Business Justification
Since the popularity of health-driven lifestyles in developed countries is on the rise, the niche of healthy food distribution is a perfect opportunity for a start-up. The present-day diet industry makes consumers follow certain trends and differentiate between foods they should and should not eat to lose weight and get a fitness body. Food behavior has become an integral part of the life of any successful person, forming a part of a personal image. Moreover, with the number of chronic, degenerative, and terminal diseases, threatening our lives, more and more people become conscious of their nutrition and switch to healthy eating habits.
Yet, it is challenging for many to cook at home, taking into account hectic daily schedules, chronic fatigue, and little time for leisure. That is why there is a strong need for a healthy alternative to fast food that would allow saving time and money that healthy eaters now have to spend in special restaurants. Time constraints are often decisive in the world of business, which is a good point for healthy shops to switch to a mobile food service offering delivery as an option.
Business Structure
The business I am going to open is a series of small mobile shops (with delivery service) that are to provide customers with organic, chemical and preservative-free food and beverages, which will act as an alternative to products in supermarkets and meals from fast-food restaurants. Since the purpose of the business is to sell high-quality products with short shelf lives, it would be reasonable to opt for a partnership as it would make it easier to organize delivery. Other advantages of partnership can be summarized as follows:
- Although a significant amount of time is required to develop a partnership agreement, it is still rather easy to do.
- Since there are several investors, it is easier to make a profit.
- Partners do not have to pay corporate income taxes.
- It is not difficult to find employees because they are attracted by the opportunity to be a partner (Daft, 2015).
Business Description
The major concept underlying the proposed business results from a combination of a Mediterranean menu style with mobile service and food delivery–this allows uniting convenience of fast-food restaurants and trucks with benefits of healthy nutrition. The idea to use the Mediterranean diet as a sample is accounted for by the fact that its healthy components have not only excellent taste and all necessary nutrients but also provide numerous health benefits for disease prevention. Thus, a network of mobile organic food shops will answer the community needs both in health and time-saving aspects.
The mission of the proposed business is, therefore, to offer organic meals containing only high-quality, flavorful local ingredients with an opportunity to get it delivered right to our customer’s homes and offices. The objectives are:
- to select the best fruit, vegetables, corns, and other components;
- to prepare meals following the most popular and healthy recipes without artificial flavors, additives or colors;
- to support local environment-friendly farms that supply ingredients.
The target audience majorly consists of businesspeople of medium and upper-medium class aged 25-60, who are ready to pay for their fitness, time, and image and who are eager to keep to a healthy diet.
The marketing strategy will rely upon promotions via the Internet and social networks. Product and service advertisements will also appear on TV and leaflets distributed in the streets. The schedule and menu will be available through QR-Reader app for smartphones.
Costs Justification
The major costs necessary to start the business will include:
- storeroom rent;
- inventory;
- products;
- shop-trucks;
- staff salaries.
Exact costs will mainly depend on the number of mobile shops and product prices set by local farmers. Regardless of this, it is necessary to fill out and equip the storeroom and provide credit card facilities. According to statistics, the average outlay for purchasing sufficient stock for a food start-up could be approximately $70-80 thousand. It is necessary to remember that excess stock should be avoided since all products have short shelf lives.
A point-of-sale system will also be one of the key costs and must be selected properly as different systems can make a considerable difference in terms or ordering processes and stock control. This purchase is justified by the necessity to provide customers with an opportunity to pay by card without having to limit themselves to cash. Such a system will cost around $20 thousand.
Since there will be a warehouse for products, it is important to include costs of equipment (refrigerators, stoves, etc.), their repairs, maintenance, and cleaning. Moreover, small on-site kitchens will also be installed in trucks to store and heat meals and do minor preparations.
Products are supposed to be the biggest expense. This is justified by the fact that only exclusively fresh, high-quality components provided by farmers from the local area are to be used. The meat will be the most expensive because of high costs on cage-free poultry and grass-fed cattle, not injected with any type of hormones to accelerate growth. The same is true about wild caught seafood that is going to be purchased in fisheries.
No processed, canned or frozen products are to be used in preparation since all food will be cooked exactly the day it is sold and served. On the one hand, the use of seasonal ingredients can potentially cut costs (since they do not have to be imported). Yet, on the other hand, there is a strong probability of losses due to the fact that such components have short lives and can easily get spoiled.
Thus, approximately $250 thousand will be needed for the first year since the start-up is launched, including about $70 thousand of rental and $80 thousand of employee costs.
Financial Performance
Budget Justification
Taking into consideration that all shops are going to be mobile, it will not be possible to provide seats for customers. Another reason against this option is limited space, facilities, and budget. Yet, to increase customer satisfaction, it will be necessary to offer a counter for utensils and condiments.
In order to gain publicity, advertising and marketing expenses should be included in the budget among the most important aspects. First, it would be reasonable to start from free advertising through social networks. Yet, with the growing popularity, advertising on TV, radio, and on leaflets will be included in the list of expenses.
For attracting customers, it is better to start with low-pricing policy. There, the average price is expected to be about $10 per an item. Supposing that during the lunch time the number of customers will be no less than 60, it will give $600, even if all mobile shops will operate only during lunch periods. During weekends, this number is supposed to be higher since people are likely to order food delivered to their homes.
Thus, the sum may increase up to $1,500 per day. Since no alcoholic drinks are to be sold, they will not be included into the budget (only bottled water and fresh fruit and vegetable juices will be added to food costs). It is expected that the total costs of all products used in the menu will be no less than 35% of food revenue. As far as other controllable expenses are concerned, approximately 14% will go to salaried employees’ wages from total sales, 11% for other workers, 20% of total salaries for benefits, 6% for other expenses.
Financial Performance Analysis Indicators
No matter how careful preliminary planning may seem, nothing can be more demonstrative of success as concrete numbers that measure financial health of a business. The following performance indicators are to be used for identifying if the proposed start-up is meeting its goals:
- Gross Profit Margin (telling whether all items are priced correctly: gross profit margin = (revenue – cost of goods sold)/revenue):
- Net Profit (the amount of money left when all expenses are subtracted: net profit = total revenue – total expenses);
- Net Profit Margin (the percentage of profit in the total revenue: net profit margin = net profit/total revenue);
- Aging Accounts Receivable (a standard accounting report);
- Current Ratio (current assets/current liabilities) (Parmenter, 2015).
Ratios
The following ratios will be used to determine the success of the business:
- Sales growth. Sales in year 2- sales in year 1 divided by sales in year 1. This ratio determines if sales are trending up or down. Determining your company’s sales growth can help you estimate your next year’s expenses and budget.
- Activity efficiency. Asset turnover: sales divided by total assets; current assets divided by liabilities. This ratio determines your company’s assets and liabilities. A company’s assets must be higher than 1:1 to conduct business profitably and pay bills.
- Working Capital. Current assets-current liabilities. If a company’s current assets are equal to liabilities, then they may not be able to pay their bills if unexpected expenses arrive. I am not sure if 10 % working capital is enough. It is enough to pay bills and liabilities.
- Operating margin (or profit/sales). Operating profits before interest and tax divided by sales. This ratio determines your profit margin. A company’s profit margin calculates if it is making enough money on each sale to pay operating expenses and make profit. This ratio is important as I can use it to compare my companies profit against my competition (Daft, 2015).
The Role of Accounting
Accounting is highly important for any business since it allows summing up the outcomes of all business activities, understand financial data, and distribute the results to all parties involved for them to improve the performance (Zimmerman, 2015).
Conducting my business, I will use both types of accounting: management and financial. The former will provide information to me and my partner as the owners and decision-makers. The latter will inform people outside the business (suppliers, employees, labor unions, creditors, agencies, etc.) for them to have an idea about the financial performance (Zimmerman, 2015). Thus, the purpose of accounting in my business is to help keep it running and estimate how well I am running it. The information provided will include balance sheets, statements of cash flow, income statements, performance indicators and other relevant, timely, and accurate financial data.
References
Daft, R. L. (2015). Organization theory and design. Boston, MA: Cengage Learning.
Parmenter, D. (2015). Key performance indicators: Developing, implementing, and using winning KPIs. Hoboken, NJ: John Wiley & Sons.
Zimmerman, J. L. (2015). The role of accounting in the twenty-first century firm. Accounting and Business Research, 45(4), 485-509.