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
  • 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 errorstoo 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 quicklyplan 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 storesfind 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 salesmicrobial, 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 optionconsider leasing
  • Be financially illiterateunderstand 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:
Colorado Department of Agriculture - Markets Division
305 Interlocken Parkway
Broomfield, CO 80021
Ph. (303) 869-9174
Fax (303) 466-8515