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Time for most important business decision of my life.

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Paul David

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Hi

I won't start a long story as to why i'm in this situation (part of it is documented in some of my other threads) so I'm going to cut to the chase regarding a decision i need to make this week.

My business model is the sale of physical products online via Ebay, Amazon etc. For last 13 years those products have mainly been power supplies/chargers. Turnover is £515,000. Last year business made a loss of £18,000 mainly due a product/supplier issue which resulted in 3 months of virtually no sales. I've decided to get out selling power products as the profit margins are too low and they a commodity item which there is no long term brand value to be created.

I have currently got 3 completely new products on their way to Amazon.com by sea.

I've got £65,000 worth of power supplies in stock at the moment and out of that only around £25,000 of that brings in 80% of the profit (80/20 rule). That 80% profit is usually around £7000 a month. Out of that £7000 a month i pay out £3000 in loans and i take £3500 in salary. The other overheads are generally what most businesses have, staff, building costs etc. This is resulting in a loss each month which can no longer continue. My accountant has told i need to reduce all expenses drastically this week. Taking a reduced salary is not really an option as personally i have mortgages and other personal loans to pay. So here's my two options:

Option 1 - Reduce the stock of power supply lines that don't contribute to bottom line and use the funds to purchase the new range which will sent to Amazon. Reduce all other business overheads - 2 staff, buildings and all other costs and work from home. This would not be ideal as my stock takes up a lot more space than i can fit into my garage and i would be having to pack 100-150 orders a day and do customer services work. Possibly like having a restaurant and trying to serve customers and cook the food at the same time. I know that if i could somehow manage to do this my business would be more or less breaking even until the stock of power products that doesn't sell is replaced by the new lines that do. The 3 products going to Amazon now may generate an extra £3000-5000 a month starting the end of January.

Option 2 - I have a competitor in the power supply business who has already bought some of our stock may be interested in purchasing all my power product stock and possibly my Ebay Store. My Ebay store does on average 100 orders a day which would be worth around £300 in profit a day to him. I could maybe realise £70,000 from the sale of all stock and the ebay store.

Then i'd be a in a position where i had £70,000 in cash to buy a whole new range of products in addition to the $14000 worth of stock i've currently got on route to Amazon. I would then however not have any monthly income until the stock arrives at Amazon and starts selling. I would still need to pay £3000 a month to cover my loans and take some sort of salary. I am however confident that buying £50,000-60,000 worth of new stock would generate more profit than ever before. I'd be buying products with at least 30-40% profit margins after fees.

I understand the risks of having all my eggs in one basket with Amazon but this would only be short term and i would probably send some stock to Amazon across Europe and UK to negate this.
Having too many lines of power supplies not selling and money tied up in this has led me to this point.

Any help or suggestions would be greatly appreciated. I've literally got to make a decision this coming week.

Thanks
Paul
 
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MTF

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Based purely on what you wrote in your post, you've already made the decision to go with Option 2 and now you're only seeking validation. I would definitely go with Option 2, too. It's a growth-oriented option with huge upside potential and limited risk. The first option sounds like prolonging agony.
 

Paul David

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Based purely on what you wrote in your post, you've already made the decision to go with Option 2 and now you're only seeking validation. I would definitely go with Option 2, too. It's a growth-oriented option with huge upside potential and limited risk. The first option sounds like prolonging agony.

Thanks for your reply. I haven't decided on option 2 on short term. Long term its 100% where i want to be but its just whether i take the plunge now or go with option 1 and gradually move into option 2.
 

theag

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Instead of storing stuff in your garage and packing orders yourself in option 1, what about outsourced fulfilment and a virtual assistant for customer service? 2 (full time?) staff + yourself for 500k in sales sounds like way too many employees.

What loans does the business have? 3k/month loan payments is a shit ton when its not producing any income for you. Real estate? Sell the building if you own it?

It sounds like a lot of trouble/work for such low profits, so I would get out of that line of business/products asap with Option 2. But then don't use 100% of the proceeds for new inventory, but pay off those crippling loans and get rid of the unnecessary employees/buildings first.

Worst case get a job or freelance to cover expenses while you wait for your new higher profit business/products to build up and to pay off your personal loans. 14k worth of stock on Amazon doesn't sound like it requires a full time effort.
 

Paul David

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Instead of storing stuff in your garage and packing orders yourself in option 1, what about outsourced fulfilment and a virtual assistant for customer service? 2 (full time?) staff + yourself for 500k in sales sounds like way too many employees.

What loans does the business have? 3k/month loan payments is a shit ton when its not producing any income for you. Real estate? Sell the building if you own it?

It sounds like a lot of trouble/work for such low profits, so I would get out of that line of business/products asap with Option 2. But then don't use 100% of the proceeds for new inventory, but pay off those crippling loans and get rid of the unnecessary employees/buildings first.

Worst case get a job or freelance to cover expenses while you wait for your new higher profit business/products to build up and to pay off your personal loans. 14k worth of stock on Amazon doesn't sound like it requires a full time effort.

Thanks for taking the time to reply. I've looked into outsourcing the fufillment and the costs would be more or less the same as i'm paying now for two staff members and current building costs. So there is no savings to be made. I need to start making a profit asap because my directors loan account is now overdrawn and my accountant has warned in no uncertain terms in cannot continue.

The loan payments are for funding circle, a peer to peer lending group in UK. If i pay back part of the loans it will not decrease the monthly payment. I've have £100,000k+ in loans and probably £70,000 stock at cost price so there is a deficit.

I do not own the building or have any assets. I simply have stock/cash to generate enough income to pay loan payments and my wages. Whichever way i go i have no choice but terminate all employee and building costs to help with this. I could at a push have 1 part time staff member to help with packing.
 

Robert Williams

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Hi Paul!
As per your post, it is clear that you are in a dilemma. In my suggestion, you must go for option 2 but then also try to figure out the loopholes in your business model. why don't you just outsource works like customer service, supplier interaction & profile building to a Professional Virtual Assistant that might help you to save a good amount of money for your mortgage & salary?
Thank you
 

Late Bloomer

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The way you've described it, seems a no-brainer to do the necessary liquidation wholesale rather than retail.

Option 1, retail, worst case scenario: It takes a long time to sell off the inventory. Whenever it does sell, you have huge transaction costs in terms of time, that keep you from doing anything else. Best case: maybe you get a little more money for the inventory, after a time of struggle and scrambling.

Option 2, wholesale, worst case scenario: As soon as the the deal is done, you need to carefully budget your short-term windfall until your ship comes in (literally). Best case: you've replaced a difficult inventory problem, with a cash budgeting problem that's easier to solve.

Did I miss something here? Or is that really it?

This is a perfect time for Dan Pena's slogan, "Often wrong, but never in doubt!" Do what seems best and don't look back. In the future, you might discover that you'll want to make another decision. Trust that in the future, you'll be competent to make another decision when the time comes.
 

Late Bloomer

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I've looked into outsourcing the fufillment and the costs would be more or less the same as i'm paying now for two staff members and current building costs. So there is no savings to be made.

If you can replace fixed costs with variable costs, that would help make your accountant smile. Even if there's no per-unit savings, it would be nice to be able to easily scale up and down without having to hire and fire workers directly, or negotiate a real estate lease for changing requirements month to month. With an outsource service, isn't the pay as you go flexibility worth it?
 

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