Starting a New Business

“Your cakes are great! When will you be starting a business?”

If you are reading this post, you may have heard this at some point from a well-meaning friend or family member. From the outside, starting a business seems like a quick and easy process…just set up a web site, throw together a price list, and you’re done, right? The reality of launching a business is far more involved, and most of the work happens behind the scenes. This subject could fill an entire book, but in this post I will attempt to hit the highlights, drilling down into more detail in future articles.

A brief overview of twelve steps to building a business from the ground up:

1. Business Plan — Create a business plan to help figure out what to sell, where to sell it, how much to sell it for, and who to sell it to. This will include research to determine if your business will be feasible in your area based on market saturation, competition, and local demographics.

2. Competitive Advantage — This is normally part of a business plan, but it is so important I think it deserves to be called out separately. What can you provide that your competition can’t or won’t match? Why should customers buy your products from you instead of somewhere else? How sustainable is your advantage?

3. Legal Compliance — A food service business will usually have special requirements from the health or agriculture departments of your city, county, and/or state which may or may not require commercial kitchens and inspections. You need to know what these requirements are before you start selling. Other legal issues to look at include business licensing (typically from your city), collecting sales tax, filing for a business name, and choosing a business structure.

4. Insurance — It may not be a legal requirement, but anyone selling food should carry business liability insurance to protect themselves. You may also need additional insurance on your vehicle if you make deliveries, and worker’s comp coverage if you have employees. Contracts should be written up and reviewed by someone familiar with local and state laws.

5. Financing — Whether you are investing $250K on a storefront or running a home bakery under your state’s cottage food law, you need to figure out where your cash flow will be coming from while you are in the startup phase, since your business may take a while to make a profit. If there is no other income coming in, don’t forget to account for your living expenses as well.

6. Accounting — Speaking of money, you will save yourself a lot of hassle if you work out how you will handle your accounting up front. Whether you will handle the books yourself with QuickBooks, hire an accountant, or just use pencil and paper, you need to keep a record of all your expenses as you continue through the startup process, and have invoices ready to go on your launch date.

7. Marketing – Implementing your marketing strategy will involve building a web site with SEO and social media presence, creating a name and brand that ties in well with your packaging and other customer touch points, and promoting your business to your target market. Having a system to manage your customer relationships (called customer relationship management systems, surprisingly enough) will help you build on your efforts as time goes on.

8. Procurement — Where will you be buying your supplies and ingredients? How much will they cost? Where will you store them? How often will you need to replenish your supplies? How will you track inventory? How often will you reexamine your current vendors to ensure you are still getting the best price possible?

9. Operations Management — Time is money. More specifically, time is a cost, and since your market will typically determine price you will be more profitable if you are more efficient. If you can break down the different tasks involved in completing an order and have a good understanding of how long each task will take, you will be able to set more accurate prices and identify where you can improve your processes. You also need to identify and fill slack time (for example, while cakes are baking or cooling) whenever possible.

10. Recipe Optimization/R&D — Look at all the different recipes involved in making the products you have for sale. Can you adjust recipes to use less expensive ingredients or reduce the labor required without impacting quality? Are there ways to create additional variety through relatively simple steps (for example, using a frosting base and adding extracts for flavor as needed)? Are you offering too many recipe options? Can products or components be made in bulk ahead of time and frozen or kept refrigerated?

11. Prepare for Launch — Put the finishing touches on your web site and social media presence, and coordinate advertising campaigns to hit your target market as soon as you are ready to “flip the switch” and start accepting orders.

12. Open for Business! — The first few weeks after you start your business are critical, since online reviews can tend to have a snowball effect that can be a great help or a great hindrance. Don’t be discouraged if things start slowly, stick with it and be sure to continually monitor referral links to your web site and the visibility of your advertising.

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4 Comments

Filed under Business Planning, Legal, Marketing, Operations

4 responses to “Starting a New Business

  1. bakerbee7468

    Hey Jason,
    With regards to allocated overhead, how do u figure this out when your just starting out and you don’t know how many orders you’ll get?

    • When you first launch your business the best you can do is estimate how many annual orders you will be filling, after a few months you will have a better idea of volume and can adjust your cost accordingly. I find it’s best to underestimate order volume and therefore overestimate the per-order overhead cost, so if you guess wrong you will likely err on the side of being too profitable.

  2. bakerbee7468

    Ok thanks. Could you give me a reasonable/Likely example so I’ll at least have a good ballpark to go on and know once i get started if mine is ridiculously too high or too low.

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