As a food truck owner, there is just too much to do. Ordering food, hiring and training help, preparing food for each day, taking customer orders, cleaning, and the list goes on and on. How can you expect to have time to care about making money?
And that is just it, most food truck owners don't take the time to ask themselves a key question; am I even making money?
Do you even care about turning a profit or are you really in this just for the pure pleasure of it?
Like many other business owners, food truck owners can get stuck in the weeds in the business. Head down in way too many minor details to see the big picture. The reality is that you have to find the time to focus on your bookkeeping and profitability or you will find yourself either broke or burnt out.
Let's dive into some key expenses to manage as a food truck owner.
Also, if you're just starting out, check out Restaurant Bookkeeping 101.
Owner investments and start-up capital
Oh, man can this ever get messy. I've seen people do all sorts of crazy things during the start-up phase that cause lots of confusion and headaches down the road and inevitably cause the owner a lot of unnecessary stress, confusion, and accounting fees. Let's break this down into a few areas.
The money you put in as an owner is simply owner equity and should be accounted for as an owner equity contribution which goes on your balance sheet.
Can you loan your business money? Sure you can but it is typically unnecessary in this business model with such small start-up costs. With a loan, you should be charging interest, which you would then have to pick up on your personal tax return.
I often see business owners put their contributions on the books as a loan to make sure they get their money back. Do yourself a favor and use an owner equity account. You can break it down into owner contributions and owner draws to give yourself peace of mind.
Do not use personal bank accounts and credit cards unless absolutely necessary. All you are doing is causing you or your accountant a ton of work that costs money. Simply start a business checking account and make a deposit from your personal bank account. If you don't have a business set up yet do yourself a huge favor and start a separate personal checking account until you do have a business account set up.
Other people's money
If you are taking money from other people (friends, family, investors) first decide whether it will be a loan or a partner investment. If it is a loan determine the terms of that loan including the interest rate and maturity of the loan. Loans should be tracked separately as a liability, short-term for less than a year, and long-term for more than a year.
If you are taking on an investment partner make sure you hash out those details with your CPA and lawyer. You want to make sure to create an owner equity account and to keep your partner distributions in line with your partner agreement.
Now here is a key area where I see people try and skimp and save money. It's always the same progression. First, you are just getting your feet wet so you start with handwritten tickets and cash only. That only scales so far. If you intend to stay small then stick with this method. Just know you will waste a ton of time and not have a clue where you are at from a profitability standpoint.
I would not pick my POS system strictly based on cost. I would definitely consider ease of use; both from the customer standpoint and the owner standpoint. The customer is going to want something that is extremely easy to pay and tip on. They are going to want to have simple electronic methods of payments. The owner wants a system that is easy to program, enter orders, accept payments, and extract information into their accounting system.
Personally, the best POS system I have seen for food trucks is Square. It seems to be the most affordable and easy to use platform. Additionally, what is great is you can run payroll through Square as well. The daily sales integration into QuickBooks Online is seamless through a third-party app called Shogo.
Warning: do not use the Square integration, it doesn't work; at least not in any manner you want it to integrate the sales data.
I see people get so hung up on merchant fees. First, from not wanting to accept credit cards because they think it is saving them money. All of the time wasted in handling money, going to the bank, etc is easily offset by a simple merchant fee. Additionally, you will earn more customers with electronic payments. If I were a food truck owner I would only accept credit cards...period.
I see owners change merchant processors all the time for tiny percentage savings. They always feel like they are getting ripped off. These tiny gains in merchant fees are often offset by hidden fees.
The golden rule in merchant processing is to make sure it integrates with your POS system. If you get roped into some external merchant processing device (that doesn't work with your POS system) you are losing money no matter what the rate is. The reason is that you have added a manual process to both the customer interaction as well as the accounting side of things. If your merchant processor doesn't integrate with your POS system any minor savings you got will be gobbled up in time or accounting fees.
Find the best merchant processing rate you can but make sure it integrates with your POS system.
Large Startup Expenses
Food truck operators often only look at the purchase of the truck as the startup expenses. But there are so many more things to consider.
Equipment - Will additional equipment be needed after purchasing the truck? The answer is most likely or definitely. Maybe you need to make some modifications to the cooking area and you most likely will need to design the outside of your truck with your brand and logo. You should carefully detail out all of the additional equipment that you will need to buy so that you can properly budget for that.
You might want to look into the regulations you have to comply with locally by looking into the permit to operate a food truck. There may be other large expenses you have not thought about such as a fire suppression system.
Lastly, as mentioned above, a good POS system is something you want to consider including in your startup expenses.
Insurance - What type of insurance policies will you need. You should ask your insurance agent for advice on what policies are right for your business. You will at least need auto insurance on the truck itself as well as a general liability policy. Don't forget that if you are going to have employees you will also need workers compensation insurance.
Initial inventory purchases - This often gets overlooked during the startup phase because owners associate purchasing food etc, as normal everyday expenses. However, the initial purchase of inventory can be hefty so you want to include it in your startup expenses.
If you are operating a food truck you are running a business and therefore you will have normal operating expenses just like every other business. I really encourage new food truck owners to get to know their business intimately from an expense standpoint right from the beginning. The more you understand where your money is going the better you will get at turning an acceptable profit.
Food purchases - I'm not going to harp on you about finding the cheapest prices possible. Every food truck will be different in its own way. Some ingredients will be absolutely necessary and so will certain vendors. I only care about one thing; profit margin.
You need to have a target food cost percentage.
For the sake of simplicity let's call it 20%. Meaning if a dish costs you $2 to make you need to charge $10 ($2 is 20% of $10). If you focus on percentages you will win and run a successful business model. If you don't you will struggle.
Now the real power is in understanding your costs and that they fluctuate. If you intimately know your business expenses and vendors you will notice price fluctuations. You should evaluate the true cost of each dish at least once a month if not once a week. Then adjust prices accordingly. If you follow this method, you will make money.
Repairs and fuel - You bought a truck they cost money. Don't underestimate how much this cost will be and budget accordingly.
Are you tracking your expenses and costs correctly?
Get a free analysis to find out. It may help decrease your tax liability.
Marketing - You will need to market your food truck to drive sales. How will you do it?
A website? Facebook advertising? Fancy vehicle wrap? Funny guy dancing on the sidewalk?
My best advice in marketing is to not do everything. I see food truck owners spend a ton of money on all sorts of different marketing avenues and they do just ok in each of the various marketing methods. I'd rather see you pick a few marketing avenues and knock them all out of the park.
Additionally, track your return on investment. You need to find out from your customers how they heard about you. Pay attention to what is working and what is not.
Payroll and owner pay - Do yourself a favor and do not handle your own payroll. I've seen so many business owners (not just food truck operators) get burned by trying to handle their own payroll to save money. Or having their CPA handle it. Trust me outsource your payroll. I'm an accountant and I use a 3rd party payroll provider. The two major reasons I recommend outsourcing your payroll are because it is extremely cheap and you get a lot of potential liability off of your business. A 3rd party payroll provider will handle all of your payroll tax filings, W-2's, direct deposits, etc and they will do it extremely cheap. If a payroll tax filing is late or incorrect that is your payroll providers problem, not yours. We highly recommend Gusto both for their simple pricing, ease of use, and outstanding customer service. If you are using Square for your POS system they also have a great payroll service that interacts directly with Square saving you time and money.
What about owner pay? Don't you want to get paid? Whether you are planning to pay yourself a W-2 salary or through an owner equity draw make sure you account for and budget your pay. If you haven't read the book Profit First then do so (throw The E-Myth on your reading list while you are at it). While I don't condone the Profit First method for your accounting system, it does work. The principal is that you get paid first no matter what. Budget your owner pay and make sure you are getting paid every week. Otherwise, what are you doing this for?
Permits and licenses - Don't overlook permits and licenses as an ongoing expense. You will definitely need a business license. Don't forget to look into food handlers permits. Are there different fees for each venue or event? You may want network with other food truck owners to find out some of the various permits and licenses that are required in your area. You may learn some things that you were not aware of that can save you a lot of headaches, time, and money.
Accounting - Bookkeeping...gag. So boring, right? Handling your own bookkeeping can be super intimidating for a food truck owner because they often don't enjoy it, nor do they know how to do it. However, if you ignore your bookkeeping you won't have a clue if you are making money and you may incur a large tax preparation bill if you don't have an organized system that makes filing taxes simple.
Engaging with a bookkeeper that specializes in restaurants or food trucks might be your best option. You really want a bookkeeper that understand food trucks for various reasons. They will know the various POS system and how to integrate them with QuickBooks Online. Additionally, they should be able to make recommendations on the accounting system design to take advantage of technology to automate much of the process.
Here is my down and dirty advice for a food truck bookkeeping system design:
POS - Square or other system that integrates with QuickBooks Online. Don't assume your POS system integrates with QBO because they say so. Systems like Clover say they integrate with QBO, but they do it in a manner that doesn't work for the accounting end of things. See Shogo for a list of current integrations. To any developers or owners that care the only thing that matters is that your daily sales summary integrates into QBO to match the merchant service deposits.
Vendor bills - pay everything electronically via credit card or bank bill pay. This leaves a good paper trail and makes the accounting simple and automated.
Payroll - Gusto. Pretty simple, they are the best. Simple low-cost pricing, outstanding customer service, easy platform, and seamless QuickBooks Online integration. If you are using Square POS then use Square payroll just because you will save time entering the data.
Is your bookkeeping system even built right?
Get a free analysis to find out. It may mean the difference between profitability and not.
A properly designed bookkeeping system can be efficient and easy to maintain once set up. But the day to day bookkeeping is just the mechanics. You should be analyzing the reports that your bookkeeping system produces. Your profit and loss is a critical report. However, make sure to look at a profit and loss that lists each line item as a percentage of income. This is a simple report to produce in QuickBooks Online and it can be very powerful. By focusing on the percentages rather than the whole numbers you will be focusing on profit. If you can keep your percentages in line you can grow your business as large as you want and maintain a solid profit margin.
Lastly, a good food truck bookkeeper will give you much more than just how you are performing. They will give you insights into future performance. How you can perform in the future is incredibly important. This can be accomplished by building a financial forecast. If you plan how your business is going to perform and then measure your actual performance against expectations (budget vs actual report) it will be easier to make the necessary adjustments to keep your business on track with your desires.
Need to purchase a big piece of equipment? Plan it.
Want to hire someone? Add that to your forecast to make sure you can afford it and are still happy with your profit margin.
Want to invest some money into a certain marketing activity? Add that to your forecast along with the impact you expect it to have on your sales and bottom line. Then measure your actual performance against expectations to see if you are satisfied with the return on investment.
Bookkeeping doesn't have to be boring. If done properly it can actually be a tool that you can use to run an incredibly profitable food truck.