Less is More: The Broke Startup

I find a lot of folks are hesitant to chase their culinary ambitions due to cost.  I can’t say I blame them.  The biggest barrier to entry for culinary entrepreneurship is always financial. To design, build, equip and bring a space up to code for commercial kitchen use can run you six figures or higher.  

But what if I told you there are other, more economical ways to get the ball rolling?  

I’m not just a consultant- I once started a bakery with no savings and no investors from the $7.75/ hour job I was working.

We get so wrapped up in doing everything big and right the very first time that we can lose sight of practicality and our budgets, putting more stress and pressure on ourselves that isn’t needed.  I find a lot of new entrepreneurs are ruled by insecurity (which is totally normal- it’s a very vulnerable time) and this generates the reaction and impulse of wanting to do things “bigger and better” than our competitors.  As I’ve mentioned before, a ‘keeping up with the Joneses’ approach to business will always leave you sad and broke.  So for now, slap on your horsey blinders and let’s take a look at what money saving strategies will work best for your personal business launch. 

If you skip to the end of this piece and take nothing else, please take this: Less is more.

A Pilot Project

A food based business is considered highly risky from most financial institutions as the profit margins are razor thin and they have a high rate of failure. Therefore, it can be very tricky to get a loan from a major financial institution.  If you want to bring the receipts- literally- to your banker it is possible to do so with little investment.  Try renting from a commercial incubator kitchen like this one that charges by the hour for licensed, city approved sanitary space. Almost all communities have them now.   From there you can take your prepared foods to local food shows, sell them via a delivery app in windows of delivery times, sell direct to your clients via an online shop, or distribute to a third party such as local cafes and specialty shops.  Having 6 - 18 months of a real live cash flow and sales projections will prove the viability of your product to the financial institutions, and afford you the ability to learn the ebbs and flows of your season, making mistakes and learning along the way without a huge overhead in rent on the line.  These sales figures and your new knowledge will make planning and your future projections realistic for your own benefit.

Another excellent pilot project that is lower risk is to purchase a food truck.  Used food carts or trucks can be purchased for as little as $5000 (carts) and $15000 (small trucks). You can spend an entire season living and learning your business idea then decide if it’s right for you.  If you hate it, you can turn around at the end of the season and sell off your vehicle, getting back your initial investment.  This will also generate you a real time sales projection, which again will help you in planning future cash flows on your business plan. 

Distribution

I always recommend distribution models for folks with young families, or those who just want more time and freedom and don’t want to commit to a retail model.  

By distributing your products to third parties, you’ll spend less on rent as you won’t need a large retail operation in a rent expensive area. The only time used is the time to prep, invoice, and chase leads and deliver- no wasting time waiting around for walk-ins.  Also, once you set a minimum order amount for clients, you’ll be able to more accurately predict a cash flow and will be able to rely less on the things you can’t control such as  walk-ins, nice weather, holidays etc.  

The biggest selling point on this one is that once you are an established distribution business, you can choose to hire a co-packer- something I really should have done for the business I had before this one.  It would have made my bakery much more viable financially, and not having staff to manage would have removed a lot of my main stress. 

So what’s a co-packer? As Pod Foods so perfectly states, 

“A co-packer, or a contract packer, is a company that manufactures and packages a certain product for a client. For small businesses, outsourcing their manufacturing to a co-packer allows them to scale-up and meet growing demand, without having to invest in their own industrial setting. This can be a game changer for food businesses. Often, small teams are spread thin with production alone and don’t have any time to focus on the main driver for their business — sales.

By offering their expertise and resources, co-packers help small businesses free up their time, letting them shift their focus to marketing and growing their brand.”

Pretty sweet, huh?

Second Hand Rose

I always recommend to my new clients that they find a great liquidator or second hand distributor of restaurant equipment and immediately begin building a relationship with them.  The upside to our industry having a high failure rate is that liquidators are rampant.  A liquidator will show up to a closing business, write a check, then gut the joint.  These folks then turn around and resell the equipment, furniture, smallwares, etc. directly to folks like you- the small culinary business owner.  

Don’t shy away from second hand equipment. Many of these folks are legitimate businesses and can give you warranties or repair the equipment for you.  The industry is quite “sharky”, with lots of snake oil type sales people.  Trust me when I say you don’t need all brand new equipment on a 10 year financing plan, especially if you’re just trying a business idea out. Don’t let them talk you into it.  Take a breath, take it slow and search / ask for your local liquidators in your industry networking groups. (and bring cash when you go to see them!  Most of these folks live for a haggle!)

Sharesies- again

Last week I chatted a bit about businesses sharing space and rents / utilities, and since the arrival of COVID this has become even more prevalent.  I have had more folks call or reach out asking if I knew anyone looking to share commercial space, so if you’re looking send me an email.

But this does make sense for a startup- again, you don’t need to lock yourself into a multi year lease for thousands of dollars, and you have the added security and buying power of sharing with someone else who you can work and cross market with.  I think that as businesses continue to close or see slumps in sales, this will become much more common in our communities. 

Please though, ensure you get a detailed agreement in writing reviewed by your attorney before entering into such an arrangement, no matter how informal.  Always, always get something in writing. 

Community Micro Loans + Grants 

Many communities and provinces have micro loan programs.  This means you can borrow up to $25K or so and pay it back over 5 years at an extremely low rate. It’s perfect for anyone who is just getting started so ask your local rotary club, entrepreneurship center, or mentor for more information.  Futurpreneur provided me with my first start up financing and I don’t know what I would have done without them.  

If you’ve decided that now is the time to start your business, ensure you’re doing it on a level you can afford and sustain.  Don’t try to become your competitor. Take it slowly and a little at a time until you really get to know your business and it’s patterns. Trust me, it’s worth it. 

Join me next week for Labeling Requirements and You: Navigating the CFIA process for small business.