Café culture
| by Duncan Neill 13 May 2002 Diploma in Financial Management Relevant to All papers |
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Opening a café bar was not a typical career path after completing an economics degree at Cambridge University and there was little relevant advice at the careers office. Whilst most of my contemporaries headed to lucrative positions in the City or important departments in the civil service, I took the brave or foolish decision to build a food and drink business in the (not then fashionable) city of Leeds.
I had spent several summers working for an American-style café in Paris, and in this small business I could see the attractions and drawbacks of doing something similar – the benefits of creating a unique and profitable venue versus the disadvantages of long hours and the risk of failure. Waiting on tables with a barely adequate grasp of French was enjoyable work and I got a feel of how to operate a café to which customers are loyal and affectionate. In the early 90s, there were the first signs of an emerging café bar and coffee shop sector in Britain but no-one had yet heard of crème brevés or skinny frappuccinos, especially in an ex-industrial northern city just beginning to transform itself through urban regeneration. I spent time researching trends in the leisure industry and started developing the concept of a European-style café serving light, fresh food, speciality coffees and unusual beers in an arty and relaxed atmosphere.
It took longer than expected to find suitable premises, negotiate the lease and emerge from the local authority planning process victorious but just before Christmas 1996, Moderno café opened in Leeds city centre, just down the road from Harvey Nichols. In those early days we spent a lot of time explaining the attractions of Swiss emmenthal, New York pastrami, raspberry-flavoured coffee and chocolate stout to the workers, shoppers and students who made up our customers, but it began to pay off and word spread. Within a year of opening, the Mail on Sunday labelled our sandwiches the best in Leeds, and favourable mentions by Marie Claire and Elle Decoration amongst others helped establish our reputation.
Since then we have developed three distinct businesses – the original coffee shop and café, a bar with events ranging from film nights to a performance by a six-piece Czech funk band, and a firm delivering lunches to local offices. As in most cities, the number of new coffee shops, cafés and bars that have opened in the last five years has been enormous. The market has grown at the same time but there have been (and will continue to be) quite a few casualties. Customers need to be attracted and then kept interested to build turnover, but financial skills are needed to translate this into profit.
An economics degree is great for developing analytical skills and a theoretical view of the world but not much use for the management of a business. In those pre-internet days, I did not discover the ACCA Diploma and had to be content with a few books on small business accounting, none of which covered more than the basics. Learning by experience tends to be re-active rather than pro-active and is likely to leave gaps in knowledge.
Most of the companies I deal with on a day-to-day basis are small and as you would expect the overall quality of these varies enormously. One unfortunate but very common characteristic is a visible lack of effective financial management. This often appears in the form of inconsistencies, for example in product pricing, or inefficiencies, perhaps in production or delivery, for which the customer and, ultimately, the shareholder pays. In five years I have seen many small firms grow and then die – in many cases better financial management would have helped avoid what often ends as a personal disaster for the owners.For example, our original bread supplier built a reputation as the best baker in the north of England, winning many prestigious contracts and dominating the quality end of the market. As demand grew, and the lure of a wider geographic market became too tempting, the company undertook rapid expansion by building new premises and employing more staff.
One Monday morning our bread delivery never arrived – their phone was eventually answered by an accountant who simply said the company would not be baking any more bread. Growing a business is always risky but the speed of this demise was surprising and, it was later confirmed, the result of a flimsy business plan, poor financial controls and misplaced focus and effort by the owners.
Prestigious restaurants have also gone under, in one case within three months of opening. When the scale of debts has emerged at creditors meetings, in one case reported in the local press with extra glee when the owner and media personality escaped the angry crowd via a ground floor window, it is clear that the financial needs of the venture are often wrongly assessed.
I heard about the ACCA Diploma through a website and have enjoyed studying for it. I believe it provides an excellent means for the owners or managers of small and medium sized businesses to develop financial understanding and to put this knowledge into use. Although the success or failure of any business is determined by a wide mix of factors, from the product to the elusive element of luck, a pre-requisite for continued survival is good financial management. Many companies can prosper in a rapidly expanding market but when the market growth slows or when major players are attracted into the industry, the less efficient firms will disappear. Large companies have a large amount of managerial resources and experience and quite often it is small companies who feel the brunt of these the most. In the bar sector, the major players can experiment with concepts before rolling them out nationwide. Mistakes are still made but they tend to be of relatively little cost. In contrast, small firms usually only have one chance and the margin of error is small.
I have found the skills learnt and improved by the Diploma to be invaluable in improving financial strength. It has provoked thinking in areas often neglected such as cash flow management and investment analysis. I have spent more time on the financial side of the business, driving costs down and focusing on more profitable areas in the market.
By adding to business credibility a financial qualification can also make raising finance easier. Bank managers are trained to approach any business plan from a sceptical standpoint (and rightly so), so the person who has written it needs a full understanding of the financial issues that will be examined. One of the first lessons learnt in business is that accountants charge for asking them about their holidays. Their work is, of course, crucial and a good working relationship with them needs to be developed. The Diploma makes it easier and quicker, therefore cheaper, to deal with an accountant by reducing the knowledge gap – asking an accountant to explain depreciation is not an effective use of time or money.
All small business owners complain of having so little time to run their company. I have been able to fit studying for the Diploma around long and uncertain working hours, and its flexibility allows the student to sit the exams at their own pace.
I originally planned to spend about five years in this industry, learning about all aspects of running a profitable business, and enjoying being involved in the ever-changing world of food, drink and entertainment. I am selling the businesses, moving to London and plan to use my experience in management consultancy. As well as being very useful for running a business, I saw the ACCA Diploma as an ideal way of gaining a qualification that has widespread appeal.