Lou's Small Engines and Sports Limited

Fort Smith, Northwest Territories


For the past nineteen years, Alex Gauthier has worked as head mechanic for Lou's Small Engines. He started working for his brother Lou, and then nine years ago Alex and his brother-in-law Earl Jacobson bought the business. It is a family business that sells and services dirt bikes and snowmobiles, as well as selling hunting and sporting goods to the 2,500 people in the Fort Smith area. The firm also offers courier and car rental services. Recently, Lou's Small Engine became an outlet for Sears catalogue sales.
Over the years, the business has built up a reputation for excellent sales and service. This reputation and the company's ability to streamline its staff without affecting service enabled it to survive tough economic times. The business allows its owners to work at something they both enjoy while paying the bills. The history of the operation is reviewed in the next section.

History

Twenty years ago, Lou Gauthier opened up a small shop called Lou's Small Engines in the town of Fort Smith, a town of 300. He had his journeyman papers as a motor mechanic, diesel mechanic, and welder. His wife handled the company accounts. One year later, he hired his brother Alex, who was in the middle of completing training as a motor mechanic.
Alex recalls those early years, "When I first started with Lou, he had the skidoo dealership, the Honda dealership,

and the Homelite dealership for chainsaws. We also handled repairs. We still hold the dealership for skidoos. Eventually, Earl came to work in the sporting goods section of the store. It has stayed a family business."
Earl worked at the store for about four years and then Lou decided to sell his business. He offered it to Alex and Earl. Earl recalls, "For me, I wanted to keep my job. We weren't sure who was going to buy the business and if we would be kept on. Then Lou suggested talking to Economic Development with the territorial government about grants that might be available. With the help of Economic Development, we put a package together for the purchase of the store and it was approved." In making the decision to purchase the business, Alex and Earl went through the financial information of the business. Alex recalls, "I didn't really know the expenses but I knew it was a profitable business." Part of the funding application included a five-year projection of business financial statements. With the grant funds, Alex and Earl purchased equal shares in the business. Earl states, "Lou and his wife stayed for a year as part of the deal and helped us run the business and make the transition go smoothly." Earl now handles the accounting, ordering, and sales, while Alex looks after the repair work.
Earl had no bookkeeping experience. Lou's wife taught him basic bookkeeping skills after they bought the store. After managing the store for some time, they ran into trouble. Earl recalls, "We did have a lot of problems because I wasn't getting enough financial information and the government let staff go in town. It snuck up on us before we knew what was happening, and we had a cash flow problem. We had to borrow money to consolidate all our debts and we laid off four full-time staff. However, we kept our inventory at the same level."

The government layoffs and the decreased demand for fur, which led to lower demands for hunting equipment and snowmobile servicing, meant that their actual revenue was less than that forecast in the grant proposal.
Since buying the store, Alex and Earl have added the courier service and the Sears catalogue department. The store also has the dealership for Tilden-Rent-A-Car. Since they hold a Honda dealership, they are invited to attend annual trade shows. They rarely attend these events, since new products do not generally affect the type of inventory that they carry in the store. However, the first show Earl and Alex attended in Calgary provided some interesting memories. Earl recalls, "They paid our way to Calgary and we expected that it would be first-class. It was still shocking and we were flabbergasted. When we landed in Calgary, there was a guy with a Honda sign and we went to see him. They put out bags in a limousine and drove us downtown. We were casually dressed in jeans but everybody else was in a suit and tie, so we changed right away. It was only two days but we still talk about that show periodically."
Self-employment is a Gauthier family tradition: Alex's father had his own business and served as a role model for his sons. Alex also owns a hauling company called A & R Hauling. He purchased the truck from another brother and has the contract with the Northern Store to haul their garbage to the dump. His son picks up the garbage and Alex handles the accounting. Alex notes, "My son is seventeen and he earns his own spending money. This job keeps him out of trouble and gives him some work experience."

Operations

Located on the main street of Fort Smith, Lou's Small Engines and Sports operates out of a two-storey office and sporting goods shop which has a repair shop attached to it. There is also a cold storage warehouse on the property. The shop is open from 8:30 a.m. to 6:00 p.m. Monday through Friday and from 10:00 a.m. to 5:00 p.m. on Saturday, year-round.
The sporting goods shop carries lawn mowers, skidoos, chainsaws, bicycles, motorcycles, and dirt bikes. Earl comments, "We carry a little bit of everything including fishing, hunting, and camping gear and team sports equipment for baseball and hockey. We don't carry a large inventory of sporting goods but it does not take us very long to fill orders."
The other main service is the repair shop. Alex notes, "I service anything that has to do with small motors." Earl adds, "The repair shop is the bread and butter of the whole business. It pays our wages, mortgage, and electricity." They carry a good parts inventory and receive calls from Cambridge Bay and other areas of central Northwest Territories for parts. They had to cut back on this service because customers often failed to pick up their COD orders when they arrived and the shop had to pay the round-trip delivery costs.
Earl's mother looks after the Sears catalogue orders, which are filled from the head office in Regina. Lou's Small Engines earns a percentage on the total amount of sales. They are agents for Tilden Rent-A-Car and Buffalo Courier. Two other agencies in town compete for a share of a very small car rental market. Earl and Alex are contemplating discontinuing this service if demand remains low. Buffalo Courier ships packages from Edmonton across the North, on Canadian Airlines. Earl and Alex deliver the packages shipped to the Fort Smith area.
Trappers have provided a significant demand for skidoo purchases and servicing in the past, from October through February. This demand has decreased in the past several years with the drastic drop in fur prices and its negative impact on the fur-trapping industry. Business picks up in May,

 when motorcycle sales pick up and government fire fighters require regular equipment maintenance. The territorial government is a major client. Wood Buffalo National Park and the territorial government have their own fire fighters. The shop also services equipment for the RCMP. As is common for many small northern communities, Earl notes, "Take the government away from here and you have nothing since at least 80% of the people are employed by the government." Most of the inventory is paid for immediately by the store. One supplier of skidoos, Bombardier, has a finance company and allows its wholesale customers to pay over a period of time. Recently this supplier instituted a new type of payment system called curtailment fees; under it, Lou's Small Engines orders twenty-five units in the fall but instead of paying the total inventory cost in the usual thirty days, the retailer makes monthly payments that go towards the cost of the machine, not towards interest charges. Bombardier hopes that sales outlets will be encouraged to order more units while sharing in the ownership of the units with the suppliers.
The partners must make guarantees that leave them personally liable for all debts to the suppliers. As Earl notes, "Any lawyer would advise against signing personal guarantees but that's how these bigger companies protect themselves. As a customer, I am stuck if they've got a product that sells and I want to sell it." Dealership agreements must be renewed each year. If sales quotas were not met, then Earl and Alex negotiate with that supplier and explain the problems they face with the demand in the local market. They communicate regularly with their suppliers by telephone and with sales representatives, who make frequent trips to Fort Smith. Many suppliers offer sales incentives such as reduced inventory rates or free trips when target sales levels are reached.
The level of accounts receivable is strictly monitored so that their operating cash flow is not jeopardized. The general rule is cash-and-carry, but Alex and Earl give established customers some latitude in paying within thirty days. If payment is not made on time, then the customers' account is canceled immediately and interest is charged on the outstanding balance. Earl will write and visit the customers with outstanding balances and has taken some delinquent accounts to court for settlement. 		The territorial government is a special case: they know that the account will be paid, but sometimes it takes up to forty-five days to receive the payment because of the bureaucracy involved in processing invoices. Bank financing is available to customers on big-ticket items but is arranged by the suppliers of those items. The demand for their products has shifted over time. As mentioned, trappers are no longer major customers. Demand for dirt bikes has also dropped, from forty-five or fifty units when Alex's brother first acquired the Honda dealership to one or two a season. Earl comments, "These are recreation vehicles that if you can afford it, you buy it. Kids used to be our big customers but now they want cars not dirt bikes." By diversifying into other product lines, Earl and Alex hope that the demand for new products will replace the dwindling demand for some of the established products.
With the shift in demand, Earl has to monitor inventory more closely. His ordering patterns have changed. If something does not move in a reasonable time period, then he puts it on sale and does not reorder it. Inventory is not on the firm's computer and he does a visual check once a month to make up the stock order.
Although sales have slowed, Earl recalls their delight in winning the top dealership award from Bombardier for sales and service in 1998. Earl recalls, "They monitor your purchases of parts and units in order to select a winner. They also talk to different customers. They paid our way down to their annual skidoo show in Edmonton and gave us a plaque. It was a surprise."
Several licenses are required in order to operate Lou's Small Engines. Earl and Alex have a business license and must comply with the requirements of the Worker's Compensation Board. Alex has his journeyman's license as a mechanic, which is a necessity when bidding for government contracts. They also carry fire and theft insurance but have never had to make a claim.