Then came his insurance problems. (Citing ongoing negotiations, Rathle asked that the company not be named.) "They said I was uninsurable because they couldn't control the possibility of looting," he says. Rathle has been able to find just one carrier willing to issue a policy--but with a premium 120 percent higher than before. The deductible would jump to $50,000 from $2,300, and he would not be covered for fire, theft, or spoilage. "Insurance and labor are my two largest costs," he says. "If those are more than doubling and I can't pass them along in higher prices, what are my options?" he asks.
More of his old customers finally have begun to call, but without insurance, employees, or FDA approval, Rathle can't take new orders. If the FDA comes through and he can at least get some kind of coverage, Rathle figures he can temporarily sacrifice profits and keep his customers' prices steady, at least until his labor situation returns to normal. "I know that the products I made before at a good margin had a lot of appeal and that my brand is worth something," he says.
If finding employees or insurance proves impossible, Rathle is considering renting his renovated facility to another food processor. With so much damage in and around the city, Rathle figures his facility could be attractive to a company without a home or even one from out of state looking to break into the New Orleans restaurant scene. In fact, one restaurateur has already approached Rathle about leasing his facility to serve as the hub of a new catering business. Rathle also is considering moving to someplace like Baton Rouge where he might find better labor and insurance options. That way he could continue to serve his customers without having to raise prices as dramatically as if he stayed downtown.
The last resort is to sell everything: the building, the brand, and perhaps even the home that his wife and kids just moved back into. "If I sell the business, my family and I would have to consider leaving New Orleans," he says. While he is loath to give up on the business that he has been building for more than a decade, he realizes that he is facing a difficult situation with risks that might not be worth the potential rewards. "I'm not going to put more capital into the business without a reasonable positive projection for the future," he says.
Rathle says he'll make a decision by the end of the year. "My company is at an impasse," he says. "I have no debt, but no income. The future is so damn uncertain."
The experts weigh in
Change the focus
Rathle needs to consider what size business the market will support. If he can only do $500,000 a year, will that excite him? Can he cut back on his product line to focus on the items with larger margins? His most valuable asset is his relationship with his customers. Perhaps he can get some of them to prepay on their contracts and he can use that cash to get the business open. These kinds of contracts go a long way in assuring both investors and banks.
Think about moving
Rathle should contact the Louisiana insurance commissioner's office for help in his dispute with his carrier. He can also apply for up to $500,000 in flood coverage under the National Flood Insurance Program. Clearly, he can expect to pay higher premiums for the next two or three years, but my sense is that he is still insurable. And Rathle is smart to think about moving his business out of New Orleans, which could dramatically affect the cost and availability of insurance.
No reason to reopen
The good news is that Rathle doesn't have any debt. He may be able to overcome the higher wages, but if his cost of operating is prohibitive, there's no reason to reopen the business. He'd just be throwing good money after bad. He also needs to understand the impact that the business could have on his family. Is this a battle he's willing to fight? He really needs to face the facts and say I can't bring back what was and figure out how to move forward.
