Ten Watch-Outs When Launching a New Food Product (Part 2)
Based on my experience helping numerous clients put together financial projections for the launch of their new food products, I put together a list of ten items you want to be sure to consider when pulling together financial projections for a new food business. Items 1 through 5 were covered in a previous blog post, this is the remainder of that ten-item list:
#6. Food Broker – A client of mine was using a food broker to service their sales to a well-known West Coast retailer, and was not getting any repeat sales. They switched to a different broker, who found the problem: the retailer had never pulled the product out of their wholly owned warehouse. So clearly you want to choose the right broker. But a good broker will go far beyond what your distributor is willing or able to do in terms of checking on your product at retail, and facilitating communications between you and your retailers. From a budgeting standpoint, plan on brokerage expense running at 5% of revenue.
#7. Credit card fees – This is an easy item to overlook, but if you do any significant sales on-line, fees you pay to credit card companies can add up quickly to become a significant expense item. Additionally, if you ship directly to smaller retailers, one or both parties may find it advantageous for payment to be by credit card, at a rate ranging from 2 to 3% of revenue.
#8. Liability Insurance – Even if you are operating as a limited liability corporation, or a C-corp, you still want to protect your corporate assets with the proper liability insurance. There are a lot of things that can go wrong in the supply chain and create potential liability for you. Put a line item for liability insurance in your business plan financial projections now, as a reminder to get in touch with an agent experienced in placing policies for food manufacturers.
#9. Taxes – If you’re not sure about all the various taxes which will apply once your business launches, invest the time now to ask someone with that expertise. In New York City, where I am based, unincorporated businesses have to pay an incremental 4% tax for the portion of their income which is allocatable to New York City. Plan accordingly, and you won’t get taken by surprise when the tax bill comes due, or worse yet, goes unpaid.
#10. Pay Yourself! – It is a surprisingly common mistake for entrepreneurs to forget to build a suitable salary for themselves into their initial business plans. This often goes hand-in-hand with pricing their products too low. Remember that the salary you draw compensates you for the time you put in the business, and if possible should be commensurate with what you would earn if you were doing the same type work on the open market, while any profits that ultimately come your way are a return on the capital you have invested in the business. These are two different things, and one does not substitute for the other.
