As all food truck veterans already know, this is an industry that is very unforgiving. This includes when it comes to achieving bottom line profits. Not only is there little room for financial management missteps, the problem is compounded by the lack of business experience and basic financial skills that most startup food truck vendors bring to the table. Beware of these financial red flags!
Over the years we’ve produced articles that provide a food trucker an informal checklist of basic financial information that help review their basic financial procedures. This information usually provides them with what they need to assess the current financial health of their food truck. In this time, we’ve also developed a set of financial red flags that point to current problems and where future problems are likely to show up. By knowing these financial red flags a food truck owner can implement a corrective plan to give them the best chance to survive.
Please note: No amount of improved financial skills and procedures can solve a food truck’s financial problems if they are the result of inadequate sales. Many of your food truck’s fixed expenses cannot be brought into line if your gross revenues are too low.
5 Financial Red Flags For Food Trucks To Avoid
Today we’ll focus on these financial red flags that hopefully can be corrected by the improved procedures or management of your existing revenues.
Lack of a well-organized accounting system
The first financial red flag to look for is if you actually have an accounting system. You cannot manage what you can’t count, a food truck who’s accounting system is not properly setup most often results in the vendor flying blind. While I have dealt with a few food trucks that are profitable in spite of having a poorly implemented accounting system, my experience is that the degree that the business is being proactively managed is directly correlated to how well the owner is managing their “books”.
Since all the other financial red flags discussed in this article cannot be accurately identified or evaluated if the accounting system is not setup this task should be a food truck owner’s primary concern if they want a viable mobile food business. Make sure to have the support of an accountant before you open to insure that you give yourself a chance to succeed. If you are already open and suspect that your accounting system is in need of first aid, then do yourself a favor and get some help as soon as possible.
Menu items not accurately costed
The most common mistake in food truck menu item pricing is what I call the comparative approach. Simply check out a few other food trucks or restaurants in your area, find a similar item on their menu, and then price your item the same or a bit lower. Now it’s one thing to document and cost out all your menu items and then to determine what your selling price based on your competitors, but it’s another to price entirely off of them.
It takes a lot of time to accurately document and cost your food truck menu items. An individual needs to have some math aptitude to convert product prices from the way you purchase them to recipe units. How can you manage your food truck food costs if you don’t even know what each and every item is costing you?
There are a variety of recipe costing software products available, but why waste the money if you aren’t committed to learning how to use them and then to continue to maintain them every day. For some vendors a simple Excel spreadsheet or accounting ledger is often the best solution.
Daily & weekly financial operating data not collected or reviewed
If you want to be financially successful as a food truck owner you need to generates some type of daily and weekly reports. They will summarize all the key daily and weekly operating data. This data includes.
- food and beverage purchases
- other fixed expenses allocated to produce a weekly estimate of your food truck’s net profit
With some discipline you can collect this information and use it to identify problems as they happen. It is very difficult to make the corrections that are needed in your employee scheduling and product purchasing when all you have to go on is a monthly P&L that is not available to you till the middle of the following month.
These corrections need to be made immediately when you have a clear understanding of what scheduling and purchasing decisions were made that produced the results that you attempting to improve upon.
Inaccurate posting of financial information to your accounting system
One common error that make our list of financial red flags is financial entries that are posted to the wrong accounts. This almost always results in financial reports that are inaccurate. Some examples might be.
- daily cash and credit receipts being recorded as income
- no recognition of discounts or comp meals
- inaccurate posting of sales tax collected
- employee wages and employer payroll taxes combined as wages
These errors are easy to make. It is important to seek professional financial help in making sure that your accounting system is setup properly from the start.
Inability to read and interpret financial statements
Aside from not having a well-organized accounting system in place (see financial red flag #1), the most serious financial red flag is that the average food truck owner lacks the ability to read and interpret the three fundamental financial reports readily available by all accounting software programs:
- Profit and Loss Statement
- Balance Sheet
- Statement of Cash Flows.
RELATED: Food Truck Accounting
The Bottom Line
It’s critical to point out the importance of obtaining the basic financial skills. They will be required for your food truck to succeed. Get some help from your accountant. Take an accounting course, just do something.
To be successful in the food truck industry you need to make sure that your financial skills are the equal of your culinary and management skills.