Wela Financial Advisors on what we saw, what we learned, and what we should do on this week's episode of Life or Debt on Spike.
The DeCarlo’s financial issues are family-business related and began to cause strain on Johnny and Megin’s relationship. It’s no secret that financial hardships lead to pressure on a marriage and this situation is no different. The business is in Megin’s name and Johnny wants nothing to do with the book-keeping. All he wants to do is work on perfecting and selling his meatballs. Megin is fed up and ready to throw in the towel.
The Meatball Family poured all their money into a food truck that was never profitable. Part of the issue is that Johnny’s business acumen is not exactly strong. He thinks that if he sells a meatball for $1.00 and it costs $0.50 for the meat, then his profit is 50%. He’s not taking into account all the costs involved with getting the meatball into the customer’s hands…things like gas, permit fees for the truck location, maintenance on the truck or condiments for the meatballs (not that the meatballs are short on flavor!)
During the show, Victor had to show them why they had to drop the truck like a bad habit and reframe the way Johnny approaches their finances. One solution is to apply the 3X Rule; 1 – Input Costs, 2 – Overhead Costs and 3 – Profit. So if the cost to make the meatballs is $0.33 and costs to run the business is $0.33, then Johnny needs to sell the meatballs for $0.99 in order to turn a profit of $0.33.
Next, they need to separate their household finances from their business. If the business makes $60,000/year selling meatballs, that doesn’t mean they get to spend $60,000 on their personal expenses. Using the 3X Rule, that really equates to about $20,000 they take home. Getting a grip on their actual cash flow is crucial to the Meatball family’s happiness.
The question you must ask before starting a business is how a worst case scenario will impact my household finances. Will an unprofitable endeavor sink your family? How will you pay your rent or put food on the table? While we’re all for entrepreneur’s here at Wela, if the Meatball family had stopped to ask these questions before starting their meatball food truck, they could have avoided a lot of financial pain.