Should I go “All IN?”
A business owner asked our consultant the other day if he should go “All In” on a new business. He had a food truck business which made him money. He sold the food truck and now wants to get a brick and mortar facility. He makes a common southwest condiment popular all over the USA. The profits from the food truck would provide the initial starting capital for the brick and mortar facility.
As he talked with our consultant, the more “excited” he got about this whole business of opening a brick and mortar facility.
Our consultant suggested that he use a “community kitchen” which he could rent and make his condiment. He could then sell the condiment from the kitchen and then see if he could develop a business. In this way, he had some degree of capital preservation as well as seeing if there was a market for this product. As you may guess, the market research component was weak, as was the idea of cost of labor, cost of goods as well as cost of rent for a facility, let alone any new equipment.
Another factor our consultant pointed out to this business owner was that 97% of new food businesses go out of business within the first 12 months. Under capitalization, more work than ever envisioned as well as labor/staff issues causes most food service establishments to close down.
In this particular case, the business owner wanted to use the funds received from the sale of the food truck to open the new food service establishment. Our consultant identified that a good robust financial plan is needed if this business owner has any chance of success.
Would you go “all in” on a deal like this? Why or Why not?