In 2006, the real estate market in south Florida collapsed. Two brothers who were developers building houses on spec saw their business turn upside down as a result.
They did what any Italian true-to-his roots would do; they bought a pizza truck.
They added a brick oven so it cooked just right. They imported cheese, flour, and those spectacular sun-ripened tomatoes that only grow in the hills of Italy.
The pizza was amazing. There was only one problem; they were losing money big time. They made the same mistakes almost every small business owner makes.
Here’s what they should have done and how you can avoid making the same costly errors.
Do Market Research to Forecast Demand and Revenues
For pizza trucks, life is all about micro markets. Your potential customers are probably within a five mile radius. What are the demographics?
Is most of the population over 70 years old living in assisted living facilities on low fat diets taking Lopid?
Or will the truck be parked near a college campus where starving undergraduates will eat anything to stave off hunger at 2AM while they study for final exams?
Yes, it matters.
Know your market. Know their preferences. Know what food they buy today to help predict if they’ll buy from you.
Figure out how much money they spend on lunch or dinner so you know if your pricing is in range for them.
Figure out the best hours, locations, and people to reach out to in your marketing campaign.
Do this before you spend ONE NICKEL on buying a shiny new truck.
The local librarian and the local Chamber of Commerce can help you answer these questions. They’re very smart people.
Figure Out What Permits You Need for this Business
This is not a small question. It will add a tremendous amount of lead time and expense to this pizza truck start up. Every state and location is different.
Do not miss this step or else you’ll spend all this money on equipment and ingredients, then have to shut down because you don’t have the right permits to do business.
You’ll lose all your investment. The pizza guys got a $180,000 lesson on permits in this ill-fated venture.
Make a Budget
In my upcoming book, “Accounting for the Numberphobic, A Survival Guide for Small Business Owners,” I have an entire chapter devoted to this.
Every small business owner needs to do it. I start with estimating your expenses because those are more easy to predict.
Some are fixed expenses, like the truck. Others will vary, like gasoline and ingredients, based on demand month to month.
Write these down month by month. Speak to others who are in the same business in a different market.
Our heroes didn’t realize when they added that spectacular brick oven it added so much weight that the truck went from getting 15 miles to a gallon of gas to 5 miles on a gallon of gas.
Their gas bill tripled overnight.
There are organizations to help establish food truck businesses, believe it or not. If you’re interested in this business, you need to get to know them.
In New York City, there’s the NYC Food Truck Association that helps you get smart and get started. How cool is that?
They can help you forecast accurately. This will be your road map for conserving cash until revenues can sustain the business.
Double Your Estimated Expenses, Cut Revenue Forecast in Half
Norm Brodsky, who gave a fabulous interview for Chapter 10 of “Accounting for the Numberphobic…” said, “every entrepreneur I’ve ever met is overly optimistic on revenues, every single one.”
Whatever you think revenues are going to be, cut them in half. That’ll be closer to reality.
Whatever you forecast expenses to be, double those. That too will help you plan for unforeseen expenses that always creep up on you.
Do Your Homework First Before You Invest In Anything
So after you’ve done your market research, figured out what permits you need AND completed your budget forecasts, then consider whether it makes sense to buy the truck.
It might be after all that, the truck makes sense, but not in your local area.
You might decide a truck that sells Greek food or green smoothies might be the ticket for your target audience.
Whatever you decide, you’ll be making those decisions based on sound business practices.
You’ll generate more revenues faster. You will avoid large sunk costs. You’ll see your dream come to life.
Learn from other people’s experiences. If you follow these simple steps, it will point you in the profitable direction a lot sooner.
This article was originally published by Best Small Biz Help
Published: May 1, 2014
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