Chapter

6

Preparing Your Business Plan

In This Chapter

You don’t need to be an architect to appreciate the fundamental importance of having a blueprint to build a skyscraper. Imagine trying to construct a building without detailed plans, measurements, and diagrams: how would you know what materials to buy, how many men to hire, or even how to lay the first bricks of the foundation with only a vague vision of the final structure? In building your business, you need to design similar blueprints. Such blueprints constitute your business plan.

Writing a business plan forces you to clearly define your concept, brand, menu, and market so that you know exactly where you’re going and how you’re going to get there. It’s also the first step toward finding capital to finance your food truck, which I cover in Chapter 7. Ultimately, a well-thought-out business plan saves you time and money throughout the start-up, launch, and long-term operation of your truck; helps you anticipate problems; and keeps you from getting in your own way.

In this chapter, I show you how a good business plan can help you make important decisions about your food truck. I cover how to predict your costs, sales and profits, and the pros and cons of different ways to structure your business.

Why a Business Plan Matters

Writing a business plan forces you to make very crucial decisions about your business. It’s not enough to have a vision in your head; by putting that vision down on paper, you clearly define for yourself and potential investors the details of your concept and the reality of your start-up costs and profitability.

The four most basic questions a business plan should answer are as follows:

In the process of answering these questions, you’ll come across others that you need to consider as well. Respond to all these questions in your business plan so that you’re prepared when investors, vendors, and employees ask them later. Your business plan should clearly articulate your experience as well as your goals and ideas for making your goals a reality. The more thorough your business plan is, the better prepared you’ll be to accurately predict costs and anticipate problems down the road.

Tip

Because food trucks are a relatively new industry, you need to clearly explain them as a business concept in your business plan. Here are some of the questions you should answer about food trucks in your business plan:

Even if you intend to finance your food truck yourself, a business plan helps you determine whether or not your idea can become a profitable business; it also serves as a useful resource you can refer to in order to make sure your decisions are consistent with your original intention and associated projections. Having this plan helps you remain focused on your goals and makes it easier to achieve them. If you can’t answer basic questions about your business’s identity, intended market, and projected financials, it isn’t realistic to think you’ll be able to build your business. Take the time to analyze things from the point of view of a potential investor. By removing your emotional attachment to your idea you’ll be able to make more accurate analyses. This will save you a lot of time, energy, and money in the long run.

Describing Your Concept, Brand, and Market

In Chapter 3, I discuss the importance of having a clearly defined concept and menu that are designed with a niche market in mind. In the first part of your business plan, you must articulate what your food truck brand is going to be:

In this part, don’t be concerned with the financial calculations related to your business; instead, try to communicate your food truck’s identity as clearly as possible and define your target market.

Your Identity

Your food truck’s identity is a fusion of three components that should overlap and inform each other:

Menu theme. Do you specialize in Japanese-inspired vegetarian fare? Guatemalan tamales? Or perhaps you’ve reinvented the American comfort food favorites of your childhood. Whatever you choose, successful food trucks always specialize in a niche cuisine. Describe how your food is unique in the market and unique unto itself, but be sure that it’s consistent with a single theme.

Personality. How will your food truck present itself? What do you envision for its design and the presentation of the food? What message do you want to communicate visually to passersby and how? How will you and your personality integrate into your concept? Whatever your vision, it should be consistent with the theme of your menu and attractive to your target clientele.

Philosophy. Every business owner has life stories, beliefs, or a philosophy that informs his or her product. This personal aspect is often his or her motivation for going into business in the first place. If you’re environmentally conscious, perhaps you want your food to be locally sourced; sustainable and organic; and your plates, cups, and utensils to be 100 percent compostable. Or maybe all of your menu items are your grandmother’s original recipes, and you want to honor her in your business. These personal aspects are critical for building a strong brand identity and should be reflected in your menu and design.

If your truck’s menu, personality, and philosophy aren’t in sync, your target clientele won’t get the message. Writing out this section of your business plan helps you discover any areas of your concept that aren’t consistent with your truck vision. This is the time to reconsider aspects of your menu, design, and operation to make sure everything is working toward the same goal. As you write, you’ll see your food truck’s identity begin to emerge. The more detailed the profile is, the more confidence you and others will have in the concept.

Tip

If you intend to seek a bank loan or private investment, be sure to include a detailed description of your business experience, especially within the food industry. You’re less of a financial risk if you can demonstrate that you know what you’re doing or have done it before.

Your Market

After you’ve clearly defined your identity, you must determine whom your brand is going to attract. Describe your target clientele in your business plan, including where these people typically eat, live, and work in your intended locations.

You want to be sure that there’ll be a large enough customer base for your niche product. There’s no point in selling the best Indian food in Athens, Georgia, if there’s no demand for it there. Consider other food businesses near your intended locations and in the food truck market that share your menu theme or message. Ask yourself if there are enough customers to go around, and if you believe they’ll want what you’re selling.

With that said, some of the most successful entrepreneurs are great at identifying needs that don’t currently exist. You need to demonstrate your belief in your food truck idea and then back it up with the facts behind the reason and be ready to supply them when investors ask.

Tip

Statistics and facts about the food truck industry and the general food marketplace are very helpful in establishing the need for your product. Unfortunately, it’s difficult to locate facts on the food truck business from reputable sources, in part because the industry is still very young. When looking for information for your business plan, you can use general food business resources. Check out the National Restaurant Industry Operations report for detailed facts on all segments of the business. It’s produced annually by the National Restaurant Association.

Your Competition

Once you’ve established that there’s a market for your brand, you must determine if you can be competitive within that market.

First, list your direct competitors, which consists of the nearby trucks and restaurants that offer a concept similar to yours. Compare their locations, hours, and prices to your own.

Next, list your indirect competitors—those trucks and restaurants whose products are entirely different from yours but who are still competing for the same customer base.

If you’re selling vegetarian lunches, you aren’t just competing with all the other vegetarian restaurants in the area (direct); you’re also competing with any restaurant or food truck that’s open for lunch (indirect). See Chapter 5 for more information on how to analyze the market for your desired location.

After you’ve listed your competition, you need to explain how and why you’re going to gain a competitive advantage over them. Why is your product better? Do you have the e-mail addresses of 50,000 local residents? Do you have a ready-made catering business because of your recent position at a catering company? Whatever it is, use this opportunity to clarify for yourself and your investors why your truck will do better than the competition.

Forecasting Sales

Regardless of how mouthwatering your menu or heartwarming your message, the only thing most investors are really interested in when considering a business proposal is the bottom line. Profitability should also be your primary concern; no matter how in love you are with your concept, if it can’t generate enough money to cover expenses, pay back investors, and make a profit, there’s no point in even beginning the process. Everything always comes back to the bottom line. Businesses exist to make money. Unless you have a rich uncle who wants to indulge your passions, it’s all about the Benjamins, baby.

Learning to project sales and costs is a valuable and necessary skill for any small business owner. Not only will you use financial projections to interest investors in your business plan, you’ll also use them to predict sales and expenses every month for as long as you’re in business. You can create a simple spreadsheet or use specialized software program like QuickBooks. They don’t have to be perfect, and they certainly don’t have to be fancy. You’re just giving your best guess as to what kind of revenue your business will bring in. Although no one expects you to be Nostradamus and predict the future, you must be able to demonstrate to yourself and to any potential investors that your concept can generate enough sales to cover expenses and become profitable.

Estimate your sales forecast before determining your start-up costs so you know how much money you have available to spend. To forecast sales accurately, you should have already designed and priced your menu. Begin by determining a plausible check average.

Truck Tales

Your check average is the average amount each customer spends.

Put yourself into the shoes of your customers. Would most people have to order more than one item on your menu to be satisfied? Do you offer appetizers or side dishes? Do you expect dessert to be a big hit? Calculate an average check that includes a beverage. This number should reflect what you realistically expect the average person to order, not necessarily what you would ideally want him or her to order. If your average dish is $7, your sides are $2, and sodas are $1, a reasonable check average for the purpose of sales forecasting would be $10.

Now multiply your check average by the number of customers you expect to serve each day. Because it’s impossible to accurately guess the number of customers you’ll have on any given day, always pad your sales projections with the following three sets of figures:

Here’s what it looks like in a simple spreadsheet:

Calculating Your Daily and Weekly Check Average

Beep! Beep!

Always take the calendar and the climate into consideration when forecasting sales. If your food truck is on the streets of a northeastern city, December through February are going to slow down as people avoid walking in the snow. This must be reflected in your figures so you can prepare your business for the seasonal decline in revenue.

Forecasting Expenses

You can’t expect to be profitable for at least six months after the launch of your food truck, so I can’t overstate the value of a highly detailed and well-padded expense forecast. Failure to adequately anticipate every possible start-up and operating expense, as well as emergencies, can be devastating. Fortunately, you can predict most of those costs before you even write your business plan if you’re diligent in doing your research.

Your business plan should include at least a full year forecast of operating expenses, including your salary and a decent cushion for emergencies, repairs, and worst-case scenarios. I prefer to break them down by week, month, and year. As I did with the sales forecast, include three sets of figures: one optimistic, one pessimistic, and one realistic. Your first-year projection must, of course, also include your start-up costs, which I show you how to estimate in Chapter 7.

Tip

When I say anticipate everything, I mean everything, down to the aluminum foil, paperclips, cleaning supplies, debt interest, postage and delivery, gasoline, payroll processing, deposit fees, employee meals, and parking. Many first-time food truckers overlook these things when they plan their businesses. The more you’re able to predict now, the less surprised you will be when it’s time to pay the bills.

Most of your expenses are controllable, meaning that you can lower or raise them based on your business needs. (However, keep in mind that in less experienced hands, controllable expenses can get out of hand.) Here’s a partial list of controllable expenses you can budget for right now:

Determining Your Breakeven

Very simply, your breakeven point is when you generate enough revenue to cover all your expenses. Investors will ask you when you expect to break even, so you need to have this information ready. By determining your breakeven, you can see if your sales will be high enough to finance your operating costs.

To determine your breakeven point, you must already have done your sales and expense forecasts. If you’ve entered these projections into a spreadsheet, generate a line that contrasts both sets of values for one year. You can now see how much you need to make to cover your overhead. If your sales forecast consistently falls below your projected expenses, try to adjust your costs. If that isn’t enough, reconsider your menu, pricing, or overall concept.

Estimating Profits

Your estimated profit is the number your investors are going to be the most interested in. Calculating it is easy: simply subtract your total projected expenses from your total projected sales. The remaining sum is your profit.

If you aren’t seeing a profit, stop right there! Try to reduce your expenses to bring them under your projected sales. If you can’t break even or make a profit, go back to the drawing board and revise your concept. Your prices may be too low, your menu too big, or your location inappropriate for the niche market you want to tap into. Determining your potential for profit now will save you a lot of time, money, and frustration in the short and long term.

Choosing Your Business Structure

You don’t have to decide on a business structure right away, but this is a good time to begin to think about how you want to structure the ownership of your business. How you choose to register your food truck—as a sole proprietorship, a partnership, or a corporation—determines how you’ll receive your income, how your business pays taxes, and who will be responsible should your business fail.

It’s useful to know in which direction you want to go so you can tailor your business plan with that goal in mind. Whatever you decide, you should work with an attorney to register your business accordingly.

Sole Proprietorship

A sole proprietorship means that a single individual owns the business. If you choose to register as a sole proprietor, you’ll be personally responsible for any losses or debts incurred by your business. You get to keep all the profit, but if your business loses $50,000, the bank can take your personal assets to pay the debt. It’s a very risky scenario and definitely not recommended in the modern business world. With all the things that can go wrong on your truck, you want to limit your personal liability.

Partnership

In a partnership, you share ownership and risk with one or more investors and split the profits according to a predetermined agreement.

A partner may invest time, money, expertise, or a combination of all three. You can set up a partnership in many ways, but be sure you agree from day one on your roles and responsibilities, and the expectations you have for each other. You must also determine what stake your partner will have in the company and how you will share the profits.

Tip

It’s crucial that you agree on a hierarchy and determine who has the ultimate authority when it comes to decision-making. There’s no room in a food truck for competing egos. Choose someone who shares your vision and decide now who will be in charge.

A partnership won’t protect you from personal liability; only a corporation will. A partnership with the right person is always a great idea, though it might not be under this business structure. I talk more about partnerships in Chapter 7.

Limited Partnership

A limited partnership is very much like taking on a silent partner. In the agreement a silent partner is protected from any financial or legal liability should the business fail and risks only his investment.

Truck Tales

A silent partner is an investor who isn’t involved with the operation of the business.

Silent partners, however, have a tendency to speak up if they feel their investment is threatened. Be sure to put the terms of your agreement in writing and specify who has the authority to make decisions about the operation of the business. You don’t want a panicked investor meddling in your business or fighting you for control.

Corporation

Some small business owners choose to incorporate, forming a corporate structure that owns the business and pays them a salary. Incorporation offers you a legal cushion should your food truck fail, but you’ll be taxed twice: once on corporate profits and again on your income. If you’re just starting out, your bank will likely require you to assume personal liability for any loans to your corporation, so your financial risk remains unalleviated even when you incorporate your business.

All things considered, I recommend incorporation. Even though it can lead to high taxation, the protection it gives you is invaluable. Having a corporation is like having another identity; it separates you personally from you the business. If something goes wrong with you the business, you the person and all your personal assets are protected. You’ll live to fight another day, and that’s how I like it.

Talk to your attorney about the benefits and risks of forming a corporation.

The Least You Need to Know