Do's and Don'ts for Food Processors

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

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

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

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

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

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

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

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:
Colorado Department of Agriculture - Markets Division
305 Interlocken Parkway
Broomfield, CO 80021
Ph. (303) 869-9174
Fax (303) 466-8515