This is in response to another discussion that was started over in the Classifieds group asking about the cost of setting up a small confectionery kitchen.

There is a lot of interest in making chocolate from beans, both in-country and out. There are many challenges, not least of which is securing the necessary equipment. It's easy and relatively inexpensive to find equipment for the kitchen hobbyist making 5lb-5kg batches.

It's also easy (but expensive) to find equipment that can be used to make large batches (1MT) at a time.

However, it's not so easy to find equipment for most everything in between that is both affordable and where each piece is scaled to the same throughput.

Yes, there are "turn key" systems you can purchase that are scaled properly. These might cost anywhere from $80-100k on the low end, for a system roughly capable of up to 50 kg/day up to 100,000 Euros for something capable of producing between 250-400kg/day.

It's also possible to piece together systems using a combination of commercially available machinery and home-grown pieces where needed, but this requires a certain mechanical ingenuity that not everyone possesses or has the patience for.

Jim Lucas over in the thread in Classifieds , asked about what it takes to produce in-country (in Jim's case, Brazil).

New member James Swanwick asked a very good related question , which is how much does it cost to produce a single bar of chocolate. Another way to ask this question - which may be more useful - is, "What is the minimum level of production (and sales) you need to get to in order to have a real (i.e., sustainable) business?

I am really looking forward to the discussion on this.

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clay - http://www.thechocolatelife.com/clay/

updated by @clay: 04/10/15 06:16:03

Ahhhh... 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

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

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.

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clay - http://www.thechocolatelife.com/clay/

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:

1. It creates a list of everything you are going to spend money on.

2. It keeps it organized

3. It provides you with a roadmap of goals.

4. 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

Hi 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

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.

And I thought we only had such nightmares in Vietnam!