While on a family vacation with some balikbayan relatives in Bora, I still had the chance to work on this column and get in touch with the office. As usual, my wife didn’t like the idea of me using the laptop while on vacation. As I looked around the impressive place where we stayed in, I realized how successful businesses all start with a vision. The Tiu family is an example of how a vision was successfully done. They are the owners of Discovery Suites in Ortigas who also had a vision of a world class resort in Boracay called Discovery Shores. The hotel is being managed by another balikbayan entrepreneur, Annabel Wisniewski of the Raintree Partners group, and HSAI Raintree Hospitality Management, a company she formed providing hotel management and consultancy. She also owns Chelsea Deli, Museum Café and manages the major Food Parks in the Makati business district. I am told the Raintree group helped the Tius conceptualize how this resort should be and I have been to many of the top boutique hotels in the world. Finally we have one in the Philippines. Discovery Shores is fully wifi so while enjoying the Bora beach you can still be connected to the office. Just beside it is a new place called Two Seasons offering free wifi. On second thought, don’t bring your laptop to Bora if you want to be at peace with your wife… just kidding.

In a way, everything actually starts with determining a vision. Some people go deeper into finding or discovering their purpose in life and those who are not able to do this tend to be lost. How do you see yourself today and far into the future? Many companies determine their purpose thru their vision-mission statements. As individual or entrepreneurs, it is important to try to define this and those who have remained focus on their purpose or vision have a greater chance of being successful.

Another good example is Nanay Coring of National Bookstore who has focused and become an expert in book retailing, Johnlu in excellent baked products and foodservice as French baker, Richard Lee in car distribution as chairman of three major car groups in the country (Hyundai, UMC Nissan and Volvo), and so many more successful entreps whose purpose and vision have been clearly defined and they remained focused on this. I believe this has bearing as well on their passion and what they love doing, which leads many entrepreneurs to excel in their respective fields, to relentlessly deliver customer satisfaction and in the end become truly successful.

I received an email from Mr. Charlie Mejos asking advice on how to run a bakeshop for a cooperative. Given the topic, I decided to forward his query to one of our Go Negosyo online mentors, Johnlu Koa of French Baker and within the day we got a comprehensive reply from him. Thanks Jonhlu. Below is the email and Johnlu’s response:

Good day Sir,

Greetings of Happy Holidays and Prosperity in year 2008.
I’m an officer of an about- to- launch cooperative by January 2008 and we have ready equipment for a bakery and fund for it. However, we have no idea on how to completely run a bakeshop but it’s a good business in the location we have. I would appreciate any help that you could extend to us.

We’ll register this on first week of January 2008.

I’ve been reading the Go Negosyo online and dropping by almost everyday on your page.

Regards, Charlie Mejos Jr.

Mr. Johnlu Koa’s reply:

Before you start, you must realize that there are five groups of people or “publics” that you need to face the moment you start your business: 1) your ORGANIZATION — this includes your staff, sellers, book keepers, managers, bakers, coop members etc.; 2) GOVERNMENT — local government, barangay, city hall for permits, BIR for taxes, Bureau of Food and Drugs (BFAD), DOH, etc. 3) your SUPPLIERS — where to get your basic ingredients like flour, sugar, eggs, butter, fats, flavorings, etc. 4) your COMPETITORS — neighborhood bakeries, supermarkets around, household bakeshops doing small quantities for special orders, and 5) your CUSTOMERS — who are they and where do they come from; what they want (variety) and when they want it; the price they are willing to pay for it; seasonality involved like Christmas season, summer vacation and special occasions, etc.,

For a coop to survive, the key issue is the selling price to your coop members. Too low mark-up will make your operations lose money. Too high a mark-up will turn off your members and force them to buy outside. I believe that you must first survey from among your members and find out what their budget for bread is per week. From this survey or interview, try to set a sales target. The next step is to determine your fixed and variable costs. Fixed costs include utilities, depreciation, rent, salaries, etc. Variable costs include costs related to the production of a specific bakery product, say pullman bread or pandesal, which may include direct raw materials used, etc. In business school, we teach our students how to compute for their BEP or break-even point in sales. This means that upon selling that much quantities of products, your profit will just be able to pay for the fixed costs that you shall be incurring on a month-to-month basis.

At the risk of sounding too mathematical, let me introduce you to a formula which I regularly teach anyone who consults me:

BREAK EVEN POINT (Sales) = FC
———————
1 – VC

where FC = Fixed Costs

VC = Variable Costs
Let’s take an example. After summing up your rent, light, water, taxes, labor costs, etc. you realized that your fixed cost is P50,000, the question now before you is how much sales must you realize a month in order for you to “break-even”? The concept of break-even is based on the expectation that whatever gross profit you realized will have been enough to just pay for all of your expenses or costs, including administrative costs. Before you continue, try to compute for your variable cost and average it out. Let’s say for a coop, instead of applying the industry mark-up of cost times 2.5 or three, your opted to just mark-up at cost times two to make your price attractive to the members. This means that your variable cost is 50 percent of your selling price or something like 0.50 for every one selling price. After applying the formula, you will be able to determine your BEP at P100,000. On a daily basis, you must be able to sell at least 3,300 in order to stay in business without losing. The final step is for you to come up with a product list that will motivate your members to buy your bakery products and make it to the 3,300 sales target, on average, daily.

The above is the finance part of the business. Ultimately, it is the quality of your baked goods that will make your customers come back. You must have a “product-man” who knows the baking process from start to finish. He may or may not be a baker. He is just someone who understands the intricacies of the baking process, if not the business in general.

JOHNLU KOA DEC. 18, 2007

[For feedback, you can email me at joey@gonegosyo.net or thru sms at 09175591245. For free business advice, visit www.gonegosyo.org]