Accounting has never been included as a favorite tasks listed when discussing food truck ownership with vendors. With that said, I cannot stress enough how important accounting tasks are for your food truck to stay afloat. One of those tasks is the calculation of your truck’s cash flow each accounting period.
This cash is what helps you pay bills, buy new equipment and handle all the other costs necessary to keep your food truck on the street. Your food truck’s total cash flow for a period is equal to your cash inflows minus your cash outflows.
Calculating Cash Flow For Your Food Truck
A food truck’s cash inflows include:
- Cash received from customers. (food, beverage and merchandise sales, money from catering)
- Money received from selling assets. (proceeds from disposing of an old oven)
- Cash obtained from financing sources. (money received from a small-business loan)
The simple way to calculate your total cash inflows is to add each of these items.
A food truck’s cash outflows include:
- Cash spent on operating costs. (cost of food and beverage ingredients, wages, rent, utilities and insurance)
- Money used to buy assets. (utensils, kitchen and truck equipment)
- Money paid to financing sources. (dividends distributed to investors)
The simple way to calculate your total cash outflows is to add each of these items.
For this example, we will assume that your food truck received:
- $400,000 in cash from selling food, beverages and merchandise
- $5,000 from selling a commercial oven
- $5,000 from a bank loan during the quarter
Now we will assume you spent:
- $250,000 in cash on ingredients
- $40,000 in wages
- $20,000 in cash on other operating costs
- $250 on loan interest
Now by taking your total cash inflows equal $410,000, or $400,000 plus $5,000 plus $5,000. Your food truck’s total outflows equal $310,250, or the sum of $250,000, $40,000, $20,000 and $250. So your food truck’s cash flow for the quarter is $99,750, or $410,000 minus $310,250.
Evaluating the Numbers
When your cash inflows exceed your outflows, your food truck has a positive cash flow. This increases your cash on hand and allows your food truck business to grow. Now when cash outflows surpass your inflows during the given period, your truck has a negative cash flow. This creates a reduction in your cash on hand.
The Bottom Line
It’s not too common that a food truck will sell its assets or raise money from outside financing institutions. So the bulk of your cash flow will come from your food truck operations (operating cash flow). This cash flow is equal to the cash collected from food and beverage sales minus cash spent on operating costs. Ultimately, the higher your positive operating cash flow, the less you will need to rely on other funds to run your mobile food business.
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