Does this look right estimate of profit?

[Kensington2010]

Hi, can anybody tell me if making money from food is really this tricky. I've always done mobile catering where your turnover is high compared to overheads, a lot of your costs bunched into the days when your turning over big amounts. but its always been my ambition to have a shop, am starting to wonder why!!

I am/was about to take a lease on a town centre food outlet, sandwich shop come takeaway.

Good place but way cheap rent compared to 20 paces round the corner. High footfall too.

anyhow this is what i thought...

Fixed costs

rent 8500
service charge 2000
rates 3600
bills 7200
staff 40000

(based on 110 hours a week at £7/hour
or 3 people doing 36 hours week
or 5 days at 7.5 hours a day average.)

Total fixed costs £61,300 we’ll say £60,000 for ease.

Food costs = around one third of turnover
so... 60,000 divide by 2 = 30,000 + 60,000 = 90,000 + 18,000 VAT = 108,000
so... 108,000 inc. food and VAT break even a year.

or 2076 a week
or 296 a day

then after that... every 3.60 I t/o I make £2 (ie after vat and food cost)

so best case... £500 a day is £200 (extra after break even) divide by 3.60 = 55 x £2 = £110 x 7 = £770
x 52 = 40,000 a year.

turnover £182,000 a year to make 40,000. and thats only accounting for 15 hours a day of paid labour. 2 x 7.5 hours. so 8 am till 4 pm. or 4 till midnight. eg.

and i’m not sure 2 would be enough to cook serve food and coffee etc etc.

So 7 days a week, 52 weeks a year, £500 a day =£40,000 profit.

I also think £500 is quite ambitious when my transactions will be between £2.50 and £4 ish.

Any insight appreciated, am at a crossroads!!

 

[vvaannmmaann]

Insurances?
Staff training?
Equipment servicing?
Equipment damage?
Uniforms?
Advertising?
Waste food?
Rainy November afternoons,two pensioners sharing one cup of tea for three hours,no other customers?

 

[Kensington2010]

insurances yep, thats another nearly £1k.

Its so demoralising thinking your first (and maybe only) £100k turnover is going to be shared out among everyone else.

Always thought food was a winner

 

[Kensington2010]

Insurances?
Staff training?
Equipment servicing?
Equipment damage?
Uniforms?
Advertising?
Waste food?
Rainy November afternoons,two pensioners sharing one cup of tea for three hours,no other customers?

And this is bread and butter "what people need" business. The costs are scary. Does anyone make money? and the vat man sticking his ore in just as you get going! Think il leave it.

 

[Richie N]

Your wages bill is too high imo. You don't need to pay them £7 per hour but then you also need to allow for holiday cover /pay and national insurance contributions.
Also think your turnover is too ambitious for the first year.

 

[Kensington2010]

Your wages bill is too high imo. You don't need to pay them £7 per hour but then you also need to allow for holiday cover /pay and national insurance contributions.
Also think your turnover is too ambitious for the first year.

Yeah i thought £7 would cover all of that. But long days as its near the pub circuit, so morning, lunch and nights. Always best to overestimate costs.

And I agree, very ambitious, I was making kind of a best case scenario. But does that £108,000 a year look like i worked it out right to break even?

VAT is crippling for growing food/service businesses i am seeing.

 

[AndyBlue]

I would also question your margin aspirations, I thinmk maybe they coudl be higher. If you are in a high footfall area woudl you be able to charge more than in your mobile unit therefopre stretching the margins and making costs no more than 25% of sales price ?

 

[Kensington2010]

I would also question your margin aspirations, I thinmk maybe they coudl be higher. If you are in a high footfall area woudl you be able to charge more than in your mobile unit therefopre stretching the margins and making costs no more than 25% of sales price ?

Yeah i know what you mean, but If I was to do quality produce, with quality ingredients and with quality packaging, a £2.80 sandwich isn't going to be far short of 0.90p to make. or a £2.20 bacon roll costs; roll 17p bacon 3x19p, thats 74p, + lurpak + heinz + packaging. So I said 33% to avoid kidding myself it would be less. and wastage...

 

[Philip Hoyle]

Not all your sales will be subject to VAT. Fair enough, everything "eaten in" will be liable, but your cold sandwiches will be zero rated if consumed off the premises as they'll be "food" (zero rated) rather than "catering" (standard rated). There are also similar opportunities as regards cooking things like pies from raw - i.e. they'll also be zero rated if eaten off the premises as long as you cook them (rather than re-heat) and as long as you sell them at ambient/room temperature (i.e. don't keep them in a hot cabinet) - then they're zero rated food as well. Plenty of "tricks" as regards takeaway food if you know and understand the VAT rules. Basically, whatever you cook must be capable of being eaten cold, so the fact you're selling them hot is part of the "cooking" process rather than intentionally selling them hot!!

I know of a chain of pie/sandwich shops that have virtually 100% zero rated food sales because they don't do any "re-heating" at all and cook all hot foods from raw then store them in a counter cabinet that is neither heated nor cooled - it's just harder work as you need a constant throughput from your ovens to keep a steady supply as you can't keep them on display too long at room temperature!

 

[Richie N]

Yeah i thought £7 would cover all of that. But long days as its near the pub circuit, so morning, lunch and nights. Always best to overestimate costs.

And I agree, very ambitious, I was making kind of a best case scenario. But does that £108,000 a year look like i worked it out right to break even?

VAT is crippling for growing food/service businesses i am seeing.

No need to register for VAT until you reach the threshold....

With regards to the pay, you need to calculate the hourly rate, we used to pay £6 and depending on your location that should be fine for catering staff, London is usually £6.50+
Calculate your holiday pay and then your NI on top of that. There is a calculation on business link I think.
Don't forget though when your staff are on holiday you will need cover as well and agency staff, you will need to add at least another 20% on top usually.

I think the hours you have as well are too many, depending on your opening hours but try part timers and 1 full timer. That would then give you more flexibility.
Remember your quiet periods, 10am to 12pm probably, you don't want staff standing around doing nothing. Have a breakfast shift, lunch shift and all day shift.
Well that's what we did for our catering business.

 

[Kensington2010]

Yes its an interesting one the VAT, but unfortunately most of what I would have done is probably needing to be VATable(maybe not a word that). even though its purely takeaway.

Breakfast rolls or hot breakfast box, hot pressed sandwiches, hot filled bagels, coffee, and for the lunch and the night side of things was going to try and do gourmet burgers.

Bizzarely I'd be quite limited what I can sell on the cold side of things because of another shop they let out in the same block. Same owner of property-conflicting interests of tenants or something. Seem to have forgot about healthy competition.

 

[Richie N]

Yes its an interesting one the VAT, but unfortunately most of what I would have done is probably needing to be VATable(maybe not a word that). even though its purely takeaway.

Breakfast rolls or hot breakfast box, hot pressed sandwiches, hot filled bagels, coffee, and for the lunch and the night side of things was going to try and do gourmet burgers.

Bizzarely I'd be quite limited what I can sell on the cold side of things because of another shop they let out in the same block. Same owner of property-conflicting interests of tenants or something. Seem to have forgot about healthy competition.

Go for healthy things, catering is very seasonal. We had a salad bar that did well in the summer months, hot food for the winter.
Everyone gets bored of soups, jacket potatoes etc.
Do hot sandwiches, chicken goujons, fish fingers, sweet chilli chicken etc.
Go for speciality breads, paninis, ciabattas.

 

[Kensington2010]

No need to register for VAT until you reach the threshold....

With regards to the pay, you need to calculate the hourly rate, we used to pay £6 and depending on your location that should be fine for catering staff, London is usually £6.50+
Calculate your holiday pay and then your NI on top of that. There is a calculation on business link I think.
Don't forget though when your staff are on holiday you will need cover as well and agency staff, you will need to add at least another 20% on top usually.

I think the hours you have as well are too many, depending on your opening hours but try part timers and 1 full timer. That would then give you more flexibility.
Remember your quiet periods, 10am to 12pm probably, you don't want staff standing around doing nothing. Have a breakfast shift, lunch shift and all day shift.
Well that's what we did for our catering business.

so if I have a 7 day week, open from say 8-5, 56 hours, with 2 staff average = 112 hours. You think this is too many. Just trying to be realistic with it all, because how many people do you think ever over estimate there costs? Usually the opposite Id imagine.

Yeah the shifts are a good Idea. People when you want them.

So do you think there is big money in food then? or just when you break through and get big, with say 10+ outlets.

Maybe restraunts/bistros are better where your getting £8/£10/£12 off your customers and your margin is much higher. But less customers per day surely...

 

[Kensington2010]

Go for healthy things, catering is very seasonal. We had a salad bar that did well in the summer months, hot food for the winter.
Everyone gets bored of soups, jacket potatoes etc.
Do hot sandwiches, chicken goujons, fish fingers, sweet chilli chicken etc.
Go for speciality breads, paninis, ciabattas.

This is exactly the sort of thing I had in mind. Hot, modern, exciting food on good bread and like 3 or 4 different dressed salads, all well packaged. polystyrene free zone.

But I just cant see it paying!! I'm all for money not being everything but its got to be the end goal eventually when your investing all your time, savings and then some.

 

[Richie N]

so if I have a 7 day week, open from say 8-5, 56 hours, with 2 staff average = 112 hours. You think this is too many. Just trying to be realistic with it all, because how many people do you think ever over estimate there costs? Usually the opposite Id imagine.

Yeah the shifts are a good Idea. People when you want them.

So do you think there is big money in food then? or just when you break through and get big, with say 10+ outlets.

Maybe restraunts/bistros are better where your getting £8/£10/£12 off your customers and your margin is much higher. But less customers per day surely...

Personally, I don't think you need to open those hours at the weekend. Probably 9am on Saturday and Sunday's at 10am.
We tried opening until 5pm but we were dead between 4-5pm but then we were an eatery and not a coffee shop. It really depends on your business and your customers.
You will need to try it out in the first month, we only opened 6 days a week as the business wasn't there for us on Sunday's.

When we did our budget, we anticipated customers to spend £5, which would be a sandwich and a drink etc or a hot meal.
Some just had coffee, some just have a sandwich and others had a coffee with a cake. In the end our average spend was about £3.50-£4 per person, so don't aim too high. Your be surprised how many customers take drinks etc into work these days to cut down on their lunch costs.

The first month or so is all about testing the market. Try different specials, if they work well, put them on your menu permanently.

Is there big money in catering, no I wouldn't say there is to be honest in my experience.
It's hard work, you won't stop from the time you open until the time you close.
I've experienced it from the operation side and in recruitment, restaurants, cafes, bars etc are struggling, even the big boys struggle.
Look at your celebrity chefs, even their restaurants close down.
The "worlds best restaurant" closed the other week.

I would never open a catering business again after my experience but that's just me.

 

[Richie N]

This is exactly the sort of thing I had in mind. Hot, modern, exciting food on good bread and like 3 or 4 different dressed salads, all well packaged. polystyrene free zone.

But I just cant see it paying!! I'm all for money not being everything but its got to be the end goal eventually when your investing all your time, savings and then some.

There's not huge margin/money in catering.
It's all about price to the customer, if they can get it cheaper up the road for 50p less regardless of quality they will likely go there instead at the moment.

 

[Kensington2010]

Personally, I don't think you need to open those hours at the weekend. Probably 9am on Saturday and Sunday's at 10am.
We tried opening until 5pm but we were dead between 4-5pm but then we were an eatery and not a coffee shop. It really depends on your business and your customers.
You will need to try it out in the first month, we only opened 6 days a week as the business wasn't there for us on Sunday's.

When we did our budget, we anticipated customers to spend £5, which would be a sandwich and a drink etc or a hot meal.
Some just had coffee, some just have a sandwich and others had a coffee with a cake. In the end our average spend was about £3.50-£4 per person, so don't aim too high. Your be surprised how many customers take drinks etc into work these days to cut down on their lunch costs.

The first month or so is all about testing the market. Try different specials, if they work well, put them on your menu permanently.

Is there big money in catering, no I wouldn't say there is to be honest in my experience.
It's hard work, you won't stop from the time you open until the time you close.
I've experienced it from the operation side and in recruitment, restaurants, cafes, bars etc are struggling, even the big boys struggle.
Look at your celebrity chefs, even their restaurants close down.
The "worlds best restaurant" closed the other week.

I would never open a catering business again after my experience but that's just me.

Yeah its sandwich shop/takeaway so longish hours I recon. And quite low spend.

I'm getting to thinking its just a wage most people get from a cafe/small shop. and if thats the case its not really worth spending the £25k set up, and 5 year tie, and risk. Not that risk is bad, but the reward seems quite low.

Back to the drawing board I think.

Having said that I am starting to appreciate the merits of mobile/event catering. Low(ish) overheads. ANd high income when it goes right. I got hooked on the food idea with my first burger van, once a week, every sunday, 6 hours, £600 takings, £400 profit. Downhill ever since lol.

 

[Richie N]

Yeah its sandwich shop/takeaway so longish hours I recon. And quite low spend.

I'm getting to thinking its just a wage most people get from a cafe/small shop. and if thats the case its not really worth spending the £25k set up, and 5 year tie, and risk. Not that risk is bad, but the reward seems quite low.

Back to the drawing board I think.

Having said that I am starting to appreciate the merits of mobile/event catering. Low(ish) overheads. ANd high income when it goes right. I got hooked on the food idea with my first burger van, once a week, every sunday, 6 hours, £600 takings, £400 profit. Downhill ever since lol.

Reward is quite low in my opinion, you need to look at it as a long term investment.
Footfall is key.
It can seriously have an impact on your business if your customers are say from a large office building and that company closes.
Variety of customers is also key - office workers, local residents and students. Appeal to all markets if possible.

I've had my own agency for 7 years, compared to the catering business its not as half as stressful.
I would never open a catering business again.

 

[Philip Hoyle]

Do you have to stay open all afternoon? I don't think you'll be selling enough sandwiches etc mid afternoon onwards to justify the power and staffing costs. Why not just open 8am to 2pm, so you should get the breakfast bun trade for a couple of hours then a relatively quiet couple of hours prior to lunch to prepare, then two busy hours 12-2 for the lunchtime trade. Unless you're going to have busy afternoons with shoppers wanting a coffee & cake or whatever, (i.e. have plenty of tables in a busy shopping area), I really can't see much takeaway business after the lunchtime rush. Fewer hours would also mean that you don't need f/t staff at all - you could run it with purely p/t for maximum flexibility.

 

[Richie N]

Do you have to stay open all afternoon? I don't think you'll be selling enough sandwiches etc mid afternoon onwards to justify the power and staffing costs. Why not just open 8am to 2pm, so you should get the breakfast bun trade for a couple of hours then a relatively quiet couple of hours prior to lunch to prepare, then two busy hours 12-2 for the lunchtime trade. Unless you're going to have busy afternoons with shoppers wanting a coffee & cake or whatever, (i.e. have plenty of tables in a busy shopping area), I really can't see much takeaway business after the lunchtime rush. Fewer hours would also mean that you don't need f/t staff at all - you could run it with purely p/t for maximum flexibility.

Actually I would suggest staying open until 3.30/4pm. After 4pm would be no point if you were a breakfast/lunchtime business, as we were.
Our competitors closed at 2pm and we would get quite a few customers afterwards wanting a late lunch.
Some also like to have mid afternoon coffee and cakes etc.
Offer Wifi and you will attract business meetings.