Five Financial Learnings from Co-Founding, Building and Selling a Cupcake Chain

September 14, 2023 It’s five years since we sold our small Swiss cupcake chain (Cupcake Affair) to the great team at Andros Group.

We sold the business when we were on the verge of opening our fifth café, had around 35 employees and delivered our products across most of Switzerland.  Much of the success was down to my very talented wife, Melanie Jones, who created the concept, and set up the first store, as well as our fantastic employees, who consistently delivered great products and service to our customers. On reflection from my role as Co-Founder CFO/FD, there were five key financial lessons I learnt from the experience:

1. Don’t wait too long to raise equity finance.

We made a common mistake of new entrepreneurs of holding onto 100% of our equity for too long.  On reflection, the business was probably worth as much when we opened the second store (and had significant buzz around the concept) as it was worth when we sold it.  Rather than looking to investors for capital at this stage, we clung onto all our equity because we didn't want to lose control. I learnt though (afterwards), that in most circumstances, you can give away equity and still keep legal control of your business. During the latter stages of the business cycle, when year-on-year growth was more difficult, I regretted not looking for growth capital earlier as it became more difficult to raise equity finance.

2. Think about tax in your business plan.

When starting a business, a lot of energy needs to be invested in concept generation, marketing and sales.  It can seem unnecessary, tiresome (and boring!) to consider tax planning early on in the business cycle.  I learnt though that it can become vitally important though later in the cycle (especially if you intend to sell) and some small investments in tax planning up-front can be very worthwhile.  In the UK for example, there are the 4 Venture Capital Schemes available in the UK (SEIS, EIS, VCT and SITR), which offer significant tax advantages to early investors, and should be considered very early in the cycle, particularly if there are significant ambitions for the project.

3. Pay back your initial financial supporters in full.

Don’t oversell your business when raising finance. Although it is critically important to sell your business in the best light when raising money, I learnt that you need to have a robust and realistic business plan – which will deliver the cashflows to repay the investor/institution in full, with interest.  If you are aware that it is going to be difficult to generate the cashflows in your business plan, and you still agree to accept other people’s money, you are shooting yourself in the foot later on down the line.  You are only as good as your last project and friends/family and initial investors will never invest in your next project if you have already lost them money.

4. Pay founders a fair salary as soon as possible.

Although it is necessary to put some initial “sweat” into any start-up, it is imperative to the business’s success that the founders receive a fair-salary early on in the business cycle. I learnt that exhausting our personal savings, rather than looking for external capital in the early stages, put a significant pressure on our home life.   This can demotivate and undermine both the commitment and time available to ensure that the business continues to grow and thrive.  Linked to this is founders taking on more than one project or working as an employee on the side in order to earn a full monthly salary.  In my experience, it works best if the founders are 100% committed to a singular project.

5. Invest in what the customer perceives as value and be lean in everything else.

I learnt that initial capital in the business needs to be ruthlessly deployed in building a team and operations that can deliver products/services that deliver value to the customer.  This means delaying non-essential expenses such as fancy offices, expensive company cars, and extensive benefits (like private health insurance) until the business can comfortably support them or is sold.  We spent most of our ownership running the business out of an oversized broom-cupboard above the shop, whilst the employees and customers worked in beautifully decorated store fronts – and this helped when we sold, as our non-store operating overheads were very low.

These learnings have helped me become a better entrepreneur and finance professional, although I know that I still have a long road ahead with much more to learn. I am aware that many experiences to come will profoundly change my perspective on both business and life. Now, I feel very grateful for the opportunity to work with a multitude of small business and start-up clients in my accounting practice. I am happy to help them and share my knowledge of accounting, business, and finance. In turn, I learn a great deal from them about how to seize a business opportunity and transform a conceptual idea into a successful realisation. I hope I can help them reach their own personal potential in the world through their business, and by doing so, also take steps toward realising my own entrepreneurial potential.