Pulled pork food truck business plan and accounting structure

Entrepreneur

Description of the Business

The business that I am starting is a food truck specializing in pulled pork sandwiches. The primary product is the pulled pork sandwich -- the pork is produced off site -- and it is sold along with a handful of complementary items (drinks, chips) in a food truck, essentially a mobile restaurant. The business will have two trucks to start, in order to cover a wider geographic area. Staffing needs for the business are minimal, since the pork and bread will be purchased from vendors. The staff will include a manager (responsible for HR, marketing, accounting) and three other people to work in the trucks. This equates to two people per truck per shift. The rationale for this plan is that the food truck business is a rapidly-growing segment of the restaurant market. While still a niche business, it has become popular across America and has high growth prospects and low barriers to entry.

The form of business that I have is a corporation. Full incorporation is the most costly and complicated business structure, but it has distinct advantages that cannot be met with other forms. The ideal outputs for this business are to have no personal liability and to have flow-through taxation. Thus, the business will be registered as an LLC. This is a food service business, which has a high liability risk so it is imperative that there is no personal liability for business activities. The LLC structure is not recognized by the IRS, but it does allow for some flow-through taxation to my personal taxes. During the startup phase, this business might suffer losses, and these would be used to offset my personal income from my regular job. If after a couple of years the business is profitable, the LLC could be dropped in favor of corporate taxation.

There are a number of accounts for this company, all of which pertain specifically to items found on the income statement or balance sheet:

Credit

Debit

Cash

Accounts payable

Revenue

Wages

Fixed Assets

Insurance

Inventory

Utilities

Supplies

Gas

Owner's Equity

Lease

Taxes payable

2. Based on the form of the business, I do not need to use either generally-accepted accounting principles (GAAP) or international financial reporting standards (IFRS). This company is based on the United States, so IFRS is not relevant, since IFRS is only used internationally (Johnson, 2007). However, GAAP is only required of publicly-traded companies, by the Securities Exchange Commission. It is not required by the IRS, nor is it required for any internal accounting. Some have argued that GAAP does not meet the needs of small, privately-held businesses at all (Zanzig & Flesher, 2005). Thus, I would have a choice about what financial accounting system, if any, I chose to use. For simplicity's sake, I would choose GAAP. By using GAAP, I would be able to establish a financial accounting history that will make it easier to compile these statements later. IN particular, if the company wishes to go public or otherwise raise equity financing, GAAP statements will be helpful. Banks might also ask to see statements, and would be more likely to lend if proper GAAP statements are offered.

IFRS/GAAP convergence is not going to be an issue for this company. The reason for this is that GAAP at this point is optional, so ignoring convergence issues is a legitimate choice. However, GAAP rules have changed in the past in accordance with convergence and will do so again. It is important to have a plan for how the business will record such changes. For stakeholders, the most important thing is that they know how each change affects the company's financials. When the firm adopts a new policy, it needs to announce that policy change to stakeholders. If the change is material, then a chart should be prepared highlighting the treatment under the old method, the new method, and then the difference between the two, so that the stakeholders can reconcile the change for themselves. This would appear as a note in the financial statements.

3. The following are the pro forma income statement and balance sheet for the first year of Pork Truck, LLC.

Pro Forma Income Statement

2013

Revenue

182500

Cost of Goods Sold

60225

Gross Profit

122275

S, G & A Expense

28000

Truck Expenses

30000

Insurance Exp

Utilities Exp

Labor Exp

49920

Operating Profit

Pro Forma Balance Sheet

2013

Current Assets

Cash

10375

Inventory

Other

Current Assets

12775

Long-Term Assets

Supplies

Other

Long-Term Assets

Total Assets

17575

Current Liabilities

Accounts Payable

Wages Payable

1920

Current Liabilities

Long-Term Liabilities

Long-Term Debt

0

Total Liabilities

Shareholders' Equity

Common Shares

10000

Retained Earnings

Total Equity

15355

Total L & SE

17575

5. Implementing Controls

As this is a new business, there is no reason why there should be any resistance to controls. There are only a few employees, and none have a significant stake in the business. They will follow the rules that are established at the outset as a condition of employment.

That said, there might be some challenges in implementing the controls. The first control, the inventory log, does not necessarily prohibit minor amounts of fraud such as eating or giving away inventory and then recording it as dropped. If such behavior is a significant concern, further controls might be necessary. The use of the inventory log will be part of the training process to ensure that it is used effectively. Management is going to be responsible for inputting the data into the system, so that the employees cannot fudge the data.

The budget process is going to be challenged by the newness of the business. The initial budget projections are just educated guesses, since there is no past history on which to draw. It is important that management realizes the limitations of budgeting and variance analysis when the company has no history. As the company builds a history, this technique can be refined. Initially, this technique can be used with a high rate of frequency such as weekly or daily in order to refine the system and ensure that the budgets are more accurate.

6. Regulatory Environment

The regulatory environment for a privately-held food service business is mostly concerned with food safety, worker safety and human resources and permitting. A lot of these regulations are at the local level and will be dealt with by talking to local officials and making sure the trucks are up to code. It will be important to be in communication with officials in case the regulatory environment changes. As a result, the company should be able to perform well in inspections and avoid legal actions that could destroy the company.

There is also the tax code to consider. With flow-through profits, the taxation will be handled on the principle's person return. However, to ensure full compliance with accounting regulations, the company will pay a retainer to an accounting profession who can ensure that the statements and tax documents are prepared in full compliance with the law. The principle will also be familiar with the applicable regulations to ensure that there is a minimal amount of problems.

The Sarbanes-Oxley Act applies to publicly-traded companies (Sarbanes-Oxley Act, Sec. 408). In fact, some companies sought to go private to avoid the liability that the CEO and CFO face under SOX. For this business, Sarbanes-Oxley is not particularly relevant.

For the most part, any decision that the business makes should be guided by strategy. There are few decisions that would emphasize strategy at the expense of legality. However, having an understanding of the legal and regulatory environments will ensure that any regulatory red flags are raised prior to the decision being implemented.

Works Cited:

IRS.gov. (2012). Limited liability company (LLC). IRS.gov. Retrieved March 17, 2013 from http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Limited-Liability-Company-%28LLC%29

Johnson, S. (2007). What if IFRS replaced GAAP? CFO Magazine Retrieved March 17, 2013 from http://www.cfo.com/article.cfm/9634508/c_3395216

Sarbanes-Oxley Act of 2002. Retrieved March 17, 2013 from http://fl1.findlaw.com/news.findlaw.com/cnn/docs/gwbush/sarbanesoxley072302.pdf

Zanzig, J. & Flesher, D. (2005). GAAP requirements for nonpublic companies. CPA Journal. Retrieved March 17, 2013 from http://www.nysscpa.org/cpajournal/2006/506/essentials/p40.htm