This week’s column is a continuation of the hypothetical MamaZina Pizzarina operations planning on doing business in Bermuda.

Running a business is an all-encompassing occupation. Any owner, particularly those individuals just launching their business dream, will tell you that the ownership obsession never stops. It is a 24/7 job — never as simple as placing a few ads and hanging out a sign: planning, planning, planning, executing, managing employees, inventory, benefits, risks, taxes, finances, cybersecurity, understanding customers’ expectations, anticipating changes in demographics, managing brand loyalty, assessing and capitalising on trends, and on and on.

Moving from a vision to starting a business to financing to incorporation is the first reality.

Then, the real work begins.

In recent articles linked below, using the example of a hypothetical Bermuda family, Moneywise explored the vision of a Bermuda family who launched a home-based Bermuda business headed by the resourceful, intrepid, matriarch Ms Rose Zina Smith.

We’ve featured her (no resemblance to any person, living or dead) in our illustrative narrative, pulling the family together to start their very own pizza operation (out of her kitchen no less) called MamaZina’s Pizzarina, while navigating the various travails and trials of managing such a business and the ever tenuous relationships within her loosely collaborative family group,

The family attained a successful reputation early on, with sales growing steadily. A wonderful heady feeling, generating income through one’s own efforts and severe hard work.

However, cracks also appeared early on.

Each family member contributed cash equity in varying financial degrees while a cousin backed the venture with a promissory note.

Ms Smith worried excessively about their scattershot approach, the lack of strict accounting documentation and legal structure. She was cogent to the significant prospect of failure if she did not take the necessary steps to organise their business plan (the one they did not have).

The entire family needed to implement this business plan, including a budget that will finitely delineate income and cost issue certainties.

The success of a pizzeria = understanding three big-ticket items:

1. Cost to produce each pizza unit.

2. Business overhead costs.

3. An estimate of the number of pizzas that could be sold (sales volume).

While we are talking pizza production here, this equation can be easily translated into retail clothing, nail and style salons, restaurants, tech and other hard good stores, service organisations and so on.

Many questions arise relative to this equation, this list is not all-inclusive.

• What have they spent in start-up costs already?

• What is their actual monthly fixed overhead cost, eg utilities, lease, equipment and repairs, internet, social media, communications, legal and accounting, wages and benefits, interest on bank loans, etc. Fixed costs are always a financial hurdle, since they must be paid regardless of sales volume increases or decreases.

• What are their variable costs per unit (one pizza)?

• Can inflation fluctuations be calculated into final cost price, eg increases in raw food ingredients, delivery persons, paper goods, fuel, etc.

• How should they refine the production cost of one pizza against what the final price target should be? More importantly, will their market (customers) pay the price?

• What happens with spoilage? How to manage unsold product?

• What is their breakeven point per month? In other words, how many pizzas must they produce and sell in one month at what cost to cover both the variable and proportionate fixed costs?

• What is the mark-up percentage above the breakeven to make a profit, remember that profitability depends on unit costs, overhead and sales volume.

• What is the salary structure for family members; some are actively working, others not so much?

• Wages and benefits are a large component of any labour intensive business. What is the total labor cost plus benefits per employee?

• Finance calculations and tax assessments. It is essential to account for cost of licenses, legal, accounting, company registration fees, payroll, sugar, notional and other possible taxes, business interruption, liability and risk insurance, and other related items.

• Other essential planning challenges and risks in the what-if category.

Overexposure – when public consumer loyalty becomes disenchanted with the product means how to maintain excellent quality.

Saturation - Bermuda is a small consumer audience. Should their long-term plan feature more product diversity?

Competition - the pizza product is a popular consistent consumer choice and an extremely competitive business. What will differentiate them from the competition?

Expansion will necessitates additional cash flow. Should the family have a chat with a bank, borrow privately, or remortgage the family home?

Unplanned for contingencies. Yes, they happen! Flooding, fire, illnesses, industrial accidents, crime.

• Where will they be in three years, five years, ten years? MamaZina won’t be the involved matriarch forever. What is their succession plan?

• Bottom line. Can the business become fully sustainable, can it support the entire family?

These and additional items will be featured in this series of doing business in Bermuda. While the individuals in the family are hypothetical, planning of operations will reflect – where possible – Bermuda values and costs.

Stay linked in.

MamaZina’s Pizzarina was originally introduced in a seven-part series on “Investing in Your Piece of the Rock in Bermuda”.

Introducing a new series on investing July 9, 2016

Owning a slice of a company July 30, 2016 Part 2

When it is the right time to incorporate, Part 3, February 4, 2017

The launch of a Bermuda business Part 4 February 11, 2017

Rights that come with owning shares Part 5 March 4, 2017

Not all company shares come equal Part 6 March 11, 2017

Foundations of a young company Part 7 April 8, 2017

Reference sources

Pizza Today: Menu Pricing and Food Costs, Dave Ostrander, September 19, 2012,

https://www.pizzatoday.com/menu-pricing-food-costs/

How Much Profit Margin in Pizza? Thomas Metcalf; updated June 26, 2018

https://smallbusiness.chron.com/much-profit-margin-pizza-62139.html

The Nuts & Bolts Of Great Business Plans, Syracuse University, 2014 http://researchguides.library.syr.edu/ld.php?content_id=42431780

• Martha Harris Myron, CPA, CFP, JSM: Masters of Law — international tax and financial services. Dual citizen: Bermudian/US. Pondstraddler Life, financial perspectives for Bermuda islanders and their globally mobile connections on the Great Atlantic Pond. Personal finance columnist to The Royal Gazette. All proceeds earned from this column go to The Reading Clinic. Contact: martha.myron@gmail.com