Small business owners must carefully monitor their finances to understand their current situation and avoid breaking laws. Adherence to strict accounting standards is especially critical regarding food truck accounting.
The average profit margin in the restaurant 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 inventory and other 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 venture to thrive. If you launch a food truck, you must account for the wages you pay to staff, control operations, create sales reports, and estimate the cost of the establishment’s activities. Without effective records keeping, you cannot effectively manage this sector.
Correct accounting will help you obtain all the financial insights needed to handle various aspects of your food service. It lets you make proactive decisions and re-organize your service to raise profits.
To operate in this 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. Bookkeeping lets you clearly comprehend all this and better handle your service.
How to Adopt Food Truck Accounting?
All food service establishments must adhere to strict financial reporting 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 expenditures into categories, e.g., inventory, equipment, and marketing.
- Record all expenditures accurately and in real-time to avoid errors or omissions.
- Set a budget for each category and stick to it, reviewing regularly to adjust as needed.
- Adopt cost-saving strategies like using energy-efficient equipment and processes optimization.
Also, you should continuously monitor and analyze spending trends to make data-driven decisions for optimizing your financial strategy.
Use software or an app to automate cost control
Regularly analyze expenditures to understand which areas 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 none of the same maintenance costs as regular restaurants. Don’t forget about additional insurance, which may be required depending on the nature of your driving.
Track your payroll
A common mistake in tracking a company’s spending and earnings is failing to reconcile the income with the payments made to 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 money entering and exiting a food service operation. Funds are depleted when you spend them on fuel and foods. Resources come in when you sell meals, beverages, and other commodities. Mistake-free reports allow us to control, interpret, and forecast the gains and expenditures of the service.
You have positive flow if a service makes more money than it spends. When expenditures exceed income, you have negative flow, and your business is working at a loss.
To ensure your business generates earnings, you should:
- Form a statement of cash 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 financial obligations.
Don’t forget 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 restaurant sector.
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 metrics 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 food thefts, and keep track of write-offs and losses.
The Primary Accounting Methods in the Mobile Food Sector
In the mobile food service industry, accounting commonly employs both 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 financial 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 opening a traditional restaurant. Since a food truck is a promising business, give it a chance to grow by listening to the recommendations of accountants:
- 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 financial 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
When choosing between outsourced and in-house accounting for your food truck business, the advantages of outsourcing often stand out.
Outsourcing your accounting needs offers several key benefits:
- Cost-effectiveness: Outsourcing typically reduces expenses compared to hiring a full-time accountant, saving on salary, benefits, and office space.
- Access to expertise: By partnering with a specialized service provider, you gain access to a team of experienced accountants who bring a broad range of skills and up-to-date knowledge and ensure that your food truck financial management is handled efficiently and accurately.
- Flexibility: Outsourced services offer the flexibility to scale resources up or down based on your business’s needs. You can easily adjust services as your business grows or faces seasonal changes, without the constraints of a fixed workforce.
- Enhanced security and compliance: Reputable firms employ advanced technology and stringent protocols to protect your financial data and ensure compliance with regulations, minimizing the risk of errors and fraud.
In contrast, while in-house accountants provide closer oversight and personalized service, it often comes with higher costs and potential limitations in expertise and flexibility. Outsourcing can offer a more efficient, scalable, and cost-effective solution for managing your food service financial needs.
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 more effective.
However, if you entrust your finances to a professional, we recommend contacting BooksTime. Our accountants will provide essential data about your business, consult on choosing between accrual or cash method, help you find ways to save on taxes, allow you to spend less time calculating financial parameters, and work more effectively with clients. Contact us today to get a free consultation!
