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Tuesday
Sep202011

How to Start your Business Plan?

Many of us have a brilliant idea but don’t know how to plan it and assess viability.  If you have a piece of paper (napkin, scratch, etc.) and a pen, you are good to go.  What I find the most useful when starting a business plan is to envision the concept piece by piece.  Basically to provide structure to what a business could look like. 

I will walk you through an example.  Let’s say I would like to open an all organic lunch truck in midtown Manhattan.  On a preliminary basis, I would start thinking about the business in the following way:

  • Ok, it’s lunch but what would I like to sale.  Maybe small size packaged salads, soups, a couple of daily dishes and natural fruit juices.  Probably would want to ask workers around and explore the area to better define my niche product.
  • What price?  Around $9 per lunch from my own experience.
  • What’s the process? Suppliers deliver food items or I would bring them from another location, early in the day.  Then I will prepare the food (on site or another location – what are the options for that), for which I will need equipment, space, and help (so all these prior points will add to my research to do list).  Then I will serve customers (need to set standards, prepare menus, manage cash, etc.).  Afterwards, what are the closing procedures (cleaning, garbage, etc.). 
  • The truck?  Need to research what kind of truck and where can I buy it, as well as maintenance and storage.
  • My target audience: ladies of all ages and gentlemen above 25.  What other attributes could be part of my target client description?  How would I go about defining my target audience?
  • Exact location? Will depend on city permits (will call them), traffic patters and competition (need to study possible locations and count traffic). 
  • Start up costs may include truck, permits, company registration, hygiene and safety requirements, equipment (kitchen), offsite warehousing, overnight parking, marketing, labor, etc.
  • Ongoing costs? Raw ingredients (need to call potential suppliers), labor (will asses tasks and volumes to determine needed labor), equipment and truck maintenance, gas, parking, warehousing, marketing, etc.
  • So how about crunching some numbers:
    • Revenues:  If about 700 people pass by my location at lunch time (let’s say 2 hours), and I can capture 50 clients per hour (about 1.2 minutes per client), my daily revenue will be $900 (50 clients x 2 hours x $9).  Of course the truck could be open longer than 2 hours.
    • Costs: 2 workers at $10/hour, raw ingredients about 20% of sale price (just a guess estimate), daily gas about $4, offsite warehousing or kitchen rental of $10/day, plus other administrative of $10.  My daily total costs are $224 = $20 labor (2 workers x $10/hour) + $180 ingredients (20% x $900) + $4 gas + $10 offsite warehouse/kitchen + $10.
    • Therefore my daily rough profit calculation will be $676/day or $676 x 30 = $20,280/month or $676 x 250 = $5 million/year
    •  Wow! $5 million profit (minus taxes and others) sounds like a good business, maybe too good.  So it’s time to review assumptions, maybe raw ingredients are much more than 20% of revenues or maybe serving 50 clients per hour will not be possible.  Or I might be missing some cost items. 

The first run of my truck idea through a business plan type structure looks attractive.  Therefore, I will continue my research and possible develop a full business plan. 

What’s next? From this first run, I will make a to do list and research some important items such as permits (is this idea possible in Midtown), food costs, truck costs, kitchen operations, etc.  I will look for resources to help me develop my idea (books, industry experts, city business centers, financing sources, internet, etc.). 

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