JUST SWEETS FOOD TRUCK

CASE STUDY

Just Sweets is a small, local bakery in Texas owned and operated by cake designer Elizabeth Chapman. Just Sweets serves cakes, cupcakes, house-made ice cream, coffee, and an assortment of baked goods including cake pops. In addition, they offer custom cake orders for weddings, birthdays, and other special occasions. Elizabeth grew up loving to bake, but desired to make treats look as good as they tasted. In 2007, she took her first cake decorating class and realized that she had a unique talent for cake decorating. Over the next few years, Elizabeth perfected her baking skills making birthday and wedding cakes for family and friends. During that time, she also married and started a family. As word of mouth stimulated demand for her custom cakes, she knew that she needed to find a way to open a storefront that allowed her the flexibility to still be with her three small children. In March of 2014, Elizabeth opened the Just Sweets retail storefront.

Elizabeths passion is business and her niche is her bakery. Elizabeth would like to do more managing and less baking and therefore is looking for a way to train employees to create products that will continue to build her business but not tie her to the kitchen working on customized cakes. Cupcakes and coffee are both very popular due to the millennials desire for customization and grab and go options. Popular television shows like Cupcake Wars, Two Broke Girls and Fixer Upper highlight cupcakes and result in a trend for this market.

A recent consultation with business professionals from accounting, marketing and management resulted in the recommendation that Elizabeth open a food truck with her two most popular products cupcakes and coffee. She knows the market price for cupcakes and coffee but needs to know if and how much her profit will be if she follows the advice of her consultant. Elizabeth currently has $5,000 of retained earnings from the bakery to invest in this venture but may need to borrow the additional capital at an annual rate of 4.5% through a small business initiative in her state of residence.

Just Sweets is located in a rural part of southeastern United States in a town with a population of approximately 20,000. There is also a university located down the street from Just Sweets but not within walking distance. The three largest employers in town are a Tribal Nation, a large regional bank and their corporate headquarters and a distribution center for a well-known retailer. In addition, the Tribal Nation has a large independent construction company located on site that will be there for approximately three years. A food truck park has recently opened in town and currently does not have dessert or coffee selections. There is a larger town within 20 miles that has just opened a food truck park, as well.

The food truck industry is one of the best performing segments in the broader food service sector with annual growth from 2014-2019 of 6.8% (IBISWorld, 2019). Elizabeth has found a plethora of information online with advice and lessons learned from opening a food truck. She knows she needs a business plan and she has reached out to the Small Business Development Center (SBDC) for advice. They recommend she start with a three year financial plan which includes amortization schedules for the loan and return on investment calculations. They also recommend she conduct a SWOT analysis and use Porters Five Forces model to analyze the industrys attractiveness and likely profitability. With this information, Elizabeth can complete the business plan for her food truck according to the guidelines from the Small Business Development Center. With a complete business plan, Elizabeth will have the following:

• Executive Summary
• Company and Financing Summary
• Products and Service Overview
• Strategic Analysis with current research
• Marketing plan
• Personnel Plan
• 3 year Advanced Financial Plan
• Expanded Financial Plan with Monthly Financials
• Loan Amortization and ROI Tools
• PowerPoint Presentation for investors

Financial Analysis

The consulting firm recommends that Elizabeth conduct a breakeven analysis for the coffee and cupcake venture. Elizabeth remembers from her managerial cost accounting course that breakeven is calculated for a product mix with use of total fixed costs and contribution margin for each item.

Elizabeths current employees can make the cupcakes at her shop but she needs to hire personnel to run the food truck and work as baristas. She plans to move from location to location and operate Monday-Saturday from 6:00 a.m. to 3:00 p.m. with just two workers assigned to the food truck at a time. The employees will make $12 per hour and the payroll taxes will be 10% of gross pay. Her current staff has capacity to bake and decorate the cupcakes in the shop. Elizabeth has estimated her direct material costs to be $0.25 per cupcake, $0.50 per cup of coffee and $1.00 per cup of specialized coffee such as lattes.

In addition to the direct materials for the cupcakes and coffee, Elizabeth will have to cover the costs of the food truck. Because she does not need a full kitchen in the food truck, she has found a truck she can lease for $700 monthly. Leasing is attractive since the insurance on the food truck would cost around $125 monthly. She also has found a food truck she could buy for $25,000 and is considering which option would be best for her financially. She has done some research and found that the equipment she needs for coffee and specialized coffee will be approximately $8,000 which includes espresso machine, espresso coffee grinder, commercial coffee grinder, gourmet airpot brewer, commercial blender and a under counter refrigerator. If she finances both the truck and the equipment, she will use the $5,000 as a down payment and finance $28,000. Otherwise, if she leases, she will finance the entire $8,000 with no down payment on the equipment.

She estimates that the parking fee for the food truck will be 10% of sales which would include access to the food parks in both her local town and the town 20 miles south. The other locations in town charge $50 per day to park the food truck. Elizabeth expects to spend Fridays and Saturdays in the food truck park and move to different locations on Monday-Thursday. The previous owner of the food truck indicated that he spent on average $50 daily on fuel for the generator and the truck.

Based on sales at the bakery, Elizabeth estimates her sales mix to be 50% cupcakes, 15% coffee and 35% specialized coffee. A local marketing companys research estimate her sales market to be around 150-200 customers per day. Elizabeth is curious about her margin of safety if she estimates low and assumes just 150 customers per day with each customer buying a drink and 50% buying a cupcake. She estimates a 10% growth in number of customers each year based on feedback from her market analysis. The research firm also indicated that based on local prices she could charge $2.50 per cupcake, $2.00 per cup of coffee and $4.00 per cup of specialized coffee. They also recommended she invest 20% of her sales in advertising the first quarter of the year and then 10% thereafter.

The Small Business Development Center is anxious to help Elizabeth with her business venture. They are expecting Elizabeth in next week with her financials in contribution margin statement format with breakeven, margin of safety and degree of operating leverage as well as an ROI analysis, SWOT analysis and Porters Five Forces model ready to present. In addition, the owner of the food truck is anxiously waiting to hear back from Elizabeth as he has other potential customers interested in leasing the food truck.

Please provide:

1. Financials in contribution margin statement format with breakeven,

2. Margin of safety and degree of operating leverage

3. ROI analysis

Profit and Loss Statement Caked Up For the period ending 12/31/2017 Profit and Loss Statement Caked Up For the period ending 12/31/2018 Revenue Baked Goods Coffee/Drink Cookies Merchandise Non-cake Seasonal Whole Cake Noncategorized $57,871 $5,059 $6,212 $219 $5,656 $3,545 $9,435 $12,270 Revenue Baked Goods Coffee/Drink Cookies Merchandise Non-cake Seasonal Whole Cake Noncategorized 8/31/2018 Projected $42,512 $63,768 $3,501 $5,252 $6,539 $9,809 $57 $86 $6,373 $9,560 $4,992 $7,488 $8,105 $12,158 $15,536 $23,304 Total Revenue $100,267 Total Revenue $131,423 Expenses Cast of Goods Sold Baked Goods Coffee/Drink Cookies Merchandise Non-cake Seasonal Whole Cake Noncategorized 30% $17,361.30 20% $1,011,80 25% $1,553.00 50% $109.50 40% $2,262.40 50% $1,772.50 20% $1,887.00 40% $4,908.00 Expenses Cost of Goods Sold Baked Goods Coffee/Drink Cookies Merchandise Non-cake Seasonal Whole Cake Noncategorized 30% $19,130.40 2096 $1,050.30 25% $2,452.13 50% $42.75 40% $3,823.80 50% $3,744.00 20% $2,431.50 4096 $9,321.60 Total Cost of Goods Sold $30,865.50 Total Cost of Goods Sold $41,996 Gross Margin $69,401.50 Gross Margin $89,426 Operating Expenses Operating Expenses Rent Utilities Payroll Office Supplies Travel Marketing Depreciation $12,000 $6,000 $31,200 $2,400 $4,000 $2,400 $6,000 Rent Utilities Payroll Office Supplies Travel Marketing Depreciation $12,000 $6,000 $44,200 $2,400 $4,000 $2,400 $6,000 Total Operating Expenses 64,000 Total Operating Expenses 77,000 Operating Income $5,402 Operating Income $12,426 Income Taxes $1,350 Income Taxes $3,107 Net Income $4,051 Net Income $9,320 Profit and Loss Statement Caked Up For the period ending 12/31/2017 Profit and Loss Statement Caked Up For the period ending 12/31/2018 Revenue Baked Goods Coffee/Drink Cookies Merchandise Non-cake Seasonal Whole Cake Noncategorized $57,871 $5,059 $6,212 $219 $5,656 $3,545 $9,435 $12,270 Revenue Baked Goods Coffee/Drink Cookies Merchandise Non-cake Seasonal Whole Cake Noncategorized 8/31/2018 Projected $42,512 $63,768 $3,501 $5,252 $6,539 $9,809 $57 $86 $6,373 $9,560 $4,992 $7,488 $8,105 $12,158 $15,536 $23,304 Total Revenue $100,267 Total Revenue $131,423 Expenses Cast of Goods Sold Baked Goods Coffee/Drink Cookies Merchandise Non-cake Seasonal Whole Cake Noncategorized 30% $17,361.30 20% $1,011,80 25% $1,553.00 50% $109.50 40% $2,262.40 50% $1,772.50 20% $1,887.00 40% $4,908.00 Expenses Cost of Goods Sold Baked Goods Coffee/Drink Cookies Merchandise Non-cake Seasonal Whole Cake Noncategorized 30% $19,130.40 2096 $1,050.30 25% $2,452.13 50% $42.75 40% $3,823.80 50% $3,744.00 20% $2,431.50 4096 $9,321.60 Total Cost of Goods Sold $30,865.50 Total Cost of Goods Sold $41,996 Gross Margin $69,401.50 Gross Margin $89,426 Operating Expenses Operating Expenses Rent Utilities Payroll Office Supplies Travel Marketing Depreciation $12,000 $6,000 $31,200 $2,400 $4,000 $2,400 $6,000 Rent Utilities Payroll Office Supplies Travel Marketing Depreciation $12,000 $6,000 $44,200 $2,400 $4,000 $2,400 $6,000 Total Operating Expenses 64,000 Total Operating Expenses 77,000 Operating Income $5,402 Operating Income $12,426 Income Taxes $1,350 Income Taxes $3,107 Net Income $4,051 Net Income $9,320