Cash Flow Planning for a Food Truck Business

Young man preparing food in his food truck business

Whether you’re running a food stand that only opens up during the warmer months or a food truck that isn’t able to serve customers during the colder the months, running a seasonal food business comes with its fair share of challenges.

It’s difficult enough to grow a business when you’re able to sell to customers for 12 months out of the year. Take away four, six, or eight months and it becomes that much harder.

Still, with the right management strategy, seasonable food businesses can be quite profitable.

While food trucks, for example, might have lacked great reputations a decade or two ago, there’s a renaissance going on in this space. According to one study, U.S. food trucks collectively brought in $856.7 million in revenue in 2015. Fast forward to 2020, and it’s expected that same group will haul in $1 billion—a significant increase in five short years.

Suffice it to say that the food truck business is growing—particularly in places like Portland, Oregon, San Francisco, Seattle, Salt Lake City, and Austin, Texas, where local governments have incentivized these kinds of companies.

Despite the positive momentum food trucks are experiencing these days, cash flow problems can severely impact owners of these kinds of companies—just like all other small businesses. When you’re trying to sell as much food as you can during a small window of time, you’ll need cash on hand. Without it, you’ll have a hard time paying your staff, covering insurance costs, buying food ingredients and drinks, and paying for the maintenance of the food truck itself—as well as the gas that powers it.

Starting a food truck business is a pricey endeavor. The truck itself may cost upwards of $100,000, assuming you buy a new one. A used food truck should cost somewhere in the ballpark of $40,000. You’ll also need inventory and supplies, which can set you back up to $2,000. A point-of-sale system might cost another $1,000, and you’ll need to shell out an extra $2,000 for kitchenware, cooking supplies, and other similar items. Of course, you’ll need a fire extinguisher, which might cost $300. There are so many other costs to consider—like uniforms, marketing expenses, and payroll, among other things.

Just when you think you’ve wrapped your head around every food truck expense, you find more. For example, food truck operators in San Francisco need to complete 32 procedures to obtain at least 11 permits to comply with the city’s codes—at a cost of nearly $3,500. Food truck drivers in Boston have it much worse; one study found that it costs $38,000 to run a food truck business there each year.

The last thing you want to do is start a food truck business, dig yourself into a hole that big, and then keep digging even further due to the wrong approach to cash flow management.

To grow your food truck or seasonal restaurant business, it is essential that you have a well-considered cash flow management strategy ready from the outset. Here’s how to do that.

1. Make sure you have enough cash to start out with

It’s one thing to have just enough money to start a seasonal food business or a food truck. If you want to run your business without excessive amounts of stress right from the beginning, you need to have at least a little bit of runway so you are guaranteed to be able to float your business for a few months—if not a year or longer—while you’re just starting out.

The last thing you want to do is take out a $100,000 loan, for example, only to find yourself broke and in debt two months later. With enough cash and the right financial tools in place, you’ll be able to absorb unforeseen startup expenses and continue growing your business.

2. Keep an eye on your budget and forecast your cash flow regularly

Prior to opening your doors for business, you should have some idea of how much revenue you’ll take in (at least a ballpark figure) as well as how much your expenses will be.

Before serving your first customers, create a budget and forecast your cash flow. That way, you should have a good idea of whether you’re on track to meet your goals after a few weeks.

Get into the habit of forecasting your cash flow on a monthly basis—or at least a quarterly basis—to make sure you’re never blindsided by a cash gap. In the event a cash shortage may loom in your future, you will have enough time to make contingency plans.

3. Shop around to make sure you get the best prices on your ingredients and supplies

Are you getting the best deals on the food, ingredients, drinks, and supplies you need to run your seasonal food business? Do you even know?

Do your due diligence to make sure you’re getting the best prices possible on the ingredients and materials your business relies on. The better the deals you get, the stronger your margins will be.

4. Think about delaying paying vendors if you can

Is one of your vendors giving you 30 or 60 days to pay your bill? Consider taking your time to pay. There’s no sense in settling your account until you have to—especially when cash is tight.

If you have some buffer in the form of net payment terms, wait until bills are due to send checks in. You might also talk with your vendors and suppliers to see whether they are willing to extend your credit so you can delay payment even further (e.g., 90 days).

5. Make it as easy as possible for your customers to pay

For the sake of their own convenience and margins, some food truck and seasonal food business owners only allow their customers to pay in cash. It’s understandable, to a degree. By only accepting cash, they don’t have to worry about forking over a percentage of their sales to credit card companies or having to figure out what to do to process credit card transactions in the first place.

By some estimates, however, as much as 80 percent of all restaurant sales are charged on credit cards. If you don’t have the ability to process credit cards, you will almost certainly miss out on a significant amount of sales.

The good news is that (thanks to services like Square, Poynt, and Stripe) processing credit card transactions is easier than ever, even for food truck businesses.

6. Familiarize yourself with financing options

From time to time, many small business owners run into cash shortages and need to look to outside sources of financing. In fact, over the last five years, 53 percent of small businesses have applied for at least one kind of loan or credit line, according to Entrepreneur.

To make sure you don’t suddenly run out of cash without knowing what to do next, research the various financial vehicles that are available to you. That way, in the event you’re forced to look for financing, you’ll already know your options.

If, for example, your food truck business recently catered a few events and is waiting on a couple of customers to settle their accounts, you may want to use an invoice financing firm like Fundbox to advance payments on those invoices. If approved, you’ll get quick access to the money you’re owed and you can invest it however you need to grow your business. Depending on the option you choose, you would then have 12 or 24 weeks to repay that advance, plus a small fee.

7. Raise your prices or find out how you can add more value

While you might hesitate to raise your prices ever, after a few successful seasons, you may have no choice—particularly if food prices, gasoline, taxes, or other expenses shoot up. Not sure whether raising your prices is the right move or not sure how to do it? Check this out.

If you are completely against increasing your prices without making any changes to your operations, you can figure out ways to add more value if it makes you less anxious. For example, you can start sourcing your ingredients locally instead of getting them from national vendors. Your customers may not mind forking over a little more cash if it will support local farmers or their communities.

8. Figure out your slowest sales period

Once you’ve wrapped up your first season, you should have a pretty good idea about when your busiest season is most likely to be next year—as well as which periods are likely to be the slowest.

Armed with that knowledge, you can take proactive steps to adjust your cash flow management strategy moving forward. As a result, you should be able to keep your cash reserves high during the slower periods—giving you the money you need to cover your costs and invest in growing your business.

Everyone needs to eat.

While food trucks and seasonal food businesses may be a bit tricky to get off the ground because you’re working with less time compared to typical restaurants, it’s certainly not impossible to turn a cool idea and a solid menu into a massively successful business.

Don’t believe us? Read our new guide all about how to start a food truck business and learn about how Eric Silverstein grew his food truck business, The Peached Tortilla, into a brick-and-mortar restaurant and a full-throttle catering company.

If your goal is to serve up delicious food to an ever-increasing amount of customers, you need to take cash flow planning seriously and make cash flow management a top priority. With money in the bank, it’ll be that much easier to deliver great customer experiences while keeping your employees happy (and paid!) and otherwise growing your business.

Bon appétit!

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