Do's and Don'ts for Food Processors

Managing The Business 

Do

  • Know if you have the personality to be a successful entrepreneur---i.e. self-starter, lots of energy, hard worker
  • Work from a business plan and continually update it
  • Be flexible and organized
  • Commit the necessary time to the business
  • Form a team with your banker, accountant, and lawyer
  • Recognize your management strengths and weaknesses compensating when necessary with personnel, advisors, consultants
  • Contact your state and local economic development representatives to determine available resources, regulations, taxes, zoning restrictions
  • Determine how you can personally cut costs, serve the customer, improve productivity, and innovate
  • Define each person's responsibilities clearly, including if it's a family business
  • Allow decisions to be made by employees closest to the information J Keep updated with skills and knowledge
  • Have more than one supplier for all key components (ingredients, packaging, mailing service) in case of price or supply problems  

Don't  

  • Begin without establishing goals and objectives
  • Make common business plan errors---too long, no indication of management skills, no recognition of competition
  • Resist change when it is necessary to further success
  • Lose sight of your mission
  • Lose sight of the fact that financial success is the bottom line
  • Be afraid to take necessary risks
  • Forget to obtain insurance coverage
  • Assume you know the best legal structure for your business. Research it.
  • Buy an existing business without researching it with the help of a lawyer
  • Buy a franchise without shopping around for the best investment
  • Grow too quickly---plan it carefully
  • Be afraid of learning and sharing through networking  

Marketing Your Product 

Do 

  • Know your competition
  • Know your competitive edge by comparing your products' strengths and weaknesses against the competitor's
  • Anticipate customer needs and fill them
  • Look for low-cost advertising and promotional methods
  • Consider nutritional labeling even if exempt, unless the nutrition facts will hamper sales
  • Start out with markets close to home and work out gradually
  • Make your products indispensable to your customer
  • Market any customer service you're capable of delivering
  • Always be thinking of new marketing ideas
  • Figure out your break-even price
  • Recognize the demographics of your market
  • Use the demographics to target your market
  • Evaluate all marketing efforts when completed
  • Learn how to write an effective news release
  • Prepare for sales presentations to buyers  

Don't 

  • Lose touch with your customers
  • Gloss over your company's weaknesses---know how you're going to market around them
  • Lose sight of your marketing strategy
  • Continue to market products that aren't selling well
  • Work without a marketing budget
  • Forget to budget for advertising and promotional needs
  • Lose sight of changing market trends
  • Under price your product or out price yourself from the market
  • Forget to track your monthly sales and compare to previous year
  • Forget to compare actual sales to projected sales
  • Limit how you might market your product for other uses in order to expand the market
  • Choose a location that will not provide the necessary traffic or expansion possibilities
  • Allow poor packaging to adversely effect sales
  • Lose touch with good media contacts
  • Forget to review trade publications specific to your segment of the food industry  

Producing Your Product 

Do 

  • Compare the costs of processing your product yourself in a rented commercial kitchen or using a co-packer versus establishing a processing facility
  • Recognize that packaging can make the first sale but product quality will encourage repeat sales
  • Co-op buy ingredients and packaging materials with other processors to reduce your unit cost
  • Determine a "food-safe" processing method
  • Consider hidden costs in buying used equipment
  • Establish a quality control program including a Hazard Analysis Critical Control Point (HACCP) program
  • Eliminate unnecessary production steps
  • Consider adding a UPC code if you might market to stores with scanning equipment
  • Consider ingredient substitution if an existing ingredient is unavailable or too expensive
  • Make necessary ingredient substitutions gradually so product uniformity is retained
  • Take advantage of accelerated shelf life studies through CSU
  • Use code lots for recall purposes  

Don't 

  • Buy expensive equipment or buildings at start-up
  • Choose ingredients that are sometimes unavailable
  • Take chances with food safety
  • Buy ingredients from grocery stores---find a less expensive commercial source
  • Hesitate to ask large suppliers for needed information and service
  • Set up a working relationship with a co-packer without an acceptable written contract
  • Complete shelf life tests with ingredients and packaging different from what you market
  • Forget to redo shelf life tests if you change the formulation or packaging
  • Allow your product uniformity to change, causing consumer rejection
  • Overlook all product changes that may adversely effect sales---microbial, color, flavor, textural, separation
  • Forget to keep lot samples (ingredient and finished product) for quality control and legal reasons
  • Underestimate the need for tamper proof packaging  

Financing Your Business 

Do

  • Establish banking relationships prior to needing a loan
  • Find lenders receptive to small business
  • Apply to more than one bank for a loan
  • Provide financials to all investors, including when they are family and friends
  • Reinvest profits in the business when starting up
  • Keep accurate financials
  • Do cash flow projections
  • Determine available private and public sector funds
  • Contact your state and local economic development representatives to determine potential grants, loans, bonds, tax benefits
  • Base financial assumptions on the data in the financial statements
  • Plan funding strategies far in advance
  • If applicable, investigate finance programs available for minorities and women 

Don't

  • Miss out on free financial counseling and financial packaging available through government sources, i.e. SBDC (Small Business Development Centers), SCORE (Service Corps of Retired Executives)
  • Allow accounts receivable to build up
  • Lose control over accounts payable
  • Underestimate fixed asset needs
  • Overpay yourself
  • Underpay your management team
  • Undercapitalize
  • Overspend in any one area of the business
  • Improperly structure debt service resulting in an inability to cover principal and interest payments on time with revenue
  • Assume buying is always the best option---consider leasing
  • Be financially illiterate---understand the balance sheet, profit and loss statement, key ratios, i.e. current, debt to equity, inventory turnover
  • Overlook the perspectives of different finance partners in the deal

 

Do: Remember the help you received and pass it on!
Enjoy what you're doing!
 

For further information contact, Wendy White
Colorado Department of Agriculture, Markets Division
700 Kipling Street, Suite 4000
Lakewood, CO 80215-8000
Ph. (303) 239-4114
Fax (303) 239-4125