The Smarts goal of owning a food tuck that serves Egyptian delights is several business transactions away from reality. This paper will discuss the challenges facing a startup business, marketing, finance, the best form of business for the Smarts, and finally operations management. Once the discussion is finished, the Smarts will have a better understanding of the considerations they will face starting their Egyptian Delights food truck business.
Susan and Max Smart are interested in starting a food truck business based on their travels to Egypt. Their food truck would serve two desserts and coffee. Max and Susan are both professors in Raleigh-Durham, North Carolina. They both have done some research into forming their business and have discovered that Raleigh-Durham is a great place to start a business. Their main concern now is to be as informed as possible prior to opening to effectively counter any potential issues in daily operations.
Challenges Facing a Startup Business
Many entrepreneurs have great ideas, which require a large monetary and time commitment. A common theme among new food truck owners was that they wished they knew how much time and energy it took to operate a food truck on top of various legal hurdles (“Do You Remember the Enthusiasm?,” 2016, para. 4-5). Starting a company requires significant capital, which can strain any relationship and will require lifestyle alterations. The Smarts may have to limit their desired travel plans while the business is formed, using the goal of traveling as motivation. They will also go from making a combined $140,000 salary per year to the unknown in the food truck industry. This may require significant personal spending habit changes, which can be an additional source of stress. Susan Smart indicated that time and money were what they needed to travel – time and money will both be in short supply while the business goes through the start up phase. The Smarts should also be mindful that they will have to make hard decisions together (which may test their marriage at times), they will have to abandon their careers as professors, and will have to cope with uncertainty (Alton, 2016, para. 1, 5, and 8). In the end, however, if the Smarts gauge the potential market correctly, they stand to make a living as food truck owners, and will reach their goals.
In order to reach their goals, the Smarts will have to market effectively. Marketing or the marketing mix is comprised of four components: product, price, place, and promotion (Exploring Business, 2014a, p. 13). The desired products should be created and tested by the Smarts. They are very familiar with umm alli, qatayef, and various coffees and would need to attempt to replicate the pastries to develop standard, scalable recipes. An internet search will provide a myriad of recipes for umm alli and qatayef. The Smarts will need to try various recipes until they achieve the desired results.
The total cost of each unit of each product will need to be calculated to set a good selling price. The price will then vary based on supply and demand – as the price is lower, consumers will be willing to purchase more goods form the Smarts, however, the Smarts will not be likely to supply a large amount of product at a low price, rather, as the selling price increases, the more goods they will be willing to create and sell (Exploring Business, 2014b, p. 20-21). A supply and demand price schedule will also help the Smarts determine the equilibrium price of their goods (Exploring Business, 2014b, p. 20). Of course, selling their goods will depend on location, location, location.
The place or location a business is in will determine how effective it is at selling their goods. Fortunately, the City of Raleigh has zoned various areas for food trucks and recently increased the amount of food trucks allowed at one time in a given zoned area (City of Raleigh, 2017, para. 1-7). This gives the Smarts legal grounds to be in certain areas, at the designated times, where potential customers expect food trucks to be. To operate a food truck in Raleigh, the business must have approved zoning and food truck permits – these and other legal requirements are located in the City of Raleigh's Food Truck Quick Reference Guide (City of Raleigh, 2016, p. 1). This guide will provide a list of items that must be met to maintain the Smarts permits. The last element of the marketing mix is promotion.
To effectively promote the business, a food truck logo wrap and brand name should be researched by the Smarts. The Smarts should obtain quotes and proofs from the wrap companies prior to making a purchase. In addition, social media provides an easy way to promote the business. By creating a social media location to check in to, or offering a slight discount for the customer sharing their experience or a picture of their treat on social media, public interest in the business will rise. Recent studies have shown that 71% of satisfied customers have shared their experience with other social media users and that Facebook alone influenced 52% of customers purchases in 2015 (Hainla, 2017, paras. 6 and 10). These are great statistics and provide a promising way forward for the Smarts social media promotion.
A word of caution in promoting the business, the City of Raleigh does not allow any audio amplifiers or free standing signs - a violation will render the previously issued zoning permit void and a citation will be issued (City of Raleigh, 2016, p. 2). To further promote the product, market research should be conducted (Exploring Business, 2014a, p. 15). A walk through the designated food truck locations to view the competition may help develop a strategy for gaining a competitive promotional edge. As for brand development, social media is once again an excellent resource (such as the customer sharing pictures of their treats or an Egyptian Delights social media profile). 96% of discussions about a certain brand, however, were not discussed on the brand owners' profile (Hainla, 2017, para. 8). This shows the need to develop a hash tag for Twitter such as #EgyptianDelights to promote and monitor discussions about the brand. Combined with the above considerations – the Smarts will have an effective marketing mix.
How will the Smarts fund or finance their business? Financing is a three-step process: estimate sales, estimate costs, and obtain the funds (Exploring Business, 2014e, p. 27-29). First to estimate costs we'll calculate the amount of umm alli, qatayef, and coffee the Smarts will create (Exploring Business, 2014e, p. 28). The Smarts estimate they will sell 1,000 pans of umm alli, 1,500 batches of qatayef, and 3,000 cups of coffee in their first year. One serving of umm alli sells for $3.99. With 10 servings per baking pan, each pan's retail value is $39.90, therefore (1,000 pans x $39.90) they stand to sell $39,900 worth the first year. One serving of qatayef will sell for $2.99 with 5 servings in each batch. This will yield $22,425 in sales ((2.99 x 5) x 1,500). A cup of coffee will cost $2.99. Multiply that by 3,000 cups and their first year of coffee sales is $8,970. Adding everything together, their first year of sales will yield $71,295. Next the sost estimate is calculated. Food Truck Empire (2016, para. 7) puts the low-end startup cost at $28,100 and the high end estimate at $114,000 with estimated recurring fees at up to $7,000 a month, including salary, insurance, etc. (Food Truck Empire, 2016, para. 7). The Smarts opt for a newer truck at $35,000 and estimate high on other costs totaling $49,100. Combined with the $7,000 a month, they will have a total cost of $133,100 including everything. The sales estimate from the first year is then subtracted from total cost, which equals $61,805. The Smarts intend to use $75,000 in savings to start their business leaving them with surplus of $13,195. This remaining amount can be used to cover any additional unforeseen costs and is a great way to start a business. This type of financing is called financing with personal assets (Exploring Business, 2014e, p. 30).
Other types of financing are available as well. The Smarts could use credit cards, take out a bank loan, or ask friends and family to give them a loan (Exploring Business, 2014e, p. 29-30). These options are not as desirable as using personal assets as all of the above options involve interest, sometimes in high amounts (Exploring Business, 2014e, p. 29-30). Interest payments would lower the amount of net profit that the Smarts could make and therefore, since they have the personal assets to cover costs, they should use their personal assets.
Form of Business
Now that the business is financed, the Smarts need to choose a form the business. The State of North Carolina offers a various business forms: general partnership, corporations (S or C), limited liability company (LLC), or a Limited Liability Partnership (LLP) (North Carolina, 2017, para. 1-23). Because of the Smarts limited financial resources, they should each desire to limit their personal liability. This leaves the Smarts to choose from incorporating or establishing an LLC, due to the inherent limited liability for all owners/partners (North Carolina, 2017, para. 4-23). Due to the Smarts limited financial resources, they will desire to limit the amount they are taxed. This makes incorporating as a C-corporation a non-viable option - C-corporations are taxed as a corporation and then the owners are taxed via income tax as well – lessening the net profits (North Carolina, 2017, para. 6-11). As new business owners, time will be limited for the Smarts – making an S-corporation undesirable. S-corporations shareholder's dividends are taxed only once, however, they are more complex to establish and are heavily regulated, requiring board meetings, and more extensive record keeping (Exploring Business, 2014c, p. 24-25). This leaves an LLC as the best choice for the Smarts.
Now that the Smarts know their desired type of business, they need to consider daily operations. Operations management is comprised of planning, organizing, directing, and controlling (Exploring Business, 2014d, p. 4). Planning includes identifying your vision for the business, setting goals, and developing plans to achieve those goals – a useful tool for the Smarts to use in reviewing a business is a S.W.O.T. analysis or Strengths, Weaknesses, Opportunities, and Threats (Exploring Business, 2014d, p. 6). This analysis will help them focus on their strengths, focus on their weaknesses, exploit opportunities, and counter potential threats.
The best organization form for Egyptian Delights is a functional organization. A functional organization is one in which employees perform similar tasks (Exploring Business, 2014d, p. 21). Susan and Max are both able to do the same jobs – preparing food, shopping for food, accounting, or cooking. This allows for lessons learned to be shared and rotating duties in case Susan or Max are ill. Other structures and cultures are not appropriate for the Smarts – divisional organization is mainly for larger companies, they have few products so product division is inappropriate, with only one customer a segment of food customer divisions would not make sense, process division would not make sense due to them only several products, and geographic division would not work since they will be in the same food truck (Exploring Business, 2014d, p. 22-23). The simpler the organization, the better during their initial start up.
In conclusion, this paper has discussed various considerations for the Smarts as they embark on their new business start up. Discussed were the challenges facing a startup business, marketing, finance, the best form of business for the Smarts, and operations management. As a result of this discussion, the Smarts are better prepared to start their business as an LLC, using functional organization, smart financing options, a savvy (and mostly free) marketing mix, and to face the business and personal challenges of starting a business.
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