This excerpt is part of Entrepreneur.com’s Second-Quarter Startup Kit which explores the fundamentals of starting up in a wide range of industries.
By Yahoo! News Reporter | Yahoo! News
Culinary skills and creativity not withstanding, any food business, is just that—a business. To succeed, you need to become cost savvy. There’s no set formula, but as in any business, especially when dealing with food, you need to know what you’re spending on the products you sell, whether it’s cookies, empanadas or steak. You don’t have to pay rent like a brick-and-mortar business, but you do have vehicle maintenance, kiosk space rental, parking permits and other costs that need to be factored into the equation.
Obviously if you’re selling a prepackaged item, it’ll be much easier to keep your costs in line. But for those of you who are cooking your own food, it’s a little trickier. When you add up your ingredients, packaging, marketing and all the other ongoing expenses and divide by the number of products or portions you can sell in a given day, week, month or year, the question will be: Are you making a profit?
You need to look very carefully at the type of foods you’re making, the cost of ingredients (including the cost of traveling to get ingredients or having them shipped to you), and all other factors involved in preparing your foods so you don’t end up overspending.
Business Startup Costs
There’s no set formula for determining how much it costs to start a mobile food business. The field is broad, and there are too many possibilities. Clearly, a cart will typically cost less than a truck, and a prepackaged product such as ice cream, candy or cans of soda are usually cheaper than making your own foods or beverages.
You need to do the math before spending any money so you don’t run out before you get started. To get a good idea what your startup costs will be, make a list of everything you need — from the vehicle and equipment to marketing and promotion costs and home office equipment. The range of costs varies greatly. You might spend $3,000 on a food cart, $500 on your initial food bill, $400 on permits and registrations, $200 on marketing, $300 on an attorney, and $300 for the first month to park and clean the cart. Tack on $300 in other miscellaneous costs, and you’re off and running for $5,000.
On the other hand, you could spend $90,000 on a retrofitted food truck, $1,000 on initial ingredients, $2,000 on permits and licenses, $2,000 for the first month of a commercial kitchen rental, $300 for the first month of parking and maintaining the truck, $1,700 on kitchen supplies, $3,000 on marketing and promotion, $2,000 on packaging, $1,000 to set up a small home office for bookkeeping, $2,000 for insurance, and $1,000 in miscellaneous costs.
Insurance, Legal and Financial
Among the most important costs you’ll have is insurance. You need to cover both a business and a vehicle against as many potential risks as possible, especially if you’re driving around with a few propane tanks strapped to your cart or truck. You need both liability and theft insurance. You might even consider employment interruption insurance in case a natural disaster makes it impossible to do business.
Don’t forget to set aside fees for an attorney and an accountant or bookkeeper to help you get your books set up. A business attorney will help you with contracts, setting up a business structure (LLC, corporation, etc.), and making sure you’ve met your business licensing requirements. Your accountant will set you up to handle local, state and federal taxes as well as let you know what do and do not count as business expenses.
Your operating costs are the expenses you pay regularly to keep your business up and running. Your operating costs will be both fixed and variable. Fixed expenses are those you’ll pay every month, such as:
- Vehicle payments, unless you’ve purchased your vehicle outright
- Vehicle rental
- Commercial kitchen rental
- Vehicle parking expenses or space rental expenses for a kiosk
Variable expenses are those that will change with the flow and/or growth of the business. These include:
- Food and/or ingredients
- Parking permits, such as for special events
- Delivery or shipping
- Gas and oil
- Vehicle repairs
- Packaging, labels, etc.
- Marketing and promotion
Numerous factors, including the weather (which may preclude you from outdoor selling in places like New England or Minnesota in January or February), as well as peak tourist seasons and changes in parking rules and fees will also factor into the variability of your costs.
You need to estimate how much you need per month. Expenses such as food need to be watched the most carefully. Add up your weekly bills, then calculate your monthly food costs (at 4.3 weeks per month). Do the same with paper goods or anything you’re buying on a regular basis.
Monthly bills are easy. Variables such as marketing and promotion are tricky. If, for example, you need $1,200 to promote yourself at two fairs and you need to pay the bills in March and September (at $600 each), those are spikes for those months that don’t fall into your usual pattern. You’ll want to know which months are more likely to have higher totals than others. This can help you plan in advance.