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.).