This week in all the usual nonsense, complaints and wrong advice was a real gem. A newbie asked about “handling taxes”. Thankfully most of the answers were at least legal and fairly helpful. Buried among them was this amazing answer. My first thought was this guy has read my books!
“Many people back out the taxes from a flat rate price and then claim it is easier as a reason for doing so. Despite what anyone claims it is not advantageous to your crew or your business to do so. For the following reasons.
#1 you must raise your prices every year at least 2% to account for inflation that has averaged 2% the past 15 years.
If you do not bump your prices every year 2% by the 5th year you will be making 10% less money.
By that time, you will be wondering why you can’t pay your Bill's or be closed.
#2 you must account for food cost increases food cost increases don't care about round numbers.
3# change increases you tips both in cash and on the tip screen 4 you or your staff
4# it paces the orders coming in the window when there is a rush and ensures you get less jammed in the kitchen
#5 it requires discipline and presents (sic) of mind to hand out change and count out you (sic) drawer people expect you to charge it and people expect to pay it.
#6 depending on what state and town and metro you operate in sometimes there are 3 different taxes you must apply to you orders. That can rob you of money from your pocket and operation.
There is no reason to take short cuts with taxes.
Charge your 4 times food cost.
Set it aside daily in a separate account.
And manage your finances appropriately.”
Let’s look at each point closely. #1 Inflation. Yes, on average inflation has been 2.11% since 2003. Going back to 1977 (when I started in food service) inflation has been 3.59% on average. (Source) BUT how does that translate in pricing that impact food vendors. Food in general since 1977 has risen slightly less at 3.32% per year. While in recent years food prices have risen faster than inflation at 2.28%, meaning your prices MUST increase otherwise your profits decrease. Point #1 validated.
Point #2 Really is just a restatement of point #1, pointing out the limitations of using round numbers. Still a very true statement.
Point #3 Change does tend to end up in tip jars. Using on the dollar pricing eliminates this option for your guests. As does avoiding $5.00- and $10.00-dollar price points. While a pain keeping ones on hand to make change it does increase overall tips. All coins and a $1.00 generally end up in the tip jar.
Point #4. Pacing the kitchen orders. Absolutely counting back change will pace the speed of orders going into the kitchen. Transacting the cash or credit card is only a part of a well-trained cashier’s line pacing responsibilities. I suggest a written procedure that is trained from day one as well as practiced regardless of how busy or slow the meal period may be. Something along the lines of this:
3-5 seconds of greeting as personalized as possible for both the cashier and the guest.
Immediately after the guest response suggestive sell your featured item.
Complete the order and round out or up sell as necessary.
Give the total and transact the cash or credit cards.
Present the change or return the card and request a signature.
Finally thank the guest and explain how/when/where the food will be presented to the guest.
The overall process (depending on the complexity of your menu and the order) should be around 30 to 60 seconds for typical street food. Next you should have an average goal for the kitchen to produce the food. Again, depending on the complexity of your menu and your holding procedures the average ticket should be completed in 5 to 8 minutes for a cook to order operation. Yours could be much faster if you are able to pre-cook and hold, so all you do when an order is placed is assemble. What ever the average kitchen time is would be divided by the average order taking time. This number is your “weeds” threshold. For example, your order time is one minute and your kitchen time is 5 minutes the “weeds” threshold is 5. Meaning if a 6th ticket is on your screens or ticket rack there is a possible kitchen issue or the cashier is not pacing the line properly.
A good cashier would recognize this situation as a problem waiting to happen and SLOW DOWN the next order taken allowing the kitchen time to complete an order or two. Once a guest has paid their perception of time is massively distorted by their anticipation of getting their hunger satisfied. Good food brings guest in, great service brings them back.
Point #5 is not really clear but I believe the point is adding tax after the sale rather than including as a part of the menu price. Using on the dollar pricing made street food vending easier in the good old days for the mathematically challenged. In modern times with the advent of free POS app for cell phones there is no excuse not to add tax after the order is given. I personally include tax and price on the quarter just to save trips to the bank to get coins for change. Again, most coins end up as tips, so you are able to recycle coins anyway.
Point #6 This is a great point sales tax can be assessed at the state, county and city levels. Then add in differing rules for application of tax like perhaps water is taxed at the state level but not the city level. All the more reason to have a POS to properly add in taxes.
In my consulting with various food truck owners, nearly one fourth (25%) figured their sales taxes incorrectly often paying the revenue offices MORE than they owed.
I especially like the tips this post author lists at the conclusion of his post. I have been saying 4 times cost (25% food cost) for a decade, yet the overwhelming majority of advice in Facebook groups recommends THREE times (33% food cost). The other tip concerning having a separate bank account is another one of my Best Practice recommendations. I suggest depositing the sales tax EVERY single day you vend using the total from your POS system.
Every couple of weeks I see a vendor or two express this thought. “we as Mobile Food Service Vendors need to unite. Somehow, someway we have got to make it clear to those who host and/or organize fairs, festivals and special events,....that Food Vendors make it successful. Without us, they're sucking buttermilk, and people won't come again. Therefore, them charging us to help them is counterproductive.”
This my friends is why the vast majority of food vendors are part-time and will never be anything more than just that – part time. I agree food vendors need to unite and speak with one voice on many different issues we face. However, event fee structures is not a priority topic. Thinking food vendors "make it successful" is just plain arrogant. Do you really think a place like Disney World is successful because they sell food? You don't want to know the cost McDonald's paid to sell only French Fries in the Animal Kingdom when they had the kiosk there. No one went to the Animal Kingdom just because they sold McDonald's fries. Guess what? That kiosk is gone but the Animal Kingdom is still there. If McDonald's had no impact on attendance at Animal Kingdom why would a small time food vendor think they would have an impact on any positive event attendance?
Food at events is and always will be a necessary evil for the attendees. Most folks (some actually plan this) would rather eat cheaply OUTSIDE the event so they can have more available money to enjoy more event attractions and spend less time in lines waiting for a food vendor to actually hustle.
Events have different draws for different people. I am certain the music artist performing Friday night thinks they are the one making the event successful. But then again, the semi popular band from the 70's on Saturday night thinks they are the real reason. They all perform for free, right? Those crafty promoters must bathe in cash! How about the handmade craft people shouldn't they be allowed to just show up for free and sell their wares too? I mean after all, who really needs one more ceramic thingy to collect dust? The ride operators certainly they hate paying event fees. I know game operators with their profit margins would love free entry so they could laugh all the way to the bank.
Event promoters do over schedule food vendors most often not because they want 20 trucks for 1000 people but because last year the lines were so long and slow moving they saw an opportunity to better serve their attendees by getting more trucks so the folks in those lines can get back to doing what they came to the event to do. Enjoy the concert, the games, the rides, buy a few crafts and have fun. They are going to eat today anyway. The concert, games, rides and memories make the day special. Not the vastly overpriced lemonade in a gaudy plastic "souvenir" cup.
Every time you have a vendor brag about a 50-guest deep line that lasted all day that is an opportunity for the event promoter to have 4 more food vendors next year with lines only 10 people deep. The people that stand in a 50-person line may love the food but really, they are very hungry and tired so their judgment is already impaired. Think about speed of service. If the vendor is super-fast and moves one guest every thirty seconds the last dude in line still is waiting 25 minutes for, in many cases subpar massively overpriced food. That is 25 minutes they aren't spending money on crafts, playing games, riding rides or dancing to the band.
If you want to talk about uniting so vendors can get better pricing on food, credit card processing, consistent laws on commissaries, cheaper food certification training, fighting local restrictions on daily vending, setting manufacturing standards for cart, trailer and truck design, setting realistic fire safety standards or getting rebates on supplies and equipment (like national restaurants accounts) I am all in.
"Hello! Husband and I are wanting to open a food truck. Was wondering if it’s profitable. Any opinions? Thanks"
Short answer is yes, they are profitable. Trouble is it takes a book or two (which I have written 😊) to explain how to be successful. There are several thousand used trailers and trucks for sale right now across the country. Too many folks jump in without research, plans and cash reserves to survive a full season. First thing you need to know is every state has different rules and regulations. Start with your area learn the laws you will have to follow. Next do market research on your planned service area. If after doing that you still want to pursue a food truck dream send me a message and I'll teach you the business so you'll be successful from day one.
The above question and answer appeared on a Facebook group over the past weekend. I was hoping from my offer to help I could guide someone on the path to success. No strings attached. I posted my response minutes after the original poster ‘liked’ a different response. AND nothing. Another person did send me a message an hour or so later and I responded by letting them know I would help just ask any question. AND nothing. It has been two days and still no questions or acknowledgement from either. The first rule of business is “be present” meaning if you are at work then be 100% at work. Likewise, be 100% at home when at home. Don’t think of work while you are surrounded by family and don't think of family knee deep at work. If you need help and someone offers take advantage of it. When opportunity knocks - open the door otherwise opportunity walks away looking for the next door that will be opened.
As always menu pricing is a hot topic. “Ok everyone, I have a question. I'm doing my homework on starting up my business and I'm trying to find out how much I should sell the dogs individually. It would cost me $1.38 for one dog. How much should I sell them for? I know it would be better for them to do a combo but what about each in case someone just wants a dog. TIA”
Figuring a menu price is challenging. First question is does that include everything you will put on the dog as well as the paper items like napkins and some type of wrapper or box? Next question is do you plan on including sales tax in your menu price? Finally, will you be one of the old timers and only price on the even dollar or will you price using coins? Assuming your cost price of $1.38 includes EVERYTHING both food and paper wise your base menu price will need to be at least $4.18 (33% food cost) and up to $5.52 (25% food cost). If you plan on including tax and pricing on the dollar, I hope you can see the problem selling at $4.00. Not knowing your exact tax rate I'll figure a 5% rate which puts the food cost at a very scary 36.22% if you chose the coin-phobic $4.00 price. Don't forget credit card processing fees. Those eat into profits as well. The real question is: will your guests see the value in your product and be willing to pay a $5.00 or more price for a single hot dog? Local economics plays a large role in determining your menu price as well as any competition you may have. Folks that recommend a certain price can only speak to their own economy and guests, what works in one place may spell disaster in another.
One curious person asked me what I meant by “coin-phobic”. I responded:
Many vendors subscribe to the premise that pricing using coins (quarters, nickels, dimes, etc.) slows down overall service and makes adding up charges easier. Hence, they price only on the even dollar. This forces them to either eat supply increases until they feel a full dollar jump in menu price is justified or whine and complain they are not making any money until they just go out of business. Pricing on the quarter is simple mathematically, keeps your menu price to product's perceived value in line and makes it less noticeable when you have to raise prices. Going from a $3.00 to a $4.00 hot dog is a jump guest notice and will complain about. A smaller jump from $3.00 to $3.25 is less noticeable and still reads mentally as "three dollars". I used the made-up word "coin-phobic" to illustrate the point many vendors are "afraid" of pricing using coins for many unfounded reasons. Mentally adding up 'on the quarter' pricing is no more difficult than adding up 'on the dollar' pricing for those folks still not using a POS system. (that one still amazes me) It is all about training yourself. Just like one day the baby doesn't know how to walk and then it does.
The even dollar pricing is recommended by a hot dog “guru”. The advice is followed blindly by the inexperienced. The bottom line is this: you started a business to make money, perhaps learning how to add and count change should be a priority BEFORE opening for business.
There are many good reasons to be a part of Facebook groups. Comradery, marketing ideas, recipes, venting and bragging are just a few. There are, however, some areas where Facebook groups are not the best source of good advice. Those areas are anything legal and anything tax related. Asking for contracts or business structure advice is like asking a chef to represent you in court. Oh wait! That is what people are doing.
This week’s questions: Which should I use, LLC or sole proprietorship? Gets answered with the completely incomplete: “LLC protects your personal assets in case of a lawsuit.” Yes, LLC’s are able to do just that, BUT certain things have to be in place to maintain that protection. Not the least of which is proper accounting of cash flow. Small business owners have a very bad habit of grabbing cash out of the register (if they even have one) and using it for personal expenses. Likewise, an owner will use personal money to purchase something for the business without proper accounting documentation. Guess what happens when this owner gets sued for food poisoning? During the trial the opposing lawyer shows unaccounted for cash income and unexplained expenses, demonstrating the business is really an extension of the owner’s personal wealth and not a real business. Now everything, both personal and business, are on the table to pay for the lawsuit.
According to nolo.com the most common factors that courts consider in determining whether to pierce the corporate veil are:
This question: When will I show a profit? Goes hand in hand with the LLC veil piercing “inadequately capitalized” test. Every bit of cash that goes into your business BEFORE you open to the public has to come from some place and should have some paper trail explaining its origin and how the business will repay those funds to the investor. Even if the investor is the owner all that cash should be considered a loan to the business with a repayment schedule just like a bank note. Financing from a formal source as well as owners and investors simply means the business has debt. Just like 98% of businesses in America. Those debts have a known monthly payment. That payment is just like every other expense your food business has.
As owner you should know the EXACT the amount of money your food business requires to breakeven for a single day. That breakeven point includes all loan repayments, expenses and inventory. E.g. your break even is $200 so your sales goal HAS to be at least that much. Guess what happens at $201? The only thing coming out of that dollar is whatever it took to produce the food. If your variable costs (see this video for an explanation) are 35% you have made a PROFIT of $0.65 for the day. If you hit $400 in sales your profit is $130 for the day.
I know, I know. What about buying food for tomorrow? Everything you consumed to make your food (ingredients, propane, gasoline) is covered either as a fixed cost (propane, gasoline) or a variable percent (food and paper) within that $400 of total sales. Meaning you have already paid for everything you used today and that money is in your hands right now to buy more to use tomorrow. If your food cost goal is 28% and you made all your products EXACTLY to your recipes with no waste you should only need to buy $112 worth of inventory for tomorrow.
TIP – The best way to control your food cost is to only purchase what you need when you need it.
Know your total inventory dollar amount on hand and how many sales dollars that it supports. E.g. $216 in inventory with a 28% food cost goal will cover $771.42 in sales. If you portion and serve your food perfectly while your guests only order what is in stock you will not need to restock until sales hit $772.00
Bottomline is you should technically show a profit from day one or at least week one. Will you be debt free? NO, but you should be able to make all your loan payments and business expenses with money left over. If you are not making a profit you needed my help yesterday and your business tomorrow may not come if don’t call me today.
Processing rates are going up for Square users on 11/1/2019. Many small business owners are looking for alternative processors or considering adding fees and minimums to offset the increase. The increase is a lofty dime per transaction PLUS a 2.60% fee. Food vendor selling dollar items are doing the math and having nightmares of bankruptcy over this increase. So, what is the REAL impact of this or any other increase to credit card processing?
First question to ask is how many guests actually only charge a single dollar? Vendors using a POS system already know this and can figure the mathematical impact on their business. From what comments I have read or heard most vendors are fixated on the rare dollar ticket charge, ignoring their actual check average for credit/debit processing. Either freaking out at the increase or just saying “it’s not that much and no big deal.”
Here are the mathematical facts. On a single ticket the new rate IS higher until the ticket total exceeds $66.67! At that point the new rate is cheaper. Catering only businesses will enjoy paying less fees while the daily hot dog vendor will suffer higher rates. Using a ticket average of $5.00 (rural America hot dog, chip & drink combo) the price increase is over 67%. Imagine paying 67% more for your food! If your ticket average is at $12.00 the increase percentage drops to just under 25%. Suffice to say small ticket average businesses are getting screwed.
What options are available to food vendors? Four options come to mind:
Doing nothing is not the correct decision. Fight for your profits! You earned them. This increase is not something I will just “eat” and neither should you.
“Increase prices” is a short-term fix and some vendors feel will upset their guests. Price increase are never fun but are a necessary consequence of inflation, supply and demand and just economics in general. In the late 70’s and early 80’s every single year on January 1st minimum wage was raised. On New Years Eve instead of partying we revised our menu boards and programmed price increases into the cash registers. Every year guests whined about coffee going up a nickel and the roast beef sandwich going up a dime. Guests knew about the wage increase (news reported facts not opinions back then) and got a practical lesson in economics and business. Guess what? They came back the next day.
Street vendors have an aversion to using coins because it makes math slightly more difficult. Many feel the change making process is cumbersome and “slows” the line movement. WRONG. A great cashier is friendly, fast and CAN COUNT. Making change is easy and in no way slows down the process. A great cashier will always blow away the kitchen. ALWAYS. Your operational slow point is not making change it is cooking. Raise prices a quarter which covers the transaction fee increase. Use Square POS (the app is free and works on any cell phone) to do the math for you. Buy a belt coin holder to make change like this one and explain to your complaining guests what Square did. They appreciate the honesty and most likely side with you, anyway.
“Change Processors” may not be the best option but certainly does make you feel better. PayPal here is a flat fee option similar in fees to Square BEFORE the increases. PayPal does have some negatives as do many of the other processors. Some have horrible customer service, slow deposits, hidden fees, equipment charges and a slew of other issues making them a poor choice for a small food operation. This site reviews all the processors with details on POS capabilities and pricing.
If changing your processor is the route you want to choose, please do the math before you change. A lot of those “free” systems are not really free or they add on fees that are illegal in many states.
“Charge some type of fee or set a charge minimum” as noted above fees are illegal in many states and frankly come across as petty. Setting a minimum screams “I am a cheap business” and chases off more business than it saves in fees. There is one method that is legal and in fact encouraged by credit card companies. Offer a cash discount. Again, food vendors are afraid of coins and this discount system guarantees you’ll need pennies, nickels, dimes and quarters.
You would price your menu assuming everybody will be using a card. Print the menu with these prices. When someone offers to pay with cash you simply discount (percentage wise) the price listed on your menu. This process is simple and straight forward. Card guests pay what they see and are not accessed some form of penalty for using a card, while cash guests are pleasantly surprised with a small discount. Again, you will have to be prepared to use coins. This article spells out the differences in surcharges, cash discounts and convenience fees.
For me, the easiest thing is to simply assume everyone will use a card, price accordingly on the quarter as needed. Continuing to use Square passing along any future fee increases to my guests via modest across the board price hikes. Just like when the price of bread goes up or minimum wage.
I have had a passion for helping people since an early age back in rural Kentucky. That passion grew into teaching and training managers and owners how to grow sales, increase profits, and retain guests. You’ll find a ton of information here about improving restaurant and food cart/trailer operations and profits. Got questions? Email me at Bill_Moore@live.com