Do you have a food business? Whether it is a cottage business like a home bakery, or a restaurant, or takeout place, there are a few key things you can do to stay in profit in your business. Here are some financial tips for food businesses.
Financial Tips for Food Businesses
Know your real food costs on everything you sell and have good margins
- Make sure you calculate your food costs, don’t guess. Take the time to know what it really costs you to create that dish or bake that cake. All the costs involved. Include costs of packaging, labels, and labor, to calculate the true prices. Consequently, that container adds to the cost of delivering the food, as do any food labels– whether it is served in-house or sold online.
- Don’t forget operational expenses and waste costs in your pricing scheme as well. For instance, every business has fixed operating expenses such as rent, internet, and phone. However, as a food business, you also must include waste and other costs like linens, that other industries do not have to include.
- Watch your margins. If you are producing food products, I like to see 60% or better, if you are reselling items, I like to see north of 35%. You will save money, and will have higher margins, by buying ingredients and producing items in-house versus re-selling food that was already made.
Watch your inventory spend
It is VERY, VERY, VERY easy to overbuy inventory in a food business. In fact, suppliers give volume discounts. It is important to remember that any money you have tied up in inventory is money that you do not have available for other things.
Keep in mind how often you can get a delivery from your suppliers. Is the savings of $10.00 worth the additional $77.00 in your walk-in or freezer?
Good inventory management will allow you to have better cashflow. Knowing your top sellers and the items that need to be on a regular schedule of ordering will prevent the “feast and famine” orders swinging hundreds of dollars each week.
Have an emergency fund and keep debt low
Lots of things can happen that affect revenue in your business. If you have bad weather and your restaurant doors are closed for a day or two, or a shipment of your cookies gets damaged and needs to be replaced, it costs your business money. Relying on the public to decide to eat out or order in on a given night isn’t always predictable. Keeping some cash stashed is a good idea to offset any lower revenue months. Typically, quarter one each year is brutal on food businesses. Having the money set aside to cover any income dips can be the difference between staying in business and not.
Along the same lines, keeping debt low is important. Most of the inventory in food businesses are perishable and aren’t available as collateral to take out an emergency line of credit if needed.
For example, the depreciation of equipment also can make the food business equipment a little riskier for the bank to loan on for full value. In addition, not having a lot of debt in the business can also make a difference in the success of a food business in a slower season.
Create a sinking fund for equipment repair and replacement
Food preparation requires equipment. Ovens, fryers, stovetops, refrigerators, etc., are commonly found in restaurants and home food businesses. These pieces of equipment will often need regular maintenance, and at some point, replacement. Creating a separate fund early in the business where money is parked for these specific needs can ensure that if a piece of equipment goes down, the restaurant budget doesn’t struggle to cover the repairs. This fund truly protects the business from expensive appliance repairs that must be made to keep the business running.
Author’s Note on Financial Tips for Food Businesses:
Using these tips will help to ensure that your food business operates with finances in the black. You can protect yourself and your business from the most probable money issues facing your industry by:
- getting good margins
- only having the necessary inventory
- having an emergency fund and keeping debt low
- saving to maintain equipment.
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