Challenges of business during a pandemic

The Handmade Markets were cancelled again. This time Canberra went into full lockdown late on 12 August. The market was scheduled for the 14th and 15th.

Fortunately, this time I was ready for this sudden change of plans as these are the challenges of business during a pandemic.

Others were not so fortunate. There were businesses that had perishable products like food that would be thrown away if they could not be sold in other ways. As for me, I still had plenty of products made for the July market that was cancelled. And so, I didn’t have a big workload leading up to this event. In fact, I didn’t plan to pack up my car until the last minute knowing the risk of cancellation.

This Canberra lockdown is tighter than the previous one though. Most my stockists were unable to trade at all until a few days ago. At least the government is allowing no-contact pick-up or deliveries now and access to their physical stores to service the orders.

Ugh…quarantine!

Regardless, I couldn’t provide them or consumers any products anyway as I was confined even further to 14-days of quarantine after I learned I was in the athletic centre at the same time as a confirmed Covid case. It turned out to be completely unnecessary as they recategorised the contact later (Day 12 of 14) to only the gym part of the facilities while I was at the pool.

Had I received any product orders then, they would have been stuck until I was released. And if I were dependent on the income generated from selling my Harvestcare line, I would be in major financial trouble (again). I can only hope that other local retail and service businesses are able to financially ride-out this Lockdown #2.

Maybe a Christmas market?

At this time, the only hope is for things to be reopened by Christmas when the majority of Australians are vaccinated. Then, we just have to learn how to live with the virus threat like other countries.

I was really hoping to use this financial year to make some major decisions about the future of Harvestcare and The Refoundry in general. Unfortunately, there’s a good chance I’ll have too much inventory and not enough information to make that call so soon.

These are just some of the challenges of business during a pandemic, and so I guess I’ll keep going for now.

aluminium packaging

Recycling aluminium packaging again

Today I took a massive Ikea bag of Harvestcare aluminium packaging to the recyclers again. The guy at the weighting machine told me that the price was up because of the challenges with supply. So, today, converted 5 kilos of aluminium for $5.75 in change. Ugh…

ikea bag of aluminium packaging

I keep wondering to myself if it’s really worth the effort for me to do this. Like the tins I took to them in January, this waste was largely created because some of our products expired. It took hours and plenty of water to empty the bottles.

I spoke to the metal recycler owner briefly. He was proud of the tonnage he recycled and the money he was making. Most of the other metal there was from construction sites, household goods and cars. Still, he admitted it took a lot of energy to convert this metal back into something useful. Some of it is done in Australia. So, I guess that’s one good thing.

Yet, am I really saving the planet (even a little) by using aluminium packaging instead of plastic for our products?

A better way than aluminium packaging?

I feel like there is a better way, but it will likely require an even bigger investment. There’s some technology overseas that I’m interested in licensing here, especially for the hotel sector.

Hopefully, I’ll be ready to make that investment once the industry is back to normal and willing to try new things again. For now, I’ll continue to save for that day because this issue weighs heavily on my mind.

Calculating Cost of Goods Sold

With the end of our second financial year, I just spent my entire Sunday calculating Cost of Goods Sold (COGS) for Harvestcare. What a chore! Despite having a financial system in place, it’s still a huge burden. Luckily, I have a solid cost accounting background. Other businesses tell me they use spreadsheets too.

Last year I did a full review of all the available financial systems and none of them could properly calculate COGS for a small manufacturer. I even verified this with my tax accountant. It doesn’t exist.

I could have added a complicated manufacturing plug-in for Xero, but it was completely overkill for what I needed, especially at its monthly price.

I can’t handle this amount of manual work each year. So, I plan to build a database for calculating Cost of Goods Sold and keeping track of inventory since there is nothing available.

Who knows… maybe by doing so I can solve a problem for other small manufacturers too. After all, how do they even know how much their products cost to make if they don’t know cost accounting?

myob xero quickbooks logos

Xero, MYOB or Quickbooks for a small manufacturer?

With all the software packages out there for small business owners, which one should you pick? Xero, MYOB or Quickbooks? It’s not that simple for a manufacturer, even a small one like my business.

When I started The Refoundry, I struggled to decide because none of them seemed to calculate inventory and Cost of Goods Sold for manufactured products properly. So, I ended up doing all my books on a complex spreadsheet. When it came time to do my company taxes last year, it was horrible! I couldn’t even file electronically without using an agent.

Having learned my lesson after that very time consuming, end of year process, I decided that had to make up my mind and choose something this year. My soap maker was using Xero, but needed to add another manufacturing app to make it work. Given the size of their business, it made sense, but I couldn’t justify the additional cost for mine yet.

I also found Xero extremely restrictive at the lower level plans. It was cheap if you only had a few transactions a month like I do with my consulting business. However, The Refoundry did more than 300+ transactions last year. Also, I didn’t like how restrictive it was for things like customising the invoices.

With MYOB, it’s a more complex system and allows for a lot more customisations. While I used MYOB a bit at my last job, I still found myself looking at the help page too often because it wasn’t as intuitive. I also found it limiting to set up automations for future transactions.

Quickbooks was my favourite of all the packages that I tried, but it too had its quirks. For one, my bank was not on their list. So, I actually had to set up a new account with a new bank to download the transactions. I wouldn’t have bothered if it were not for the fact that it allowed the most customised features and automations for the price.

To be clear, none of these packages calculate Cost of Good Sold properly for a manufacturer. It will only do it if you’re reselling products. Instead, you have to add another inventory management package that integrates with the accounting software. I can’t justify that additional price tag or the time to set that up right now. Instead, I’ve decided to continue to do that part in a spreadsheet and manually transfer that over as needed via a journal entry.

So, is it Xero, MYOB or Quickbooks?

I chose Quickbooks because it was the most intuitive and would save me time later via the automations. Still, it certainly isn’t a perfect fit for my manufacturing needs, but neither are the others.

Harvestcare products on shelf

The blessing and challenges of stockists

Choosing to use stockists for our Harvestcare products has been both a blessing and a challenge. Today’s email from one of them just reminded me once again how hard it is from a cashflow perspective to depend solely on wholesale.

I actually do prefer to deal with wholesale orders rather than retail because even though the margins are lower, they buy in volume. Plus, I often get repeat orders without even trying. The direct to consumer model is much harder in my opinion, but I think a healthy balance between the two would be ideal.

Chasing payments

I tend to send weekly reminders if a stockist misses a payment date. I do it personally rather than via automated messages from my accounting system because I tend to get a better response. Most of the time, it’s just a misplaced invoice, but other times there’s a high chance I won’t get paid for products already delivered.

Today, I sent a weekly reminder to a stockist that was late once before but did communicate with me and eventually paid. I was tempted to force them to pay in advance for their second order, but decided to take a chance that it was only a one off issue. I should have listened to my instincts as the first time I met them to drop off extras as samples, they immediately said, “Sorry, I’ll make sure you get paid right away,” even though they weren’t late yet.

When I sent the email today, they replied that they had to close their shop due to matters now in court, but they would pay me soon. I now have a little bit of hope since they did respond, but there’s still a big risk that I won’t get paid.

The first difficult stockist

The first time this happened to me though, the stockist wasn’t as nice. After multiple follow-up emails, I finally called the store and asked for the owner. When he answered, he said that the products weren’t selling, and that I should pick up the remaining stock. He then accused me of pushing product on him, and that the only reason he did order was to “support local small businesses.”

For the record, I only followed-up because he kept telling me to check back, and then all he bought was a $100 box of lip gloss. He wasn’t being fair to me, and I gave him have a piece of my mind in response.

When I finally did pick up the stock, items were missing, and everything was out of the display box and shoved in the crack between the cash register and the counter. Of course, no one was buying the product! He obviously never had any intention of displaying the product properly or paying for even the few he sold.

I had to throw it all away because I had no way of knowing if it had been tampered with.

But most stockists are good customers

Despite these experiences, I don’t want to paint a picture that all stockists are bad. In fact, most are very good, and I have some really lovely wholesale customers that even pay me early. They’re the ones I always prioritise when I get a new order.

If only, they were all this good!

Going slower to maintain control

Product-based businesses are notorious for the time it takes to scale to real profitability. Despite this, I’m consciously slowing sales activities for Harvestcare to reduce my need to bring in investors at this time. Essentially, I’m going slower to maintain control.

This means that I didn’t actively chase my pending 2nd hotel pilot contract even though I knew Chinese New Year would delay the receipt of our packaging. I’ve also slowed my cold-calling to retailers so that I can spend more effort on product development to shift the line to spas.

Both of these activities take a lot of cash, but I can afford to invest further in these activities without debt or giving away equity to investors once I finish the consulting projects I’m doing right now. This time delay due to cash flow seems like so little time in the grand scheme of things. After all, I do expect to invest 10 more years into this business as a minimum.

Now the risk is that the hotel pilot will never move forward because I didn’t push it harder. However, the reality is nothing is certain in a Covid world anyway. So, I think that going slower to maintain control is the right decision for the business at this time.

The challenge with perishable products

In March this year, I packaged about half the hotel pilot order for our all natural shampoo and conditioner products. The conditioner was a brand new product that met the pilot’s needs, but we didn’t have time to work out a preservation system in it before I had to order the printed tins with the ingredients list. Given that all of the products were scheduled to be used within the next month, that didn’t seem like a big issue at the time. Yet, there’s the challenge with perishable products.

When the pandemic hit, the pilot was put on hold. Fast forward to today, and I’ve been living with the stink of something crossed between lemon toilet bowl cleaner and a dirty cat litter box. Sitting in the corner of my office were those boxes of old conditioner.

Knowing the shelf life risk, I realised by month five that I would have to redo the entire pilot order if it ever got the green light again (which it did). Still, I couldn’t bear to throw these unused tins away which is why they were still there stinking up my office.

So this week, I’ve taken hours of my time to open and wash each of the 1000+ tins so that I can take the aluminium packaging to be recycled. Unfortunately, I can’t get the smell out of them, and therefore can’t reuse them – loss of money and lots of time.

Empty used tins to be taken to the recycler
Empty used tins to be taken to the recycler

Such is the challenge with perishable products. At least our current version of the conditioner now has a preservative in the recipe to last a bit longer.

The Art of Rest

It occurred to me the other day that I had not gone more than 30 minutes outside my home city of Canberra, Australia since I went to New Zealand last Christmas in 2019. As someone who usually travels overseas 2-3 times a year minimum with countless domestic trips, this is truly been a weird year. But now as we get to the end of 2020, I realise I need to learn the Art of Rest.

Why Art and not the Science of Rest? Because it were just science, it would be easier. I would get my 7-8 hours of sleep each night. I would work less than 45 hours a week. I would get in 30 minutes of exercise every day. If I left it up to science, my life should be somewhat predictable. However, as an entrepreneur, it just doesn’t work that way.

Rest as an Entrepreneur?

Instead, I have to work when the opportunity presents itself. I don’t know if or when it will land. I don’t know if I’ll have two consulting projects accepted at the same time when I get a large order for Harvestcare. I don’t know if my hotel client will give us a contract that starts a chain of massive operational activities.

Over the weekend, I reviewed more than 700 pages of enterprise architecture standards and supplemental information so that I could submit two IT consulting gig proposals on Monday. Was it the way I wanted to spend the weekend? Of course not! Who would? Still, I know that effort would put me in a better position to hit the ground running if they accept my proposals (and of course a lot of much needed cash).

stack of papers
Some of the hundreds of pages of enterprise frameworks and standards I reviewed over the weekend.

Of course, this hasn’t been my only working weekend this year. I’d say 80% have been. I also did three all-nighters this year to meet schedule deadlines – something I haven’t done since my old consulting days, but predicable since I’m once again doing consulting work as a side hustle.

Art of Rest

Since I turned in those proposals two days ago, I realise now that I probably won’t have anymore consulting work until the new year. And it feels…strange. Suddenly, my days are not filled with back to back to-dos and meetings. Instead, I can actually work on the business full-time at my own pace.

With this influx of free time, I’m finding that I’m actually less productive in all areas of my work and life. Instead of working on important business tasks, I’m wasting time sleeping and browsing the internet. It makes me feel incredibly guilty. But then, I had a thought…

Maybe, I need to give myself a break. Maybe I actually need all this sleep and mindless activities to recharge for the next surge of work. Just maybe, I need to learn the Art of Rest.

Harvestcare market stall

Lessons Learned about Markets

So far, I’ve done two small physical markets for Harvestcare: one indoor and another outdoors. Plus, I’ve done the virtual Handmade Markets for all four of their pre-Christmas events. Already, I have a few Lessons Learned about Markets from these experiences even though the big physical ones are still closed due to the pandemic.

Lessons Learned:

  • Know your market demographics – Suburban markets haven’t been that great for me though I’ve certainly done better with my products than other stalls. Everyone says that my products will sell with a younger, more environmentally conscious consumer at the physical Handmade Markets. So, hopefully they’ll be back on next year.
  • People buy what they can test – my biggest seller at the Markets has been the orange hand balm as I have it out with sampling sticks. It smells amazing, and so it’s hard for people to ignore it once they try it. My bottled products on the other hand have barely sold, and I have way too much stock right now as a result.
  • November is still too early for Christmas Markets – I didn’t sell but a few gift packs in all these markets. Instead, the attendees are still buying products for themselves.
  • Make sure to have products at different price points – I had products from $8 to $50 for sale at these markets. The biggest sellers were around the $20 mark.
  • Use the Markets for market research – I had plenty of feedback during the markets including that I should charge more for my products because they look amazing, and I needed a normal lotion. Yes, still working on that one!
  • Consider the Markets as a branding exercise for a new business – I knew that I might not recover the cost of the registration fees when I signed up. I had to take that risk though and considered it as a branding exercise. For the more people that see my logo, the more likely they’ll take a chance on it when they see it at a stockists’ store.

What to do with leftover stock now?

Since I have so much leftover stock from the Markets – especially in bottled forms, I need to ramp up my sales activities to stockists or online to see if I can move them. The challenge though is that I have a different pump on the bottles than what was sold to retailers previously because of the 3-month stock shortage. Furthermore, I usually mail bottles with the pump separately because of leakage. So, I’d have to throw away a lot of used pumps if I change the selling model now. I’m not sure that I have much of a choice though.

Oh well. I’ll chock it up to lessons learned about Markets. At least I had the chance to practice before the big ones reopen – hopefully next year.

Harvestcare hotel tins

Second Single-use Hotel Pilot

Conversations with our hotel client have been really positive in the last few weeks. Right now, we’re looking at doing another single-use hotel pilot with one of their locations for a 12-month contract.

This will be a part of the hotel’s much bigger sustainable vision. And the good news is they should know if they’ll deploy this to all their properties soon after it starts.

The biggest challenge for us now is finding the cash to pre-pay for a year’s worth of packaging from overseas. The minimum quantities that we need to get to a reasonable price point is 20,000 units of each design. That’s 80,000 units of sitting inventory.

At least by doing just one hotel and not all of them at the beginning allows my soap maker and I to figure out how to scale productions and packaging with a smaller order. It’s obviously a bigger risk to an investor or bank if I ask for $500,000 for machines and packaging rather than just $50,000. So, this is very doable.

If we do get the larger contract, my plans right now are to spin-off Harvestcare as a new company and bring my soap maker on as a business partner to run our operations. This is exactly the incubator model I had in mind when I started The Refoundry. So, it would be great to get this first fruitful idea out there fully.

In the meantime, there’s a lot to do for this single-use hotel pilot including a decision about whether or not the hotel uses our State Circle brand or our consumer Harvestcare brand. If they choose the Harvestcare branding, it would be like free marketing for our consumer-size products. So, I really hope they choose that one as we’ll definitely sell more overall.