciril: We did not do a business plan and have been winging it ever since. That being said, I am certain that a business plan would be very helpful to us in providing a structure for identifying goals and implementing strategies to achieve them. 

Kathryn: What product(s) are you most proud of? 

Ciril: That's a difficult question! I view all of my products as an extension of me, but I suppose I am most proud of anything that has a sourdough flavor profile since they are such a challenge to produce on a consistent level. The sourdough breads have been nurtured along for 10 years. I am constantly refreshing the culture so that I can have a reliable starter and it takes a lot of care and wood fired oven maintenance to produce a consistent result. 

Kathryn: How has your menu evolved since you started? 

Ciril: My menu is constantly evolving. I try to pair my breads with the seasons in order to purvey the ingredients  and integrate ingredients through local vendors as much as possible. It's always fun to try something new!

Kathryn: How are your space, equipment and staffing going?

Ciril:  The space we have developed for our workshops is rather unique in that the mixing and shaping room is some distance away from our outdoor wood-fired oven. If our budget for the workshop facility had been unlimited, we would have constructed a new building closer to the source of baking. Our space is small, but so far we've made the best of the situation that we have. As our workshops grow, we do anticipate expanding our existing space. 

Kathryn: Do you feel you have outgrown your space? 

Ciril: Our space is snug and working during production bakes for the sales is definitely challenging. If we were doing this as a full-time venture, then we would definitely need to relocate or rethink our facilities. 

Kathryn: Do you have a lot of staff turnover in your area?  

Ciril: Aside from the occasional seasonal intern, this is a family-run business. So far our marriage has survived and I don't anticipate a turnover in staff in the future!

Kathryn: What is the biggest surprise you've encountered in this new business? 

Ciril: When we began selling breads to the local community through occasional bread sales, it was a single person operation making about 75 to 100 products. Now we plan on a two day production process and we make well over 1000+ items. We do not pay for advertising (word of mouth seems to do the job just fine) and we regularly sell out in less than 3 hours. Who would have thought?!

Kathryn: Is it overall more or less challenging than you expected?

Ciril: I thrive off of challenge! When I do bread sales, it's like my own competition. I try to see how much I can maximize my production in my given space and still continue to deliver a high-end product without sacrificing quality or integrity.

Kathryn: What is the biggest "lesson learned" you would share with other entrepreneurs? 

Ciril: Always treat people the way that you want to be treated. Of course, it's always good to be able to recognize when it is time to step back for the well-being of you and your family.  

Kathryn: What's next for you in terms of your business direction?

Ciril: Continue to diversify my teaching schedule for Breadhitz and keep up with industry subject matter and trends. 

 Kathryn: Thank you Ciril. Keep making those wonderful breads!

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How To Fire an Employee

Ask the Expert

From FoodStartUpHelp.com

A continuing series of labor related questions answered by Attorney Denise Anderson.

(Editor’s note: It is a very big step when a new business owner hires employees for the first time. Unfortunately, sometimes a new employee turns out to be less ideal than hoped for. Members of FoodStartUpHelp have experienced new business owners that are either fearful of firing employees (thus reluctant to hire) or don’t know how to do it properly. FoodStartUpHelp has asked Labor Attorney Denise Anderson to provide some information on the topic.)

How to Fire an Employee

No Surprises:  It should never be a surprise to the employee and you should never have to give a reason when you actually fire the employee.  Here’s how to make sure you do it the right way and don’t end up in court justifying your decision. 

The Good, the Bad, the Not So Bad:  First, take the time to “sandwich” your performance warning and do it on a regular basis.  No one likes to hear bad news but it is easier for an employee to hear what you have to say when you say it between two pieces of praise.  For example, if your employee is always late for his shift, you can approach him in the morning when he arrives and first tell him that you noticed how he cleaned his station when he left the day before, remind him that he needs to arrive on time for the beginning of his shift and note that he is 15 minutes late and then say something about having another great day.  When he is late the next time, remind him of your previous conversation and how important it is that he is on time for his shift and, this time, tell him that he will be disciplined the next time. 

Adopt a Policy:  Second, you must adopt a discipline policy and stick with it.  Too often, an employer says one thing and does another.  Just like being a parent, an employer must be consistent and enforce the rules evenly with all employees.  No favoritism or exceptions. While there is a lot to be said about a “three strikes and you’re out” policy, it requires documentation and time.  The easiest policy is a list of conduct for which an employee can be disciplined within the discretion of the employer and another list for which an employee can be immediately terminated within the discretion of the employer.  The discipline policy should also state who can discipline and to whom the employee can complain or bring questions. 

Cut Your Losses:  If you follow the first two rules, the employee will have been warned and will be on notice of the consequences of his conduct.  When the employee does not improve, let him go. 

Support Your Decision:  Be prepared to support your decision with specific data, warnings and realistic goals to improve.  The third rule to follow is to document your observations and conversations with an employee and file your written paperwork in a separate file for that employee.  Each employee must have a file that contains routine paperwork, including an application for employment, a W-2 and an I-9.  Any forms required by the state or federal governments, including minor consent forms and health department forms, must be maintained in the employee’s personnel file.  If you conduct formal written performance reviews, on a regular basis, those forms must be maintained as well.  However, your personal notes about discipline or performance may be kept in another file that is maintained by you as the manager.  When you are asked to support your decision, you will be able to refresh your recollection of the events and, in court cases, provide written evidence of your decision. 

Be Private:  Never discipline an employee, particularly a termination, in public.  The fourth rule is to conduct your firing in a private area, preferably with a door.  When the meeting is over, you can leave or ask the employee to leave. 

Don’t Do It Alone:  You should always have a witness present when firing an employee.  You never know how an employee will take the news and you want to protect yourself against a retaliation lawsuit.  If the employee asks to have a witness present, you should refuse.  You do not want to deal with that employee’s observations, judgments and potential complaints as well as the employee being fired. 

Be Clear and Direct:  You may want to sugar coat the reasons for termination or to have a cover story to protect feelings.  The best avenue is to simply tell the employee you have made a decision to let him go and explain his options and what will happen next.  When asked to explain your decision, state again that your decision is based on his performance and remind him that this is the consequence of not meeting expectations.  Don’t talk too much and keep the conversation strictly on your decision.  Do not relate specific instances or examples of performance or your observations. You will have plenty of time to justify your decision if the employee questions his termination either through a state or federal agency or lawsuit.  You must make it absolutely clear there is no room for discussion and that your decision is irreversible. 

Lay Out the Options:  If the employee is entitled to any benefits, tell him and explain how to get the proper information.  Tell the employee when to expect his last paycheck and make arrangements to mail it to him.  Ask the employee to leave the premises immediately and arrange a time or manner of returning to get his personal belongings.  Ask the employee for keys or other items that belong to the business.  You should accompany the employee out of the business premises.  If you have not already changed passcodes to the computer or locked email access, you should do so immediately. 

Do it on a Monday:  Never fire an employee on a Friday or weekend.  It is best to fire an employee during the first part of a week to allow the employee time to look for another job.  You want to transition the employee into looking for another job and it is easier to begin that process during the week.

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Working Long Hours and Finding Good Help

Pursue Your Dream

Interview with Pastry Chef/Owner Zueen Bhosle

Madeleine Bakery & Café

Rutherford, NJ

By Jeff Yoskowitz and Kathryn Gordon

www.madeleinebakery.com

When we arrived at Madeleine Bakery & Cafe we were greeted by Nancy Roman, a good friend and neighbor who comes in to help Zueen ,the owner, during lunch and to help greet customers.

After talking to her a bit it was clear to us that Nancy has helped encourage Zueen to open Madeleine Bakery & Café.  In fact, Nancy told Zueen,  “If you don’t pursue your dream, it will always be in the back of your mind and you will never know what it would have been like if you had tried”. 

Then Zueen arrived.

Jeff:   Hi Zueen, how are you doing? You've been here in for months in Rutherford. Is it what you expected?  

Zueen:  It’s going great – but I’m a bit tired!  I get here at 3 or 4 in the morning to do all the baking until around 10 am, and I’m here in the front until we close in the early evening.  We close a bit earlier on Saturdays.   Meanwhile, my mother arrived from India for a visit yesterday, so at least this week I don’t have to worry so much about my 5-year old daughter.

Kathryn:  You’re doing all your own baking?  Why don’t you get an assistant baker?  You could advertise on Craig’s list.

Zueen:  I’ve been a bit scared of using Craig’s list. I haven’t had luck yet with a good baker.  Most of them don’t want to start at 4 am, and then if they agree, the reality sets in and they don’t like the schedule.  I’ll go beyond my budget for an assistant baker, but I've had trouble getting the right person so I've been doing all the work myself. 

Jeff:    No wonder you’re tired!  Why are your hours different on Saturday?

Zueen:   During the week we get a lot of commuters because we are across the street from the train station, and lunches for office and school workers.  On Saturday, it’s mostly families with kids, and I think for this area those hours are okay.

The train to NYC is across the road from Zueen’s bakery; you can see the skyscrapers in the background.

Jeff:  What does your typical morning customer purchase with you being so close to the train station?

Zueen:  They buy coffee and pound cake, or the baked goods (outside of the refrigerated case).   We’re the bakery which opens first in the neighborhood each morning.  My customers love the Illy coffee we serve.  Some don’t like paying 25 cents more for it, and will walk past us to another location near the train for their (cheaper) coffee.

The madeleines at Madeleine Bakery & Café

Kathryn:  What are the biggest requests that people have?

Zueen:  I think people are looking for new stuff every day. When the customers come in, they like to see what’s new!   For some reason, anything I make with wine, beer or chocolate, coffee, mocha goes really fast.  Fruit items have moved more slowly.

Jeff:  Have you considered making more dummy cakes for display?  That might help generate cakes sales, or let people know you can make them.

Zueen:  Until I find another baker, I know that I can’t do all of it myself, so no.  I’m too nervous to put more dummy cakes out, in case I get orders!

Jeff:  In terms of the equipment you have, do you feel what you have is adequate?

Zueen:  Yes, I do think I have enough equipment for growth.  I need people, not equipment.  People have been my biggest challenge so far.

View of the production kitchen

Zueen:  I’ve looked for baking assistants but do you know what I’ve noticed? They don’t know how to be organized and keep their work stations clean, and that really bothers me.

Kathryn:  Have you considered putting a help-wanted sign in the window here?  Something with the parameters like:  experienced baker required; will train (4 am start).  I think you really, really need some help with the baking, Zueen.  You can’t keep it all up yourself.

Zueen:  I tried a sign in the window before but there have been some weird people who walk in!  However, I will try that approach again. 

I agree with you that it’s not sustainable to do this all by myself.  I feel at some point my brain stops working regarding what I want to do next.  When there’s someone else, there’s someone you can talk to and bounce ideas around.   Depending on how creative they are, we could collaborate together on the menu.  Paul (the Chef) and I collaborate on the sandwich menu, and that works out extremely well.  I just want someone to come in here who loves to bake!

Kathryn:   If you haven’t been happy yet with the candidates you've gotten to help bake, maybe you should always make potential bakers trail.  Aren’t some of the issues you’ve noted “trainable to some extent?”   Maybe you just need to modify your hiring approach, and help show the people exactly what you want from them in terms of your standards.

Jeff:  Zueen, What’s the long term goal here and what’s your plan for it? 

Zueen:  My plan is to add more products because really people love what we make.  I’ve gotten very great responses.  

Zueen:  I’m still getting a lot of new people, who didn’t realize that we’re open.  I’m trying to get county permission to put a sandwich style sign outside on the sidewalk.    I might start doing light dinners and I want to hand out free samples at the train station, and give flyers to evening commuters.

Kathryn:  Is parking an issue here in terms of attracting customers?  I noticed coming in its largely metered parking, and some of the zones have limited time slots. 

Zueen:  Everyone in Rutherford is used to not being able to park!  And a lot of people just walk here during the day, come in after school…

Jeff:  I know that your husband Samir has helped from the very beginning. What is his role now?

Zueen:  He helps with all the finances and paperwork and tracks our customers and sales with our POS system, while I’m more here, concentrating on the baking and day-to-day management.

Jeff:  We’d love to talk to you more Zueen, after you’ve had some more time to settle in to see how your bakery has grown!

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