Your Business

How to Start a Catering Business (and Manage Your Cash Flow)

By Justin Reynolds

Are you a fantastic chef who’s thinking about sharing your delicious treats with the world? It might be time to open a catering business, especially when summer is upon us. Just don’t forget to watch your cash flow!

Getting started may cost you anywhere from $10,000 to $50,000 so you’ll have to figure out financing. On the plus side, you get to make your own schedule and can work out of the comfort of your own kitchen if you want. Doesn’t sound too bad for getting started in a $7.1 billion industry, does it?

Starting a Catering Business

Once you’ve decided to open a catering business, you’ll need to come up with a name for it and set up your business formally. Register as an LLC, secure an EIN for tax purposes, and get your insurance and licensing situations squared away. Depending on the scope of your business and your living situation, you may have to secure a facility and equipment too.

If possible, see if you can target a specific niche. You may not be able to cater a huge wedding off the bat, but you could probably handle a baby shower or small birthday party as you get started.

Unless you’re planning to handle everything on your own, you’ll need to hire some employees. Be sure to thoroughly train them so they know what’s expected during customer interactions.

Once you’ve figured out your target market and hired employees, you’re ready to start advertising your catering business. Whenever possible, develop relationships with businesses that are well-positioned to recommend your services—like florists, wedding photographers, and bridal shops.

When a customer bites and there’s a match, it’s time to get to work. Pro tip: Prior to catering your first event, ask your friends to see whether they’ll let you do a “trial run” of sorts at one of their get-togethers. That way, you’ll have a good idea where things stand before you start serving real customers.

Caterers & Cash Flow Problems

In a perfect world, caterers would be able to focus solely on cooking and serving delicious foods and desserts. Instead of figuring out how to pay bills and where to advertise their services, they’d be able to focus on their menu exclusively.

But like all other small business owners, caterers are not immune from cash flow problems. In fact, they can encounter cash gaps for a variety of reasons:

  • Customers might take a while to pay. It would be great if your customers paid you the moment you showed up at their event. Experience tells us that doesn’t happen as often as we’d like.
  • Your supplier could change your account to COD (Collect on Delivery). Some suppliers are okay with giving you 30, 60 or even 90 days to pay your bills. But what happens when they change their policies, requiring you to pay for food items the moment they’re delivered?
  • Food may spoil. You may order too much food upfront. A storm may force an event to be postponed, leaving you with a ton of product. In either scenario, food may spoil—and you obviously can’t sell it.
  • The price of food items may increase. Food shortages, inflation, or some combination thereof could drive up the cost of your supplies. In turn, you could raise prices—but would your customers still pay?
  • Taxes or wage expenses may increase due to government regulations. Whether it’s higher taxes, a bolstered minimum wage or the changes to overtime pay coming down the pike, government action could take a bite out of your bottom line.

Cash flow problems can adversely affect caterers, making it impossible to hire workers, get needed supplies, or generate excess revenue by taking on a number of gigs at once.

Still, they don’t have to be a death sentence. By familiarizing yourself with the financial tools at your disposal, you’re able to overcome cash shortages and continue growing your business.

Bridging Cash Flow Gaps with Fundbox

With a line of credit from Fundbox, you can help bridge cash flow gaps, letting you redirect all of your energies toward improving your operations. For a small fee, Fundbox can even advance payments on outstanding invoices. You would then have 12 weeks to repay the advance, plus the fee.

The service is simple to use: Just create an account and connect your accounting software. You’re then able to select which invoices you want to clear with a click of the mouse or a tap of the finger. Once you’ve chosen which ones you want paid, funds show up in your bank account within one or two business days.

Instead of spending a good chunk of your day figuring out how you’re going to make payroll or afford the food you need to sell, Fundbox allows you to spend your time doing what you love: creating amazing dishes. The end result? A more complete menu and a more satisfied customer base. It’s time to sit back and watch those word-of-mouth recommendations pile up.

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