Lean Canvas Model 7- Cost Structure
The 7th section of the Lean Canvas Model is Cost Structure. Many say that you have to spend money to make money, and this is certainly true. There is a cost to doing business. Every business, no matter how small, has some cost associated with it.
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There are two categories of costs that you will need to consider. The two categories costs are fixed and variable. This means exactly what you think. Fixed costs stay the same each month regardless of how much business you are doing. Flexible costs change based on how much you are using. We are going to go over some of these costs so that you can look at your plan and analyze how much things will cost. We will also look at some one time costs for your business and we will start with those since these are typically start up costs.
One time or start up costs
Point of Sale Systems- One of the most important items you will purchase is your cash register or way of taking money. These are called Point of Sale Systems. There are many lower cost options available for small businesses now. I personally have worked with Square and Clover and these work fairly well. These systems allow you to take credit card payments and track cash transactions. They are also helpful because they help you track inventory, popular items, and trends in what is selling at what times. This can help you be most efficient in ordering and in scheduling your staffing needs. A well managed point of sale system can inform many of your costs.
Furniture for the business- Businesses, especially foodservice ones, generally need some type of furniture. Chairs and tables, storage options, child seats, couches and end tables for coffee shops, and desks for managers and such. These needs vary greatly depending on what type of business you are working with. Furniture is a great way to add to theming and to make your space a place that customers want to be in.
Equipment- If you are a Food Service operation with a location, (a restaurant, coffee shop, bakery, etc.) You will be inspected for a Sanitation Score. Who will inspect and how they inspect your establishment will vary by state and even county. If you are an inspected location, all of your equipment will need to have the NSF seal on it. This means it is approved for food service use. These items, unlike items you use at home, have been tested for all day, every day, intensive use. A pan you use at home, you may only use a few times a week, if that. A pan in food service is used many times a day in intense temperatures. It must be durable.
It is also important to note that if you buy the cheapest items you can, you will probably be replacing them much more often, so sometimes it makes sense to buy something that is higher quality. There are often used options available as well. Most towns have a restaurant supply store and many offer used options. Unfortunately, restaurants often go out of business and need to sell all their equipment, so there is quite a bit of used equipment available. Also because this equipment is so durable, when restaurants need larger or more specialized equipment, they sell their old equipment. An unfortunate side effect of the durability, is that even used equipment is very expensive because the value doesn’t depreciate. Getting all the equipment needed for a food service operation is extremely expensive. For example, a 5 quart kitchenaid mixer is about $400. I am looking at getting a Hobart (food service version) 20 quart mixer so that I can mix wedding cakes all at once and it costs over $5500. A used one is between $800 and $2200 but they often don’t come with bowls or attachments, so those would need to be purchased separately. Warehouse clubs are awesome options for smaller items like pans, knives, and cutting boards. These are some great options below. If you are looking for items for your house when you are doing a housewarming or shower, these are wonderful as well because they will last forever and are usually cheaper than prettier household options. They are utilitarian, but very sturdy and useful.
Robot Coupe R2B CLR Commercial Cutter Mixer with 3-Quart Clear Polycarbonate Bowl, 1-HP, 120-Volts (This is a food processor)
Below are some link to sites that will help with researching other equipment
You will also need the following
Plates
Cups
Flatware
Cups
Mugs
Tablecloths and cloth napkins( if you are a fine dining establishment)
Tea and coffee service
Soft Drink dispensers
Trashcans, paper towel dispensers, toilet paper dispensers
Floor Mats
Dishwasher
Sinks
Stainless steel tables
Fixed costs
A business has a good deal of fixed costs. These are costs that are the same month after month. A list to consider is below. This is not exhaustive, but will help a great deal with starting.
Rent or a Mortgage.
Rent is paying money to who owns the building in order to use the space. There is usually a lease involved which means that you agree to rent for a certain amount of time, usually at least a year.
A Mortgage means you are borrowing money from the bank and pay it off over time. When you finish your payments, you own the property yourself. It can take up to 30 years to pay off a mortgage, but once it is paid off, you own the building and only have to pay property taxes. Rent you will pay for as long as you are in the building.
Property Taxes- these are usually paid once a year, but you will need to set aside an amount each month to pay these
Internet, phone, and cable if you are going to have tvs- This bill will be the same each month. It is important, however watch this bill carefully as cable and satellite companies like to raise their charges after a certain period of time.
Website fees- If you decide to have a website, which I highly recommend, most websites have a monthly fee to maintain your url and to host the website. I use SquareSpace for this but there are lots of options, and some are free
Insurance- You will need to have insurance on your property and to protect you from liability.
Salaried Employees- Some employees are paid the same amount each week instead of being paid for each hour they work. This type of pay is called a Salary. Usually, management is this type of pay and other employees are hourly employees, meaning they get paid a certain amount for each hour they work.
Flexible Costs
Utilities- Gas and Power are charged by the amount that you use. You will need gas for stoves, ovens, deep fryers, and possibly your heat.
Consumable materials-
To go containers and cups
Plastic flatware
Napkins
Straws
Paper towels
Toilet paper
Condiments for to-go orders
Sauce cups and lids
Bakery boxes and cake circles
Food
Most of your ingredients will come from a food service supplier. The most popular are US Foods and Sysco. You will order online and they will bring it to you.
If you are a smaller operation, it may work well for you to shop at a warehouse store like Sam’s, BJ’s, or Costco.
The most important thing to remember about food ordering is that some food will go bad over time, so it is important to know what is being ordered by customers and to not order more than can be consumed before the best by date. This helps with storage but also with money savings so that you are not spending more than you are making. It is also important to do a food cost analysis of your menu items to make sure that you know how much the food cost is in each. You generally want to have your food cost be ⅓ of the menu price. ⅓ is food cost, ⅓ is labor, and ⅓ is profit and overhead. Overhead covers rent utilities etc. Be sure to include garnish, consumables, and packaging in the food cost.
Hourly pay
Most food service employees are paid by the hour. This means that the amount of your payroll can change each month. It is important to pay attention to how much you are spending paying employees vs. how much business you have. Your Point of Sale system can help with this.
Paying yourself- It may sound strange, but often when opening a small business with a location, often the owner isn’t able to pay themselves for quite some time. It is important whenever possible to pay yourself.
Credit card fees- You may have to pay a percentage of your credit card sales to your point of sale company.
There are definitely other costs that can be associated with your business and you will need to be prepared for surprise expenses such as repairs to broken equipment or the building. It is important to do a thorough planning process so that you are ready for as many situations as possible.
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This is some of the filming equipment that I use for my YouTube Videos.