Money Management: 3 lessons learned from the founder of Harlem Chocolate Factory

One of the first things every small business owner has to figure out is how to manage their money and balance the books. It’s not a skill that comes easily to everyone; many business owners learn through trial and error how to save for taxes, how to calculate profitability, and more.

Jessica Spaulding, founder of Harlem Chocolate Factory, has experienced her fair share of trial-and-error business decisions. In this episode of Mind The Business: Small Business Success Stories, she’ll describe a few of her money management mishaps, and her strategies moving forward.

1. Think about what you really need to make a sale

It’s easy to assume that a brick-and-mortar location is essential to moving products off the shelf and into customer hands. But Spaulding says retail isn’t the answer for everyone. 

“You may not necessarily need that. People drastically undercount [sic] how expensive, difficult and time consuming it is to deal directly with consumers.” Turning to retail before your business is ready for that step can impact your business choices — and not always for the better. 

It’s a lesson Spaulding says she learned first-hand. “Because we were so ill-prepared for a specific retail scenario, we were consumed with our consumer,” she says. Goals like scaling production were put on hold, as that time and energy was rerouted to answering in-person customer requests. It wasn’t long before three SKUs turned into 45, but just how profitable were those additional 42 products? To find out, Spaulding knew she needed to dive deep into her sales analytics. 

2. Don’t wait to identify your hero product

“Small business owners wait too long to think about scaling,” says Spaulding. “You need to have a timeline on identifying your ‘hero product’.”

For Spaulding, a hero product doesn’t necessarily mean outstanding sales — it has more to do with profit margins.

“We had this one SKU that sold out all the time. I mean, literally in minutes. When we had 'em online, they [sold] out all the time.” The product was Harlem Chocolate Factory’s chocolate turtles.

“It was a two- to three-day production process, and the yield was around 120 turtles at a time,” she explains. Over three years, the candy accounted for $15,000-$20,000 in sales. 

“Now for some entrepreneurs, that sounds great. But let's break it down,” says Spaulding. “$20,000 over the course of, [let’s say] two years. That's $10,000 a year. … Per month, that’s $800. We’re talking about less than a thousand dollars [per month].”

Take out the cost of labor and materials, and Spaulding says the actual profit margin was around $500 per month. Still not bad for a single SKU, but there was one other factor to consider: time. 

“$500 [profit per] month for an item that takes three days of the production schedule,” Spaulding says. “If we have seven days to work with, that’s 30% of our time [spent] making $500.”

For Spaulding, it quickly became evident that decisions would need to be made regarding those 45 SKUs. She needed to identify which products were worth her time and energy, and which — like the chocolate turtles — would need to be put on pause until the business was ready to scale up. In the end, she discovered that her hero products were chocolate bars and truffles and bon-bons, which made up 95 to 96% of her profits.

3. Find the software, tools and resources to give you the data

As a small business owner, it’s impossible to analyze your business sales without adequate data. But how do you get it?

In the beginning, Spaulding worked with a nonprofit called Start Small, Think Big. The organization paired her with an accountant who used to work for the IRS. 

“She set me up on QuickBooks,” says Spaulding. ”She explained reporting, and she broke down the chart of accounts and set me up in such a good way that we didn't hire an accountant until this past year. … QuickBooks kind of worked as our adjunct CFO during this time.” Spaulding came to rely on the software to get insights not just on sales, but also operations, cost of goods and even the profitability of pop-ups.

“We used to do pop-ups,” Spaulding explains. “It felt [inexpensive], because I didn't have to pay staff.” At the time, Harlem Chocolate Factory didn’t have a retail location. Spaulding could cover the event on her own, with the help of a friend or family member who would work for free. 

“But the table rental, getting to the pop-up, the time that it took to create the products for the popup — I was paying for absolutely every single thing,” Spaulding says. And that meant her profitability was less than 20%. “So I'm like, the products have 70% margins, and I'm only making 20% [or less] in the end.” 

Not only did the data help Spaulding see that pop-ups weren’t profitable for her business, it also showed her how much money she might be able to put somewhere else. “With those pop-ups, we were literally spending probably around $4,500 a month,” she says. “That's how I knew I was able to afford the shop.”

Even though it turned out Spaulding wasn’t strategically ready for a retail location, on a financial level, she had the data to support her choice, and the business remains profitable to this day.

Like every small business owner, Spaulding has had her fair share of learning curves. But she continues to grow her business and change up her strategy as needed. To hear more of her story, and find out what other insights she has to share, check out the full episode. 

About the Mind the Business podcast

New business? No problem. Mind the Business: Small Business Success Stories, from the team at Intuit QuickBooks, is the source for tools and resources for small business owners as they face new hills to climb. Hosts Jannese Torres (Yo Quiero Dinero podcast) and Austin Hankwitz (Rate of Return podcast) connect with entrepreneurs across industries as they start and grow their businesses. From securing funding to building a team, they'll uncover what it takes to power success.

If you're looking for tools to manage your business and capital, the team of experts at Intuit QuickBooks can get you started with free guided set-up.