Fajita’s- Las Cruces, New Mexico
Jim and Belle Meadows were high school sweethearts in Las Cruces, New Mexico, graduated college together at New Mexico State University there, and got married. On their honeymoon in St. Lucia, they decided to live there! A few weeks later, with some help from family, Jim opened a shoe store. Ten years later they had built a chain of high-end shoe stores throughout the Caribbean, catering to American and European tourists vacationing in St. Lucia, Barbados, Ocho Rios, Grenada, Curac;:ao, St. Maarten, Cancun, Cozumel, and St. Thomas. Despite a wonderful life in St. Lucia, tbe couple decided it was time to sell their business and move the
family back to Las Cruces. Their oldest son Rick was about to enter ninth grade and Jim and Belle wanted Rick and bis two sisters to finish growing up in a place more in keeping with “the real world,” not Fantasy Island. Planning their relocation back to their family’s home town, Jim contacted a business broker in Las Cruces, who located a custom decorated apparel company. Jim flew up for a look-see and I iked what he saw. As do many other would-be apparel graphics entrepreneurs, he contacted me for some insight on the industry’s stability, operating ratios, typical return-on-investment (there is no such thing), and current industry trends. I didn’t hear back from Jim.
It turned out that that deal fell through, but Jim asked the broker to keep looking, especially if he could find another apparel graphics company. A few months later, after soliciting some local firms, the broker brought a deal to Jim for a business that would finish the year at $1.6 million in sales.
Fajita’s, a screen printing and embroidery company with 16 years of serving the area, soon had its third owner, Jim Meadows.
Sales dropped during Jim’s first year to just under $1.4 million. Another year passed with the company dropping to $1.3 million and not producing sufficient profits for Jim to stay in business much longer.
After two years, I finally heard back from Jim, who told me a tale of great disappointment and growing concern. Juggling my schedule, J went to Las Cruces three weeks later to help Jim climb out of his hole. I usually get the client’s financial data well before l land on site, but Jim never got the numbers to me- until he handed me a folder with the company’s bot-off-the-press accounting reports after I got into his car at the airport. All buckled up, I looked at the materials on our way to the hotel. About a minute later, f knew why the company was sick and, without mincing words, apprised Jim that the situation was far worse than he had led me to believe. He showed no emotion as he listened to me prepare bis soul to receive Last Rites as an apparel decorator.
A few figures jumped out at me, particularly the operating ratios for production labor, utilities. and advertising. At 34% of gross revenue, the production labor figure was “two times bad:’ The utilities. at 3.4%. were three times the industry’s average for similarly-sized custom apparel decorators. Advertising, at .3%, was one tenth of what I recommend for maintaining accounts, replacing losses to attrition, and generating sufficient inflow of new leads. Other numbers weren’t so good either, further revealing just how bleak the company’s outlook was for survival. The patient’s pulse was weak, its heartbeat dangerously slow. and the body exhibiting extreme diaphoresis (sweating). The patient was gasping for air.
The next morning, at Jim’s business, we did a quick walk-through, during which time I asked a few questions of some of the employees. Their answers fully explained the reasons for the horrible numbers. What 1 learned in my first fow minutes on the clock made my diagnosis of the illness that was killing Fajita’s fast and easy. Reviewing the financial reports on the company’s performance of two years earlier, when he bought it, I concluded he paid more than twice what it was worth and that the debt service on his mortgage alone would be all but impossible to meet at the current level of sales.
In the ground floor pressroom, I saw four manual screen ptinting presses, each with a small electric dryer next to it. And there were four screen printers on staff. Each dryer was up to temperature and run
ning, but no jobs were being run. Huh?! Enlightened by the de facto
department head, though no one had the fonnal title or responsibility
of “Production Manager,” I was told, “The first guy in, in the morning,
turns on the lights and the dryers in the pressroom.”
“That way,” the employee continued, “when the screens are done, we·re ready to set up the presses and roll and don’t have to wait for the dryers to heat up.” In other words: Even though the jobs probably won’t be ready to print for an hour or two or longer, the dryers are on, so the plinters won’t have to wait the usual IO minutes for the infrared elements to reach the proper temperature. Given that electric dryers are usually the single, greatest juice-sucker in a screen printing shop, the company’s electric meter was racing at blur-speed. Four dryers running at full tilt for four to eight hours of heavy energy use every morning before a single shirt was ready to be printed made the ridiculously high utility ratio simple to understand.
On the first floor there, one level up, was another pressroom with a mint-condition automatic press sitting idle, covered with dust, ready for someone to whip out a finger and write, “Wash Me!”
”When was it run last?,” I asked another printer who was pulling some boxes from shelves.
“Uh, it’s been a coup la’ months.”
‘”How come you don’t use it?”
“Well, business has been real slow lately and if we were running jobs
on it, there wouldn’t be enough work for everyone [the four screen printers].”
“l see, ” i replied, ending the conversation. I should have said “I see. l see, T see, “I see” – one for each of the four printers whose labor was sucking the company dry. But you can’t blame the employees. Since Jim gave them carte blanche io production and really took no interest in how it was being done – only that it was in fact being done – the employees’ sole interest in Fajita’s was to feed their families.
In other words: The employees running the asylum determined it was preferable – in their view — for the company to pay four screen printers to run jobs on four manual presses with four dryers running, letting the garments fall off the end of the dryer belt into a carton, and then for the printer to dump the shirts on a table to stack or fold them. instead of: a.) running the jobs on the auto press, b.) running one dryer, and c.) cutting production labor costs to the bone — enough to at least enable the company to get some oxygen into its lungs.
Later in the morning. Jim explained that incoming orders were way off from the previous year’s figures, which were down from the previous year, too. Jo reviewing a census of the staff and their pay rates, r saw the highest wages for printers in New Mexico — and maybe for all the land west of the Mississippi. Average homly wage for production employees: $12 to $13 per hour, gross. costing the company $14 to $16/hr. per pressman- in 2002 ! After lunch I innocently (yeah, sure) asked the de facto printing manager, “When was the last time you guys got a raise?”
investigating payroll records, I found that the previous owner awarded $2-per-hour raises to eve,y single employee in the company two weeks before the sale to Jim. I presume it was a parting gift from him to the staff. Yessiree … Choppy gave the gift and got the thank-you’s, Jim pays the bill and gets hosed. Veterans, you read it right: two bucks an hour. For everyone. With a staff of 11. not counting Jim, that was $22 per hour per employee extra. times 40 (hours per week). times 52 (weeks). Or, a whopping $45. 760 in added payroll per year. not counting employer-paid taxes, workman’s comp, unemployment, and benefits (one-half medical premiums). Cost over the two years Jim had owned the business. including payroll costs and fringes: $110,0000 extra before deducting what would have been at most about $10,000 in normally scheduled wage increases. So, there was another $100,000 worth of splainin’ about Faj ita ‘s ‘·two times bad” production labor ratio.
Advertising totaled $3,600 a year for a shrinking company, but one still doing $1.2 million. And that was all in Yellow Pages advertising and donations to a few high school yearbooks and church bulletins. ‘·Why so little in advertising. Jim?,” I asked. “Well. basically, Choppy said it wasn ·t really necessary. since everyone in town knows us and we’re right across from the high school.”
Good or Choppy. He also told Jim the company didn’t need a salesperson. nor that Jim would have to do any real selling, himself, proudly noting. ··1 rarely have to leave the shop.'” To Cb
oppy·s way of thinking. the company was well established, ergo it needn’t need much in the way of marketing or advertising and it could run forever just the way it was. Perhaps once upon a time it was so.
With the patient in critical condition, going into a coma, and now on life support, late that first day, I outlined for Jim exactly what Fajita’s would have to do to survive.
From the book “The Business of T-Shirts” by Mark Venit
Northwest Custom Apparel wouldn’t be where it is today without Mark’s years of consulting efforts. We will always miss you Mark!
Erik and Jim Mickelson