Welcome to the first edition of the Mise en Place, our deeper dive into the technical details of the operations and finances of distribution, craft producer businesses, bars, restaurants, and more.
First off, let’s start with a definition of what exactly is meant by mise en place? If you look at the Wikipedia definition, it’s:
Mise en place (French pronunciation: [mi zɑ̃ ˈplas]) is a French culinary phrase which means "putting in place" or "gather". It refers to the setup required before cooking, and is often used in professional kitchens to refer to organizing and arranging the ingredients (e.g., cuts of meat, relishes, sauces, par-cooked items, spices, freshly chopped vegetables, and other components) that a cook will require for the menu items that are expected to be prepared during a shift.
If you ask the famed Michelin guide it says “French for “in its place”.
If you ask Anthony Bourdain:
Mise-en-place is the religion of all good line cooks. Do not fuck with a line cook’s ‘meez’ — meaning his setup, his carefully arranged supplies of sea salt, rough-cracked pepper, softened butter, cooking oil, wine, backups, and so on. As a cook, your station, and its condition, its state of readiness, is an extension of your nervous system...
We wanted to build on our other series: Breaking Bread, where we talk about life-changing food experiences and Tipsy Traveler, where we dig into some of our favourite tipples, with something that’s maybe less exciting but ever so important. While slightly tongue-in-cheek (we do love our food puns here), the metaphor is quite serious - as cooks know, mise en place is the calm before the storm, the make it or break it period of prep and focus that decides whether you thrive - or fry - on the line once things heat up. Similarly, consider this preparation for ensuring your business is well equipped to navigate the challenges of staffing, sales, training, day-to-day operations, and more. Simply stated, the old adage rings true - the better you prep the better you perform.
Just like a line cook or bartender needs to have their mise en place sorted out for the shift ahead, so too must the broader operations of a business prepare in order to succeed. One of the most critical areas is the finances of the business. The disconnect between operations and the accounts team was a key driver for the founding of OrderEZ and something we’ve been working to improve since day one.
Everyone “knows” that getting the books done accurately and timely is critical, but besides the feeling of obligation, what business purpose does it serve?
First off, in the immortal words of Peter Drucker, “What gets measured gets managed”. The “books” are the scorecard for your business, the completely objective measurement of success or failure. Now, many would argue that success can be measured in heaps of other ways, such as World’s 50 Best, Michelin stars, James Beard awards, or Great Place to Work awards. However, if you don’t “succeed” on the books, you won’t be around to collect the accolades.
For most of us, we don’t have a CFO, which means the owner or general manager is responsible for ensuring the books get done and measuring success. One of the biggest pain points is the back and forth between you and the accountant or bookkeeper, ensuring that you get all the invoices to them, that they properly co de them into your profit and loss, and that everything ticks and ties back to reality.
In this inaugural edition of the Mise en Place we’re going to be focused on the finances of distribution, regardless of whether you’re a wholesale distributor, producer: roaster, brewer, distiller, or baker it doesn’t matter? Here are some of the key drivers that every business leader should know and over the coming weeks and months we’ll dive deeper into these and other similar topics.
Cash is king. If you haven’t realised it yet, 50% of your job is being a banker. Yes, that’s right, if you’re in the wholesale business you’re in the banking business. You make dozens, hundreds, or thousands of loans each month in the form of credit extended to your customers.
The credit that you extend to customers will quickly add up. If you’re a young and fast-growing business it’s going to be even more alarming at first. Keep a close eye on your balance sheet.
Cash flow is your lifeblood, sales orders don’t buy more product, pay your staff, or cover the rent. Your ability to convert a sale into cash in the bank cannot be understated. If you aren’t intimately familiar with your current liquidity, credit extended, order and inventory volumes month over month, you could be risking the core of your business.
I love this one because once you have this and #3 on the list you have your first big clear goal - and I love clear goals. Fixed costs are those things that regardless of how much you sell, you still have to pay. Think rent, salary, insurance, utilities, etc. Knowing this number, managing this number, and keeping a watchful eye on this number will pay dividends down the road.
Once you know your fixed costs and your average margin you have a very good idea of what you need to sell to break even. Cost of goods sold (COGS) is comprised of all the expenses to get a product from the producers or seller onto the shelf of your warehouse. This includes freight, insurance, unpacking fees, and even import taxes. Your average COGS and gross margin are two sides of the same coin, if your COGS is 70% then your GM is 30%.
The breakeven point is the revenue number you need to hit in order to avoid losing money. It’s the first number every wholesaler is thinking about (at least if you’re bootstrapping things) when they start out and one that seems to always live in the back of a business owner’s mind. Consider this your finish line and starting point, a goal for profitability, but the bare minimum moving forward as part of your growth strategy.
These two tie directly back to #1 on our list, cash flow. Making the sale is critically important, challenging to do, and an absolute focal point; however, if you don’t actually collect the money you’re left with a big problem.
The time between sale and collection is called days sales outstanding (“DSO”). In a perfect world, where your credit terms are 30 days, your DSO would be 30 days - but as many business owners can attest, we do not live in a perfect world. If you recall from #1 above, remember that you’re now a banker - so managing “credit risk” is going to be a critical determinant of your success. Cut that DSO from 42 to 35 and you’re going to notice it in your cash flow, but let it creep from 42 to 55…and well, you’ll feel that too.
Total sales divided by the amount of cash that you bring in the door is going to give you your Accounts Receivable Turnover ratio, the higher the better. In growth periods you’re likely to see this number trail down but be careful to ensure that as the growth slows this number should start to creep upwards.
This one’s getting into the more advanced metrics, but it’s still a really good one to start thinking about from day 1. High inventory turnover means you’re selling through your stocks quickly and maybe you should be paying close attention to inventory levels, low turnover means a slower rate of sale, and maybe that you’re carrying too much stock. The formula is COGS / Average inventory value (level at 2 dates divided by 2). This number comes in handy as you’re looking at individual products for re-ordering or forecasting plus it’s really useful when evaluating pricing to include warehousing costs, etc.
Like the chef staring dutifully at their spotless cutting boards, bain-marie pans full of beautifully rendered product, and knives gleaning sharp on the magnetic board - completing your mise en place will give you an undeniable sense of accomplishment and confidence that you know where you are and where you’re going as a business.
Enjoy it! You’ve earned it - but the real work is yet to come. How you make use of (or squander) your mise en place is what determines your future success - don’t worry, we’re here to help along the way.