Don't expect a miracle!

The client bought a business, which included a motel, a restaurant, a bar, a gasoline station and a small grocery store. His background was in the construction industry, where he worked as an equipment contractor. Underestimating the complexity of a tourism operation, he thought the business would be a turnkey operation and would run by itself. As he had no background in this industry he didn't acknowledge that he needed a qualified manager to operate the enterprise. Part time employees were hired to keep costs down. A family member took care of the accounting. Qualified supervision and training was not provided. Pricing was done to be lower than the competition and offering larger meal portions. As he was a construction man he thought that would attract construction workers he knew. Now after three years of operation the business didn't perform as expected. He felt he had an inventory problem and assumed excessive waste, theft and or something else was the problem.

Assuming a consultant could solve his problems in 2 to 3 days, he contacted us to do an on-site evaluation.

During the initial interview with the client, KR Consulting observed that cost calculation and a proper inventory control system was not in place. We pointed out that this was needed to identify the problem.

The client was advised to put a inventory control system in place as soon as possible but he refused as he found it too time consuming to take inventory at least once a month.

He learned through other people about computerized inventory systems, which would do everything by itself. Sales would tell him what to restock etc. without monitoring the physical inventory. He assumed that "ready to go systems" were on the market at low costs; ranging between $100 and $200.

KR Consulting informed the client that good inventory control systems can be costly and need time to be implemented either by management, consultant or the system provider. There is no instant solution and physical inventories have to be taken periodically. KR Consulting explained to him furthermore that the problems of his business could be solved with the help of:

• An appropriate accounting system for the nature of the business and industry
• Internal controls (inventory management)
• Quality control
• Frequent cost to sales comparison by departments
• True involvement of the owner in his business
• A marketing plan

Conclusion: The client looked for cheap solutions, was not aware of internal cost/sales relations as well as the cost and administration time to put a sophisticated purchasing and inventory system in place. Also the idea: "if I have a computer system, I don't have to do the work as the computer does it for me" worked against him.

Advice from non-professionals created assumptions that were not backed up by evidence. And the lack of a reliable internal control system made it impossible to determine problems and to address them properly.

Unfortunately, the client wanted benefits but showed no interest in changes. He asked for a second opinion. It turned out that the other consultant came forward with similar findings and recommendations.

The owner was not patient enough to execute the changes and had to sell the business.