In 2010, when he was a high school junior, Chad Kaleky wanted to make a little extra money. The 16-year-old, always a tinkerer, started repairing his friends’ smartphones. But the teen saw a bigger business opportunity. While still a student at American Heritage School in Plantation, he started buying used smartphones online, repairing them and reselling them.
When Chad went off to the University of Miami, he talked his dad, Dan Kaleky, into opening a 3,000-square-foot smartphone store in Fort Lauderdale. They opened in 2011, with Dan handling daily operations and Chad doing the purchasing. It aligned well with Dan’s main venture, buying and reselling high-end Sennheiser headphones.
After about a year, competition loomed and business declined. The Kaleky duo expanded to other refurbished goods: tablets, cameras and laptops, trying to see what worked. They sold retail online through third-party vendors like Amazon. Chad, still a full-time student, drove up on weekends to inspect inventory. At the end of 2013, Kalektronics Inc. moved to an 8,000-square-foot space in Sunrise.
In 2014, the Kalekys decided to try refurbishing goods themselves. The company bought as-is goods, returns and broken goods, and did repairs, testing and repackaging.
In the business, Dan, also a general contractor, was very handy. Chad, who earned a degree in mechanical engineering in 2015, was skilled at systems. “Together we made a good team,” Chad said.
Kalektronics expanded to other consumer goods: housewares, kitchen appliances, consumer electronics and tools. “We tried absolutely everything to find the best fit,” Chad said. The company got into wholesaling about six months ago.
The business has 12 employees. Chad, now 22, is chief operations officer, and Dan is chief executive officer. Dan’s brother-in-law, Steve Weiss, is director of wholesale operations.
The company had sales of $2.7 million in 2015. Kalektronics has outgrown its current space and is stockpiling inventory for projected wholesale business. They have several growth opportunities but aren’t sure which will be profitable. Current accounting procedures are not tracking enough information to be helpful, Chad said.
The Miami Herald and counselors from Broward SCORE, a nonprofit with volunteer counselors from the business community who mentor small business owners, conducted a Small Business Makeover. The SCORE tune-up team included Michael Statner, president of Focus Systems, an IT and business consulting company; Tapan Chakrabarty, managing partner of Publishaletter.com, who has had senior operating roles at several Fortune 500 companies; and Angelica Love, a certified life coach and business coach.
Here is the SCORE team’s advice:
Write a business plan: “We all need a road map to help us get to where we are going,” Statner said. “A business plan helps us more fully understand our direction and explore all the impediments standing in our way.” It also helps plan for contingencies, if things don’t go exactly as conceived, he said. Love said the process will make the principals sit down together and agree on what they are doing and how they are going to do it going forward.
Get accounting in order: Kalektronics’ accounting methods have been sufficient for tax purposes but little else. “The best way to run a profitable business is to run the company by the numbers,” Love said. “We plan monthly what we think we will sell and what we think it will cost. Then we look at the numbers at the end of the month. If they are different, we address the variances, revise next month’s budget and play the game again. It’s no different than keeping a budget in our own lives.” The financials should be generated monthly and must be accurate to properly portray the health of the company, Statner said. Accurate financials also must be kept if you need to borrow capital for growth.
Account for all costs when pricing: The company needs to set up a proper accounting and costing system, Chakrabarty said. Beyond labor costs, they need to allocate the cost of storage at the warehouse, overhead, and carrying inventory, he said. This will help determine the company’s actual margin, cash flow and profit and loss. “Otherwise they may be losing money on some transactions and not even know it,” Chakrabarty said. Statner said sales should be broken down by product category to measure profitability and determine which products are winners and losers. Love said a standardized costing and pricing system is crucial for making a profit. “I need to know the cost of what I am selling so I can add on a profit to arrive at the price,” she said.
Identify target market: Match the resources to the customers, Statner said. “They are a small business and should concentrate on serving the needs of many smaller customers,” he said. Concentrating on a few large customers may result in being controlled by those customers, who will dictate terms and pricing, Statner said. Love said, “I always want to sell to the people who want what I am selling, have the money to pay for it and an urgency to have it now.” After the ideal customer is identified, the company needs to tailor marketing efforts to those key customers, Chakrabarty said. “Without that they will have a scattershot approach and waste money and effort.”
Reduce inventory: Stockpiling inventory in anticipation of entering the wholesale marketplace causes cash flow problems, Statner said. It’s also an unsustainable business model because it increases storage costs, Chakrabarty said. The company needs to have high inventory turnover to improve cash flow, he said. “They are dealing with ‘wasting assets.’ Electronics lose their value quickly in time; thus older refurbished products will sell for less,” Chakrabarty said.
Grow strategically: The company wants to move more into wholesale. “Wholesale will require higher inventory, more storage space and lower margins,” Statner said. “This transition must be thought out very carefully to ensure the incremental profits from it don’t undermine the entire company by getting them in a cash flow bind.”
Expand internationally: Miami is an excellent gateway for Latin American trade, Chakrabarty said. Statner said many of the underdeveloped countries hold U.S. products in high esteem and are eager to purchase them. “They also are more willing to buy refurbished and used products,” he said. “This should greatly expand their sales opportunities.”
Chad Kaleky said the makeover was an eye-opening process. “It helped get our heads back into the right mind-set and got us to refocus on our core business,” he said.
The client: Kalektronics Inc., 10501 NW 50th St., Suite 101, Sunrise. The company buys, refurbishes and resells consumer electronic products. It has 12 employees.
The experts: Michael Statner, president of Focus Systems, an IT and business consulting company; Tapan Chakrabarty, managing partner of Publishaletter.com, who has had senior operating roles at several Fortune 500 companies; and Angelica Love, a certified life coach and business coach.
The challenge: To get accounting practices in order and grow strategically.
The advice: Write a business plan. Get financials in order. Account for all costs. Identify target market and most profitable clients. Reduce inventory and explore international sales.
Based in Washington, D.C., SCORE is a nonprofit with more than 12,000 volunteers working out of about 400 chapters around the country offering free counseling to small businesses. There are seven chapters on Florida’s east coast, including Broward SCORE, which has more than 60 volunteer counselors.
Counselors from Broward SCORE meet with small business owners and offer free one-on-one counseling as well as dozens of low-cost workshops, such as “Supercharge Your Website” on Tuesday and “Build Your Brand” on Wednesday. See more under “Local Workshops” at www.broward.score.org. To volunteer or learn more about SCORE, go to www.score.org or www.broward.score.org.