Renting or leasing a cart, trailer or truck is a huge decision. Often folks turn to renting or leasing when savings are small, or credit is poor. Others look at food service as a way out of a desperate situation and turn to leasing or renting based on hype from cart manufacturers. You know the ones that understate the difficulties and overstate the income. We are going to look at a couple of different rental proposals and if they make good business sense.
The first is a strategy recommended by a cart manufacturer and self-titled “hot dog expert”. Of course, this strategy happens to encourage his customers to purchase multiple carts from him. A clear conflict of interest. His “strategy” claims to increase cash flow for the cart owner and that renting them out is child’s play. This is a win-win situation for the manufacturer and the new cart owner. Except the person with money buys carts and rents them to people with little cash or credit, thus creating a win-lose proposition between the new cart owner and the renter.
Problems with renting a cart/trailer:
In this ad for a cart rental hopefully you notice right off the bat the picture is a beach setting while Orlando, the listing city, is an hour away from any beach. We will assume this is a real ad for a real cart as pictured. For this example and the later trailer rent to own analysis, we will assume a 33% operational cost (food, propane, paper, cleaning, gasoline etc.) and working an average of 3 days a week or 144 days a year. This number would account for bad weather throughout the year. Unless you live in a major city with 2000 plus foot traffic per hour, 3 days a week is about all you can reasonably expect decent business until you develop a following. Next you should expect some large costs with insurance ($299 annually) and getting food manager certified. Even if your state does not require it, get yourself trained and expect about $110-$150 for that. After those expenses expect other monthly costs paid as a lump sum like cell phone ($45) for credit cards, call in orders and answering questions and, of course, bank fees ($10). Finally, you may get lucky and find a commissary that will allow you to pay daily ($10 to $25 per hour) and your site rental may do the same ($20 or more daily).
For this cart at $3,000 a month rent you could buy a really nice used cart with several accessories, extra coolers and pans. Thus $3,000 monthly rental is a sucker’s deal. However, people will have to go the route of daily rental because the lump sum is simply out of reach. So, plunk down $350 to this guy and $502 or more for everything listed above. Thus, you pay $852 out before you even buy one morsel of food to sell to anyone. Scary isn’t it?
Let’s say you are committed to this process, believe it will work, have the ability to cook and deliver delicious food in a friendly manner AND have no other issues or costs pop up for the year. After working hard for 144 days you will have a whopping $190.03 in profit. Ready to go find a cart to rent?
Notice at $630 a day for 144 days you don’t even reach that magical $100,000 mark that shady cart manufacturers indicate is possible with ease. If you were to hit that mark your profit would be a paltry $6061.00. Remember working more days doesn’t help much because your rental fee is DAILY.
The winners in this scenario are the manufacturer and the cart owner. The unfortunate loser is the poor cart operator trying to make a decent living.
At what point can a rental agreement be a win-win for everyone involved? Daily rental fees less than $150 on the sales listed will yield an annual income of nearly $29,000 before income taxes. At that income level only working 144 days sounds exciting!
This is an ad that pops up often on several Facebook vending groups. I have not seen nor heard about the quality of construction, so for this example let’s assume Rent to Own Trailers has a great design and perfect construction with no maintenance for the rental period. We will look at the smallest trailer with a griddle and add no additional equipment. $4500 deposit and 50 payments of $522 for a total of $30,600. Break even would be $55,631 assuming the same numbers from above and you work alone in this trailer. Best thing about this agreement is you will own the trailer after 50 payments. If you work only 3 days a week you would only need to generate $386 a day to break even. Of course, if you want to repay yourself the $4500 deposit you put down out of your personal money, it would take $430 a day. Keep in mind at the end of one year, even with this low sales amount, your business has broken even, you have recouped your personal loan to your business AND you own a business asset. Realistically, a food trailer should do a minimum of $800 a day in sales and this is easily handled by a single person.
Just using the same sales figures as the cart example above, you can see a profit of over $19,500 for your first year. At this point you own a trailer, and best of all have a larger profit potential for the coming year even if sales stay exactly the same.
A brief look at the second-year income potential gives cause for excitement. A cool 50 grand in profit! Imagine if you spend some money and time to market the trailer and increased the sales to $1000 or more daily!
You must consider several things before getting into a rental agreement for either a daily cart/trailer or a rent to own trailer.
In any contract the numbers must work for both parties. In the cart example, absolutely not a good deal. The only person making money is the cart owner. The trailer rent to own is viable and at the end of the contract you are the owner of an asset you could resell and recoup more of your investment. Research your area, competitors and vending laws before entertaining the idea of rent to own.
If credit issues are a problem but you have a strong food background and desire to succeed rent to own may be your best option. At least with this option you have a fighting chance to make a profit!
Disclaimer: The numbers listed are example numbers only based on past performance averages. Your actual sales and costs will be 100% dependent on your abilities and local suppliers.
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