Small business owners must carefully monitor their finances to understand their economic situation and avoid breaking laws. Adherence to strict accounting standards is even more critical regarding food truck accounting.
The average profit margin in the dining sector ranges from 3 to 5%, which leaves no room for error. If we are talking about projects with minimal overhead expenditures, e.g., food trucks, this figure may be even lower, even if you earn $35,000 per month (the upper limit of the earnings in such an area).
Food truck managers should introduce advanced bookkeeping practices to monitor the value of ingredients and other business expenditures, stay within the law framework, and ensure business development. Let’s talk about what accounting tactics will help your on-the-go food van business thrive.
Why Is Food Truck Accounting Vital?
It is necessary to establish reliable financial management for your business to thrive. If you launch a food truck, you must account for the wages you pay to staff correctly, record operations, create sales reports, and estimate the meat establishment’s activities. Without effective bookkeeping, you cannot effectively manage such commercial sectors.
Correct accounting will help you obtain all the economic insights needed to handle various sides of your food service. It lets you make proactive decisions and re-organize your service to raise profits.
To operate in the meal sector, you need data, papers, records, research, and precise data about your capital. You should explore the volume of your resources, obligations, and gains your commercial activity brings. Accounting lets you clearly comprehend all this and better handle your service.
How to Adopt Food Truck Accounting?
All food service establishments must introduce strict economic standards; however, food trucks face some additional challenges, so their bookkeeping is specific. Let’s consider the main phases of food truck accounting.
Deal with your expenditures
Spending control is necessary to work effectively with funds and guarantee business profitability. Here are some recommendations to assist you in controlling your operating costs:
Divide expenses into categories, e.g., ingredients, equipment, and marketing.
Record all expenditures accurately and in real-time to avoid errors or omissions.
Use software or an app to automate cost control
Regularly analyze expenditures to understand which sectors you may cut costs or increase efficiency. A critical feature of food trucks is significant mechanical and transportation costs. Your business is a catering establishment on wheels, with no maintenance costs as in traditional restaurants. Don’t forget about additional insurance, which may be required depending on the nature of your driving.
Track your payroll
The most common method of hurting a company’s spending and earnings is if you don’t balance the numbers in the menu cart with the funds you pay your staff. Several questions need to be considered to ensure that your salaries are competitive:
- Did I select the optimal payment schedule for my staff?
- How competitive is the compensation I offer?
- Is the current payment system appropriate?
- Am I precisely monitoring the attendance of employees?
While payroll can be stressful, the correct software may streamline the process so you can return to doing what you like most — serving tasty meals.
Modern food trucks utilize a tipping system, and you’ll need to decide how to tip the staff without treating it as profit.
Control the cash flow
Cash flow refers to the financial capital entering and exiting a food service operation. Funds go out of service if you spend them on fuel and foods. Resources come in when you trade meals, drinks, and other commodities. Clear cash flow allows us to control, interpret, and forecast the gains and expenditures of the service.
You have positive capital movement if a service makes more resources than it spends. When expenditures exceed income, you have negative capital movement, and your van is working at a loss.
If you want your capital movement to generate earnings, you need to do the following:
- Form a statement of capital flows.
- Make a budget, and don’t break it.
- Cut expenses where possible.
- Ask your suppliers if they offer discounts for early payment.
- Create a reserve in case of unexpected expenses.
Proper food truck accounting can help you manage planned and unexpected payments to meet your economic obligations.
Remember about tax deductions
You can’t avoid business expenses but can deduct them from your taxes. Several categories of business deductions must be taken into account when launching a food truck service:
- Vehicle mileage: remove the distance your automobile travels.
- Staff salaries: you may withhold your workers’ wages, bonuses, and various recompenses.
- Marketing spending: you may subtract business-related marketing expenditures.
- Merchant tax: you are entitled to a 50% deduction on your earnings because you are in the sector of selling meals.
Consider consulting with accounting professionals. They will advise tax compliance and explain to you the most profitable deductions.
Define COGS
The cost of goods sold (COGS) is the capital your mobile eatery spends on creating commodities. Such a parameter in a food service includes the value of labor and resources that ensure the functioning of the service, such as: cooking fuel, gasoline, and foods.
This parameter should not exceed 35%. Otherwise, it will be challenging to generate income. How to keep costs at a minimum level to avoid going bankrupt? It is essential to regularly review menus in the context of spending and manage inventory correctly to prevent waste.
Carefully manage and record reserves
Inventory is one of the leading logistics troubles of a food truck. There is limited space for storing ingredients since the central area is reserved for food preparation. It means that you will have to bring in new stock constantly, and buying food products at a discount will be challenging.
You can easily skip their tedious calculation if you consistently create minimum reserves. However, maintaining constant inventory management is critical to the prosperity of your service. The computing of inventory turnover ratio lets you forecast sales volumes, define thefts, and keep track of write-offs and losses.
The Primary Accounting Methods in the Mobile Food Sector
Accounting in the mobile food service industry most often occurs using cash and accrual methods. The cash method records transactions as capital flows into or out of accounts. The accrual algorithm considers earnings and expenses as they occur, regardless of the payment period.
Most food establishments choose the cash method, but the Internal Revenue Service requires accrual accounting if your sales exceed $25 million.
The popularity of the cash method is because most of the capital comes from customers who pay for their orders immediately, and spending is regular and immediate.
Once you’ve decided on your bookkeeping method, you’ll need to look into the economic paperwork your food truck needs to ensure it thrives. Utilize your food truck business plan to create financial documents and regularly make a balance sheet, profit and loss statement, and capital reports.
How to compute the efficiency of your food service?
The profit margin demonstrates the portion of the income you retain after covering all spending. Gross income is the capital that remains after subtracting COGS from your gains.
Net income is a firm’s final gain after subtracting commercial spending from earnings. If you have computed net profit, you can quickly define its margin; to do this, you should divide net income by gains and multiply by 100.
Consider this instance: your van’s revenue is $75,000,
- COGS: $8,300
- Expenditures: $55,500
- Gross Income = $75,000 – $8,300 = $66,700
- Net income = $66,700 – $55,500 = $11,200
- Net profit margin = 11,200/75,000*100% = 14.93%
As you can see, the profit margin of your food truck is 14.93%. You must grow or diversify your sales (e.g., add souvenirs to your assortment), cut spending, or raise prices to boost your earnings.
Main tips for food truck bookkeeping
Nowadays, the mobile food industry is experiencing a real boom in the United States, with annual revenue estimated at $2.7 billion. The cost of entering a business is lower than when arranging a standard premises, so the risks are lower. Since a food truck is a promising business, give it a chance to grow by listening to the recommendations of economic experts:
- Record all operations: when the lunch hour arrives with a massive influx of customers, it can be challenging to record transactions. Nevertheless, we advise against merely accepting the funds and proceeding to the next order. Carefully record each transaction, as this will ensure the precision of tax payments and development forecasts.
- Utilize cloud storage: chances are that you don’t have room in your vehicle to fit a work computer. If you store critical data on your device at home, you won’t have access to those insights when you need them in the truck. Utilize cloud systems to make information available on your smartphone or tablet.
- Pay taxes responsibly: food truck commercial activity is subject to taxes in almost every region. However, if your business operates in multiple locations, ensure you comprehend if rates change. You must pay quarterly taxes, so record the proper rates. Study your tax obligations and charge accordingly to avoid exposing your business to costly audits.
Set clear economic purposes and budgets to help you make business decisions and achieve efficiency. Identify your short- and long-term goals, including raising sales, cutting costs, and expanding your market presence. Review and adjust objectives as your business grows.
Outsourced vs. in-house food service accounting
Many entrepreneurs wonder whether to hire a full-time accountant for their mobile food service or delegate responsibilities to a third-party firm. It all depends on the specifics of your eatery.
A full-time bookkeeper provides the following benefits:
- In-depth knowledge of the business: a full-time accountant better understands how a food truck operates in real life, not just in terms of numbers. It makes detecting waste, monitoring expenditures, and generating ideas to improve the business’s financial health easier.
- Quality assurance: if you interact with an in-house accountant daily, you have higher expectations and full access to review their performance.
Don’t forget about some downsides of recruiting, e.g., significant labor costs. One full-time accountant can also be overworked, especially if the business expands.
You should also comprehend the benefits of outsourcing:
- Cost-effective: most companies delegate financial work to a third party to save capital.
- Flexibility: the capital will be in the hands of not just one but several financial experts, making them more flexible and accessible throughout the year. Such specialists assist you in selecting the optimal program.
At the same time, outsourcing is also not without certain disadvantages since an outsourced accountant will not be so involved in your food truck. Which interaction option should I choose? It all depends on your goals and the size of your business.
Final thoughts
No matter the size or budget of your food business, accounting is a handy thing to master. Use our guide to make food truck bookkeeping.
However, if you entrust your finances to a professional, we recommend contacting BooksTime. Our specialists will provide essential data about your business, help you find ways to save on taxes, allow you to spend less time calculating economic parameters, and work more effectively with clients. Contact us today to get a free consultation!
