Case study

Managing Cash: CakeLove and Love Caf

How does a lawyer with a masters degree in public health from George Washington University become a cake magnate? Warren brown was a 28-year-old attorney in Washington, D.C., who in 1999 made a New Years resolution to learn how to bake. This led to his leaving his position at the U.S Department of health and Social Services in 2000 to become a full-time baker. Warren opened his first CakeLove bakery in Washington on U Street, N.W., in March 2002 and the Love Caf 17 months later.

He eventually became the owner of five more CakeLove Caf. Cake Love pound cakes, brownies, scones, and cookies are available via the Internet for delivery nationwide (http://www.cakelove.com). Warrens first cookbook, CakeLove, arrived on bookstores shelves in the spring of 2008, and his second book, United cakes of America, highlights his favorite recipes from every state. To top it off, he hosted the Food Networks Sugar Rush. Warren was named U.S. Small Business Administration Entrepreneur of the year in 2006, and CakeLove was selected top bakery in the Washington Post best bets readers poll in 2005 and 2006 and in the Washington Post Express in 2009.

This meteoric rise in recognition required a number of essential ingredients. In addition to the all-natural components used in CakeLoves products, the business aspects had to be properly balanced and mixed. Such rapid change demanded a lot of hard work, passion, determination-and cash flow. When Warren stepped away from his secure, full-time government job into full-time entrepreneurship, he had $10,000 of personal resources, including his credit card. In order to open his first storefront, Warren needed $125,000.

Fortunately, he was able to secure a commercial loan from his community bank, CityFirst Bank of DC. Commercial lenders at larger, mainstream financial institutions were not convinced that a self-taught baker who had abandoned a promising legal career was a particularly good credit risk. Warren still maintained 100 percent ownership of CakeLove after the acquisition of start-up capital, and he continues as the sole owner after significant growth.

Within a couple of months of opening CakeLove, Warren decided to open Love Caf directly across the street from the bakery. The space popped up as an opportunity, and he wanted to take advantage of it. This required an additional infusion of capital for leasehold improvements, equipment, furnishings, and other start-up costs. There were few expenses from CakeLove that Love Caf could leverage for this start-up, to attain economics of scale. Aside from being able to sell bakery-direct to consumers, he had little obvious financial advantage. However, CakeLove was strictly a take-out facility, housing production and sales areas, whereas Love Caf would be a full-service establishment with a menu of baked goods, sandwiches, and coffee, in what Warren described as a laidback, relaxed atmosphere incorporating natural elements and including Wi-Fi, sofas, and large windows. Because CakeLove was new and had little positive cash flow, Warren could not finance the second location with the cash flow of the first. So, he turned again to CityFirst Bank. Ultimately, due to increased rent and competitions, Warren closed Love Caf in 2012.

Between September 2007 and July 2008, CakeLove opened three additional retail bakeries. Each successive expansion created a need for additional cash. Warren managed to avoid selling shares of the company by leveraging resources and partnering with a community lender. His banking partner, CityFirst, financed each location to supplement earnings, generated from existing operations.

Growth in the number of the retail bakery store fronts has carried the business to new heights. Warren continues to serve as the primary manager of cash flow and human resources for his organization. Inventory theft has not been a significant issue because of well-planned store layouts and careful procedures. CakeLove has established cash-handling policies (cash-counting systems) to prevent pilferage from the cash drawers. Because CakeLove sells baked goods and other perishable items, spoilage and unsold product can become significant and contributors to cash flow problems. Warren and his team have instituted a waste-tracking system and have been able to keep a pretty good eye on the way inventory is moving.

The growth of the organizations has not been the greatest challenge to cash flow for CakeLove. Warren notes that diets have been more of a detriment to the business than expansion or an abysmal economy. CakeLove experiences its most significant cash-tightness at the height of popularity of the Atkins Diet, when counting carbohydrates led dieters to cutting out sweets and bakery treats. During times of reduced cash inflow, Warren and his team have to look to cut expenses, particularly by monitoring labor costs more closely than usual. When warren opened his first CakeLove bakery, he had three employees, including himself. As of July 2008, he had 105. This has meant meeting the cash flow requirements of a large payroll and its associated expenses for the various locations, including being responsible for the support of numerous families. Warren Brown has the following advice for aspiring entrepreneurs, Do the homework. Know the industry you want to enter cold, so that you absolutely know how to make or do whatever it is that you want to make or do. Dont rash in. See it well and dont be afraid to get messy and to keep an open mind. There is always a way to improve. Know the product very well and have good confidence in what you are selling. People will always have unsolicited advice for you. If you dont have that confidence, you will get little chinks in your armor that can make your business less enjoyable and even miserable. Confidence is critical. Warrens recipe for growth has produced sweet rewards.

1. Describe the growth process of CakeLove bakery (entrepreneurial growth process, or innovation growth process or both (350 to 400 Words; 20 Marks).