Profitable*

“So what happened, Ty?” Professor Hunt asked at the start of class.

I stood by the projector, shifting my weight from foot to foot. “The oven company was late cashing a check.”

She raised a hand to stop me. “Slow down. I know you’re obsessed with your business, but don’t expect everyone else to remember all the details. Start at the beginning.”

I nodded and turned to address the rest of the room. “The previous owner, Mr. Bartley, took whatever cash was sitting in the business, and I agreed to pay all his bills.”

We were a smaller group today—Meg wasn’t there, off delivering one of her birthday cakes. Frankly, I was glad she wasn’t around to hear how close I was to falling on my face.

I clicked onto a slide. Hunt had asked me to show my books to the class. The last few months were painfully on display. “With no cash reserves, I’ve had a hard time keeping up. You’ve already heard me mention the $1200 Hat Tournament order and the crowdfunding campaign. Both brought in revenue, but not much profit. But it gets worse—there’s a ticking time bomb in the business.”

“The security deposit?” Owen asked.

I gave him a quick nod. “Exactly. I’ve got two and a half months left to come up with the deposit, which is an additional full month’s rent. So not only am I juggling bills, I’ve got to save on top of that.”

“And what happened yesterday?” Professor Hunt asked. “I thought you gave yourself a nice cushion with the crowdfunding campaign?”

“I did have a cushion,” I said, clicking to a new slide. “But between paying Dedrick to run the campaign, covering shifts after I burnt my hand, the new logo, and all the prep for the Grand Reopening, I overspent. I didn’t realize the oven company hadn’t cashed the first couple of checks. Two days ago, they cashed all three at once. Then yesterday, my cheese supplier tried to cash their check, and it bounced.”

“Are you currently profitable?” Professor Hunt asked. From her light, inquisitive tone, I gathered she had no intention of revealing how clueless I’d been about my numbers the night before.

I hesitated, then said, “Yes. The pizzeria has had a real turnaround. We’re no longer leaking cash.” I pointed at a green bar on the slide. “But I don’t have enough runway. There just isn’t time to generate the cash I need to play catch-up.”

Professor Hunt faced the class. “So we have a pretty classic distressed business situation. It’s profitable on paper, but low on cash. This happens a lot—especially when a business racks up debt before becoming profitable. So what options are available?”

“How about a loan?” Andrew asked.

“Good,” Hunt said. “That’s the most obvious. Since the business is profitable, it shouldn’t have a hard time meeting loan payments, so it could be a good way to get over the hurdle until cash flow gets stronger. What kind of loan would you recommend?”

“I was just looking into this.” Andrew flipped through his notebook. “I think a business line of credit. That way, the business can borrow when it needs the money but isn’t burdened with interest when it doesn’t.”

“Excellent. Other than a loan, what avenues exist?”

“I suppose taking on an investor,” Jenna said quietly.

“You suppose?”

Jenna straightened up. “The business could take on an investor.”

“Excellent. A business with proven profits can be attractive to investors. Why would someone prefer an investor to a loan? And no supposing this time. Your instincts were right on—don’t second-guess yourself.”

“A loan charges interest,” Jenna said. “A loan is debt, and Ty might want to avoid debt. It could eat into his profitability.”

“Good. What else?” Hunt scanned the room. “Nothing? Anyone else want to jump in?”

“An investor might bring expertise, connections, or both,” Owen said.

“Good,” Hunt said. She turned toward Andrew. “You were the loan guy. You’ve heard why a business would prefer an investor. Defend your turf. Why would someone choose a loan instead?”

“A loan doesn’t require you to give up any equity. And once the loan is paid off, you can part ways with the lender. An investor might be an asset, but could also be a pain in the butt, and one you’ll be stuck with.”

“Like Steve Jobs,” Owen added. “His first time around with Apple, the board kicked him out of his own company.”

Professor Hunt gave a small nod. “Ty, what do you think of these options?”

I pointed to the spreadsheet on screen. “I think they sound great in theory, but they’re both pipe dreams in my case. What bank would write me a loan at this point?”

“There are organizations that give loans to people with poor credit,” Owen said.

I let my chin drop. “Yeah. And they charge higher interest than loan sharks. No thank you.”

“Ty is right,” Professor Hunt said. “He has the blessing of being such a high-risk borrower that a loan isn’t a strong option.”

Did I hear her right? “That’s a blessing?”

She let the silence sit for half a second longer than felt comfortable. “I know you think borrowing is your ticket out of trouble, but it can be a vicious cycle. You borrow money to get out of a cash crunch, and since you now have plenty of cash, you don’t bother fixing the underlying issues. Soon enough, you’d find yourself in another cash crunch and borrow more.”

“That’s a risk I’d be willing to take,” I said. “Eventually, the profits from the pizzeria will allow me to pay down our debts and cover the new security deposit. But this is my third cash crunch since taking over. Right now, I need cash, and I need it soon.”

“What about an investor?” Jenna asked.

I shook my head. “I haven’t got the slightest idea how to find one. And even if I did, I’m already bouncing checks. Anyone who sees that would know I’m over a barrel and offer me garbage terms.”

“This, class, is where the rubber really meets the road. If you learn to revitalize a distressed business without capital, you’ll have unlimited opportunities for wealth creation.” Professor Hunt paced before the board as this sunk in. “So, what can Ty do?”

The silence in the room was painful. If Meg had been in class, she would’ve raised her hand. I hated how much the rest of us depended on her to answer the hard questions. This wasn’t just academics, this was business. Learning to solve challenges myself could be the difference between success and bankruptcy.

Artemis tried again. “Ty, if neither borrowing nor bringing on an investor is an option, you might be forced to resort to fundamentally healthier solutions. Any idea what those are?”

I cleared my throat. “We’ve had some success with promotions, like we did with the Grand Reopening. Before class, I deposited over a thousand one-dollar bills. I don’t think the bank was thrilled, but it covered our shortfall and let us clear the payment to the dairy.”

“I’m sure that was helpful,” Hunt said. “But look at your numbers. Is it a long-term solution?”

“Definitely not. The Grand Reopening and the crowdfunding campaign really only covered our costs.” I flipped to a slide and pointed to two thin bars. “They didn’t add much to our profitability. But for now, I’m kind of OK with that.”

“You are?” Hunt’s eyebrows shot up. “Why?”

I wet my lips, the air suddenly dry. “Each time I can wrangle another month of cash flow, I keep the pizzeria open. If I can juggle cash long enough, I might bridge the gap.”

It sounded flimsier out loud than it had in my head.

Hunt didn’t let it slide. “That strategy might make sense—if it weren’t for your ticking time bomb. Can you really juggle enough cash to cover the security deposit?”

“No.” I shook my head. Heat crawled up my neck. “But look, even though I only broke even with the Grand Reopening, I still drew in hundreds of first-time customers. If even a handful of them become regulars, that will boost both our profitability and cash flow.”

“True. But we wouldn’t be having this conversation if you thought that was enough, right?”

My shoulders sank. “Right.”

“Any other solutions in mind?”

“I’ll tell you one thing,” I said. I was getting angry, though I wasn’t really sure why. “I’m getting sick of selling pizzas at break-even prices. First there was that Hat Tournament—$2,500 worth of pizza for $1,200. Then the crowdfunding campaign. We brought in $3,000, but I had to pay Dedrick to run it, and now we owe nearly $6,000 in pizza. And for the Grand Reopening we sold over a thousand slices. Including drinks, we brought in over $1,400. But with all the extra staff and the cheap slices, we barely broke even.”

Meg walked in mid-tirade. She gave Professor Hunt an apologetic smile and slid into a seat in the back.

“Handling cash is simple, if not necessarily easy,” Professor Hunt said. “The rule is that you need more cash coming in than going out.”

I bit back a sarcastic remark. “That much I know.”

“Great. So how are you going to do it?”

“Beats me.” I threw up my hands. “I don’t even have an advertising budget at the moment.”

“Does anyone see the problem in Ty’s response?”

“Well, sure,” Owen said. “He assumes the only way to increase money coming in is through advertising.”

“True,” Hunt said, “but right now, I’m looking for something even more fundamental. Anyone notice it?”

“You gave him a two-variable equation,” Meg said, “and he acted like it was a one-variable scenario.”

Owen twisted in his seat to face her. “Meg, I haven’t the slightest clue what you just said.”

“Professor Hunt said the money coming in has to be more than the money going out.” Meg held her palms up like scales. “Ty only focused on increasing income—he didn’t even touch the expenses.”

“Most of my expenses are pretty fixed.” I rubbed my forehead. “I already work as many shifts as I can to reduce staffing costs.”

“Remember the distinction between cash and profits,” Professor Hunt said, writing the words in block letters on the board. “Your primary crisis is a cash crunch.” She circled cash. “How can you fix a cash crunch, Ty?”

“We already ruled out borrowing,” I said.

“And it’s a good thing, too. You’re leaving a ton of money on the table, but you’re not seeing it. With easy access to cash, why bother looking under the hood of your own business?”

Artemis leveled her marker at me. “Ah, but when cash is hard to come by, when you’re really strapped, that’s when you start digging around. I promise you, Ty, just under the surface, you’ll find hidden treasure.”

I let out a tired breath. “Where exactly? I’m doing everything I can to keep costs down. I don’t know what else to do.”

“Really, Ty?” Professor Hunt leaned down and looked me in the eye. “There’s a big difference between ignoring your blind spots and pretending they don’t exist.”

She hadn’t embarrassed me earlier about how poorly I’d tracked my books—but I could feel her patience wearing thin.

My ears were hot. I stared down at the floor tiles, trying to gather myself. “I know, I know, I know.” And I really hadn’t been lying when I said I didn’t know what to do. But the moment she accused me of ignoring my blind spots, I knew what I’d been avoiding. “I need to negotiate.”

“That’s right.”

My chest tightened. My palms left sweat marks on my thighs. Why did negotiation make me so uncomfortable?

“But even if I get a couple of my suppliers to come down a few percent, that’s not going to fix things.”

“Negotiation is not always about price,” Hunt replied.

That threw me. “It’s not?”

Andrew jumped in. “Professor Hunt, got any negotiating tips?”

Relief washed over me as Artemis finally pulled her attention off me to reply. “Here’s a favorite trick of mine. Don’t immediately call up your vendors. First, reach out to their competitors. Find out what kind of pricing they’d offer you to switch over.”

My stomach churned. “You want me to leave my vendors?”

“No. I want you to have leverage when you call them. What are you currently paying for a pizza box?”

“Twenty-five cents for a generic box. But if I want them custom printed with the new logo, that jumps to fifty-five.”

“Forget the custom for now. You can’t afford it. Even with the generic, you might have room to negotiate. If you ask, I wouldn’t be surprised if they drop to twenty-three.”

“That’d save you,” Owen said, tapping on his phone, “eight percent. Not bad.”

“No, it’s not,” Professor Hunt said. “But if a competitor wanted to lure you away, they might drop all the way down to twenty.”

My eyes bulged. “You think my current vendor would then drop to eighteen cents to keep me?”

“Maybe. Or they might simply match the new price, banking on the fact that it’s easier for you to stay than go. Either way, the more info you have when you make a call, the better off you’ll be. And if you know their costs—”

“How would I know that?”

“You might find estimates online. Some vendors will even tell you. But honestly, you don’t need to know their cost to learn how low they’re willing to go.”

“How do I figure that out?”

“See me after class, and I’ll walk you through it.” She capped the marker. “But before we wrap, there’s still one more solution we haven’t covered. It’s easy. Doesn’t require debt. Doesn’t even hurt your vendors’ margins.”

She faced the class again. “Anyone want to take a guess what it is?”

“You ever make those calls Hunt’s been harping about?” Owen asked, leaning across the pizza counter on his forearms.

I kept wiping down my workstation, focusing too hard on a streak that wasn’t really there. “Not yet.”

“What are you waiting for? Got to get those costs down and those profits up, right?”

I swallowed. “Yeah, but…”

Owen bent lower, trying to catch my eyes. “But what?”

I rubbed the back of my neck. “I don’t know. Some of these reps are older than my dad.”

“Intimidated, eh?” Owen thumped a fist to his chest. “Want to try your pitch out on me?”

“Like role-play?” I looked around. It was 4 p.m. on a Monday, and the only customers were a couple of juniors tucked into the back corner. “Could be worth a shot.”

I held two fingers to my ear like a phone. “Hi, Mr. Bogert, I was hoping we could talk about my pricing—see if there’s any wiggle room.”

Owen spread his legs, squared his shoulders, and planted his fists on his hips. “You’re not trying to negotiate, are you, son? ’Cause if that’s the case, you can kiss my fat ass. In fact, I suggest you go find yourself a new vendor.”

I dropped my hand. “Really, Owen? That’s the best you can do?”

He ran his hand over his belly. “I’m a bit hangry. You know what might help that?”

“Let me guess. A free slice.”

Owen tapped the counter. “That’s why you’re going to make it, Ty. You may be a wuss, but your instincts are spot on.”

I loaded up a slice, but held it back before passing it to him. “You’re actually going to be helpful this time?”

His grin was sly but sincere. “Don’t worry, a deal’s a deal.”

“What’s the best rate any of your customers get on this?” I asked, quoting Professor Hunt verbatim.

Will blinked, then glanced away. “Well, come on, Tyler, some of my other customers have twenty restaurants. There’s really no comparison.”

Was he regretting coming out in person? Will worked for Daisy Farm, my biggest vendor—the one who supplied my cheese. I’d called and introduced myself as the new owner, but before I could even bring up pricing, he’d suggested we meet face to face.

“I’m not asking for the same deal,” I said, keeping to Hunt’s script. Then I dropped my bomb. “But I’ve been calling multiple vendors over the last few days just to get the lay of the land—and I have a sense of what your competitors are offering the bigger players. I’m just wondering how competitive your rates are.”

Owen and I had practiced that line almost a dozen times. Something about being so frank with a man twice my age brought my voice to the verge of cracking. But rehearsing helped. I kept my tone calm. Cool.

Will hesitated. One second. Then two. His jaw worked as if weighing whether he could reasonably refuse. I wasn’t a big account, but he wouldn’t have made the drive if he didn’t want to keep me. The silence grew awkward, and I had to bite my tongue to fight the temptation to withdraw the question. Professor Hunt insisted I keep quiet, quoting the old business adage that the first to speak in a negotiation loses.

So I said nothing, even as my mouth grew pasty.

Finally, he caved. “For the big chains—and I mean the really big ones—we’ve gone as low as six dollars a pound.”

“Wow,” I said. “That’s practically half of what I pay.”

“No, not that low.” He tapped open his phone calculator. “It’s sixty-three percent of your cost. But those accounts have serious volume. A lot more effort goes into handling smaller ones.”

“Of course.” My heart started to race. I could practically hear Joanna cheering me on. “How low can you go on mine?”

“Well, I uh…” He hesitated, then pulled up my account on his phone again. “I can maybe cut six percent. How would that be?”

“Six percent? I see.” Then I was silent again. I had to grab my apron to stop my hand from shaking.

A moment passed. Then another.

Will’s eyes dropped back to his phone. “You know what? I’ll do eight percent. How does that sound?”

That sounded great! This negotiating stuff really worked. I was ready to shake the guy’s hand and call it a day, but Hunt had warned me to stay stoic, no matter what.

“Some of your competitors were willing to go lower,” I said.

Will exhaled. “Look, if you’re after the lowest cost cheese, sure—you can find cheaper. But your customers will taste the difference. For the grade you’re using now, there’s nothing better on the market.”

The truth was, I was perfectly happy with the cheese I was getting and had no interest in switching. But if he’d just jumped from six to eight, maybe he had more room to move. A tiny bead of sweat was forming above his temple. I wasn’t the only one nervous.

Could I get to ten? I heard Owen’s voice in my head: Don’t ask, don’t get.

Time to push. “I’d like to do twelve percent.”

Will shook his head. “Sorry, Ty. You’re not a big enough account to merit that.”

“How big would I have to be?”

He crossed his arms. “You’d need to nearly double your volume.”

I straightened. “I think we can do that.”

“I hope you can.” Now it was Will’s turn to stand strong. “Feel free to call me when you do, and I’ll stick to that offer.”

“So what’s the best you can do today?”

He took one more look at his phone. “I’ll meet you in the middle. Ten percent. What do you say?”

In my head, I had a whole crowd cheering me on. Yes! Woohoo! You bet! A ten percent drop in cost would be great for my profitability. But as Professor Hunt had said, my biggest issue right now wasn’t profits, it was cash. And there was an even bigger lever I could pull to increase my short-term cash.

“Truthfully,” I said, “my biggest concern right now is cash flow.” As soon as the words were out of my mouth, I regretted them. Will tensed up. If he thought there was any chance of me going under, he’d never agree to my next ask.

“We’re profitable now,” I quickly added, forcing a calm smile, even as my chest thumped at record speed, “but it’s always good to have a bit of money in the bank when you’re just starting out.”

He visibly relaxed. “Sure.”

Stay stoic no matter what. Don’t ask, don’t get. “We’re currently on Net 15 terms. If you can raise that to Net 30, I’d be happy with the ten percent.” Net 15 terms meant I had to pay for products 15 days after I received them. A jump to Net 30 would mean I could delay my payments another 15 days, giving me a cash infusion equivalent to two weeks’ worth of supply costs. That would be a giant portion of my security deposit right there.

Will looked from me to his phone and back again. “I’ll have to check with my manager on that,” he said, “but I think we can agree to those terms.”

Within a week, I’d negotiated with all my vendors. The actual conversations were short—fifteen minutes, sometimes less—but the real work had happened beforehand. First, I researched each industry, then got price quotes from competitors before reaching out.

In total, the whole research and negotiation process took less than ten hours, but it was some of the best time I’d ever spent. Not all of my vendors agreed to changes. But even the ones who refused were polite—some even apologetic. I kept waiting for someone to laugh at me, or worse, yell at me like Owen had. No one did. A few even gave me exact thresholds to hit to graduate to a better pricing tier.

I only had to switch vendors once—ditching my box supplier, who flat-out refused to negotiate, for someone charging four cents less per box. It didn’t sound like much, but across thousands of boxes, it added up.

When doing my due diligence on the business, we’d discovered that Mr. Bartley’s food costs were 35% of his revenues. Professor Hunt called that the edge of the danger zone—still manageable, but not ideal. Her target was 28%, though she said anything under 32% was acceptable.

So how had my own costs of ingredients compared to Mr. Bartley’s?

Over the past two months, I’d actually done much worse, with ingredient costs climbing above 40%. Most of that was due to the promotions I’d run, where I’d sold hundreds of pizzas at pretty close to cost. If I removed those promotions from the equation, my ingredient costs would have been around 33% of my total revenue.

Following my renegotiations, I estimated I’d reduced my food costs by about 6%, which would put them around 31% of my overall revenue, provided I stopped selling pizzas at cost. Not ideal—but finally within Hunt’s “acceptable” range. And if sales continued to rise, I might squeeze costs even lower.

But the bigger win? Cash.

Two vendors agreed to extend their payment terms from Net 15 to Net 30. Three others let me switch to credit card billing. Since my card gave me nearly a month to pay after the statement closed, that was basically another 30 days.

Just those small shifts freed up almost two grand in cash. Not quite enough for the security deposit—but enough to get more than halfway there.

And, more importantly, it meant I could stop holding my breath every time a check went out.