What Does It Really Cost To Set Up A Bean To Bar Chocolate Factory?

It is on the top of my, “I HAVE TO HAVE THIS!” List. I know it’s worth every penny, knowing you Brad and your experience. Hopefully I can get it soon.

A good rule-of-thumb is: plan carefully, then cost it THEN double the time and money you think it would take. This will more-or-less tell you if you can do it

@choklat – I am happy to hear that the book is gaining traction, it’s a necessary adjunct not only to what John and I have been doing but also with respect to a number of high-profile books that have been published in the past six months or so. I have downloaded but not yet examined closely the workbooks linked to in the book. I am confident that I will find things that will enhance the work I do.

Thanks Clay. The book contains a link to a pro-forma income statement, a full business plan, and equipment list. Quite a few people have already purchased it and the feedback has been fabulous! Here’s a snippet from Thomas Forbes, one of the customers who purchased the book: “I think it is a great book for anyone considering getting into the business of making chocolate. Have read your posts on John Nanci’s site and I know Clay well. I see a lot of similarities in how you get your messages across. I really appreciate people like yourselves.”

@Limpopolondon -I will create a new post with the link to the spreadsheet and I will let you know when I do. I also suggest purchasing Brad’s book to provide another perspective!

I’m looking to base a business plan on it so any freely circulating templates would be useful. I’ve made a simple one but there must be better ones out there.

@Limpopolondon -Are you looking for something to base a business plan around? There are many variables to consider so there’s nothing really one size fits all. I created a modeling tool that you can plug assumptions into that may help. I presented it at Chocoa.

Does anyone have a pro-forma spreadsheet for setting up a small chocolate production business please? Say 10-50kg per day. Thanks

Since my reply above, I have had a lot of questions in this regard, so I’ve taken the time to write and publish an eBook on the subject. There’s some very valuable stuff in here for someone looking to start a chocolate business.

@eanbean – good advice. I hear many stories where big costs and delays can be attributed to the build out.

Be generous with the amount of time and dollars you think will take/cost and then add a lot more to it. If you are working with a general contractor and have a firm deadline you need to be open by, consider having an incentive clause if they can get you open early or on time.

@Samuel Maruta
06/06/11 06:24:14AMHi Mickey,

I totally agree with Brad, a proper business plan is a must. I did write and implement a few of them in my previous career before turning to chocolate and they included a few extra zeros compared with our current artisanal bean-2-bar chocolate project.

Also agree with an earlier comment: a decent business plan allows you to tap into bank / investors which can make all the difference between day dreaming about your company and actually getting it started.

Having said that the investment and monthly spend figures that you quoted are small but not unrealistic as such, but it’s just impossible to say without the other side of the equation:

How much are you selling your products for?

Based on that, how much margin are you making on each unit you are selling (leaving aside fixed costs)?

How many units are you going to sell?

If you find out that your number of units x margin per unit eventually covers your fixed costs you’re on the right track. I sometimes see people getting fixated on the margin % without thinking of the production numbers, which are just as important: say you are making a 100% margin on reindeer-shaped chocolates you import from northern Latvia, they cost you 1USD and you sell them for 2, that’s a really good margin, but, assuming it takes you time and effort to source and sell your wares, unless you know for sure you can sell a couple thousands of them per month you’re probably better off keeping your day job.

Cheers,
Sam

—

@Melanie Boudar
06/06/11 03:31:05PM

I don’t what states you guys are in but it took me almost 9 months to go thru the buildout and permit process here in Hawaii. It was a nightmare. I really had no idea it would take that long and everyday watched finances drain away with no income coming in. Definately plan for the unexpected by having about 3-6 months living expenses stockpiled.

—

@Samuel Maruta
06/07/11 12:49:33PM

And I thought we only had such nightmares in Vietnam!

@Brad Churchill
06/02/11 12:17:32PMAhhhh… Where to start??? Having done this before, started numerous entrepreneurial ventures (some successful and some not), the best place to start is with a spreadsheet and an “ideal” vision of what you would like your business to look like, including location. Columns = Months and Rows = costs and revenues.

Once you’ve got your spreadsheet laid out, brainstorm a list of ALL the equipment you can envision in your ideal business. Research the prices, and delivery times, and plot them in your 1st 6 months of your spreadsheet. Be sure to include such things as signage, business cards, your first packaging order, kitchen tools, sheet pans, molds, tables, fridges, ribbon, bows, labels, display cases/stands, tempering machines, a food processor, a mixer, bowls, and plastic containers for product, sheet pans, sheet pan lids, and the list goes on and on.

Then create a list of everything you will need to open your “store” – costs such as 1st month’s rent, damage deposit, leashold improvements, signage, chairs, utility deposits (gas, electricity, etc).

These and your equipment costs go in your “up front costs”. You can plot your expenses in the first 6 months as you incur them, for budgeting purposes, but you will still need to record them.

Plot your spreadsheet in such a way that your everyday business expenses actually “start” 6 months after you start spending money (expenses such as staff labour, rent, utilities, telephone, internet, permits, etc). You need to do this because, quite often chocolate equipment comes from different areas of the world, and can take as long as 3 months to arrive. Beans are often 2-3 months out (again depending on the size of the order). You also need to account for your time. Start “billing” your company the minute you start working on it, and this includes the 6 months prior to opening. After all, you can’t live for free while you’re getting started. You TOO need a salary/wage.

Plot out ALL of the expenses you can think of in your “IDEAL” business vision. Only then can you determine how much product you need to sell in order to create a sustainable business. Helpful “standard” numbers in the food industry are as follows: Labour cost: 35-40%, Food cost: 30% (Chocolate industry is a bit lower – say about 25%)

In my opinion this is the only way you are really going to know what it will cost to set up your business.

Once this is complete, you can then determine what you need to order, make, and sell as product. It will also give you an idea of how many staff you will need to do so.

If you are looking for investment capital from friends, family, or financial institutions, they will all want to see these numbers to make sure you’re organized, and to make sure their money is going to the right place.

I did this for my first location, and have to do it for EVERY location I open. I’m going through this exact exercise this week for another location I’m opening. Every location has different costs to open, and this is why I have to do it.

Cheers.
I hope this helps.

Brad

—

@Mickey McDowell – CocoaVana
06/03/11 01:13:53PM

How can you measure the real cost of producing B2B small batch chocolate? I’m in the middle of my start up and am trying to bootstrap the business (no external help) while working full time not to mention trying to spend time with the family! If you want to include the cost of a divorce in your costs fuggetaboutit! Seriously since this is all new to me how do I estimate the cost of fumbling around doing things for the first time unlike Brad who has prior experiences? In the beginning sourcing used, new or repurposed equipment for the best prices and best value is a time consuming challenge. I’m sure there are calculators and books out there that can break down the start up costs but I seem to feel they leave something out. Assuming I don’t get blindsided by something that isn’t included in my business plan.

Here are my preliminary estimated costs for 50lb – 100lb batch per day is:

+ Fixed start up costs $50,000 – $75,000
+ After 6 months with employees, rent and production costs per month – $12,000-$16,000

Someone smarter than me said you can choose the size of your headaches and I hope to keep mine small.

Mickey
Ciao Chocolate

—

@Clay Gordon
06/04/11 01:45:18PM

Mickey:

Without going into too much detail (i.e., specific equipment names/brands – unless you want to share) can you give us a breakdown of where you’re spending that $50/100K?

So –

+ Permitting and professional services (e.g., architect)
+ Buildout (construction – other than electrical and plumbing)
+ Electrical andPlumbing
+ Cleaner
+ Roaster
+ Cracker / Winnower
+ Grinder
+ Refiner/Conche (any holding tanks?)
+ Tempering / Molding
+ Startup supply of beans

Just curious to see what the relative allocation of costs is.

:: Clay

BTW: There are no startup calculators/books that cover this topic specifically, though Pam Williams may go over it in her classes at Ecole Chocolat.

—

@Brad Churchill
06/06/11 01:06:09AM

Mickey;

I don’t want to sound like a jerk, so please don’t take my comment here as such.

Starting ANY business needs planning and estimating up front. 80% of small businesses FAIL in the first 12 months because the owner is either “too busy” to take the time to plan, or is completely disillusioned as to the amount of work in starting a venture.

The spreadsheet I described in detail how to set up in my first post is an absolute necessity for the following reasons:

+ It creates a list of everything you are going to spend money on.
+ It keeps it organized
+ It provides you with a roadmap of goals.
+ It allows you to evaluate whether or not your business is going to be successful before you spend a single dime.

I’ve personally done a few proforma’s only to find that the numbers didn’t work. A little work up front saved me several hundred thousand dollars!

I may have the prior experience, and can do a lot of this in my head, but believe it or not, on Saturday evening I was out in the mountains camping, had my laptop by the fire, and was doing EXACTLY what I just described for you to do, in order to estimate the costs of opening my next location.

In my opinion, whether you’re spending $1,000 or $100,000, you need to formulate a plan and some “what if’s”. The spreadsheet I described allows you to do just that.

The equipment list that Clay is asking you to provide is PART of that spreadsheet.

Cheers, and best of luck to you.
Brad