In the first half of 2016, Los Angeles area-based family furniture business Pacific Hospitality Design (PHDesign) was experiencing a slew of financial setbacks, its owners said on the latest episode of CNBC's "The Profit."
Sales had dropped, orders were delayed, the company could barely make payroll and liabilities had reached $406,000 — forcing co-owner Ana Martinez to put in $75,000 of her and her husband's own money.
The nearly 40-year-old furniture manufacturing company, which catered mainly to the commercial hospitality space, made two common business mistakes that contributed to the slump.
Low sales prices offered to customers and an inefficient use of business space debilitated the company and prevented it from reaching the profits needed to securely land the company another 40 years into the future, said turnaround king and "The Profit" host Marcus Lemonis on the show.
"When those things exist and business is great, you can just skim by, but when business drops, it's like putting a noose around your neck. There is no chance of survival," Lemonis said.
To increase gross profits, Lemonis encouraged Martinez and her dad, Gilbert Martinez, also a co-owner of the company, to raise the quotes they offered to their clients.
As it stood, sales margins were frequently in the 20 percent range, a byproduct of a fiercely competitive market where furniture manufacturers like PHDesign underbid their prices to garner market share.
"Furniture margins in this business need to be north of 55 percent — not only to make a product but to leave yourself some gross profit to deal with quality control issues and damage," Lemonis said.