How to launch a small catering business on a tight budget

You have a passion for food, have been working in the catering industry for some time, but now want to be your own boss. You have a good business plan, have the licenses you need to get started and you are confident that your new venture will be a success. But, you are concerned that you don’t have the money to keep it going. What should you do?

Having a small budget should not stop you from setting up many types of business if you plan properly. But if you want to be your own boss and don’t have large sums in the bank, then you and your family need to be prepared to make some personal sacrifices in the short term.

When I started out, taking a loan wasn’t an option. I wanted full control over my business and the direction it was going and did not want the added pressure of having to repay the bank. Instead, I took a reduced salary, put my social life on hold and any profits I made in the early days were put straight back into the business.

Would you be prepared to go without a nice holiday for a couple of years, cut out spending on hobbies, and spend the bare minimum on food and clothes? If not, perhaps rethink whether the possible discomfort and initial sacrifice of being self-employed is for you.

If you want to launch a business but have a small budget, here are some strategies to help you get started.

Consider renting, not buying

Whatever the size of your ambition, when you’re starting out it is inevitable that you will need some equipment to help you get started. Whatever you need – from ovens to transport and premises – considering the cost of renting rather than buying, freeing up cash that can be put to better use elsewhere or simply held in reserve for unforeseen emergencies.

Renting could also mean that you have access to better equipment earlier. I found that by having the best equipment from the outset, I was able to get a lot more done with fewer people. If having better equipment means you can cook faster and serve more customers, then the extra money you are making could easily offset the additional cost of leasing.

You may also be given the option to buy at the end of the lease for a reduced price, something that is well worth considering.

Whether renting or buying always negotiate for a lower price on everything. It will feel awkward at first, but the more you do it the better you will get. Doing this on everything you buy will have a big impact on reducing your costs.

Avoid unwelcome surprises

Did you know that many businesses that go under are profitable, but have run out of money to pay their own bills? Cashflow problems are the biggest killer of small businesses, so having a clear understanding of what is coming in and out of your business from the outset is fundamental for your start-up, especially with a low budget.

Catering businesses can be cash generative, so it can be easy to think that things are going well when you just starting out because there is money in the bank. But making spending decisions based only on your commercial bank balance could mean disaster for your fledgling business as not all the money will be yours.

The key to avoiding financial problems is having a regular cashflow forecast that shows you income and future expenditure, giving you a clearer picture of the books.

In the early days you may want to update your cashflow forecast weekly to avoid overspending.

Your cashflow forecast should includes not just your suppliers, rent and start-up costs, but also big lumpy payments like your annual corporation tax, quarterly VAT, accountancy charges and other large ad hoc payments.  These are particularly important because, if you have not set aside money, you may well not be able to pay them when they arrive unexpectedly.

The good news is that there is plenty of help online to help you manage your books, many cloud accounting apps are free. Some even give you access to real time cash reporting and forecasting so that you can easily spot current or future problems and plan your response.

Also, use it to look at different alternatives. For instance, what would happen to your finances if a wet summer or roadworks affected your custom? What would happen to your profits if you upsold an extra drink to your customers?

Turnover is vanity, cash is sanity and profit reality

A lesson you don’t want to learn the hard way is that it is just as important that you set time aside to do the bookkeeping as it is to work in the business.

Taking the time to do the books will give you the knowledge you need to take control of another vital area of your new business: your profit margin.

Many start-up catering businesses stumble because they simply are not charging enough. By reducing prices to win customers prices, you could end up working flat out for no money because you have forgotten about making a profit.

Viewers of The Hotel Inspector will have seen owners being berated because the cost of the ingredients on the plate is much higher than the price being charged for the meal. Having a pricing strategy that includes not only your supply costs as well as a margin for capital costs but also some profit for yourself is essential. It may be that you want to reinvest your profits into the business to get it growing at the start, but this is a decision that you will need to make based on your company books.

Only by paying close attention to your books and your cashflow forecast will you be able to make informed decisions about your pricing strategy and when to make changes.

Work ‘on’ and ‘in’ your business

If your long term ambition is to grow your business and start taking on employees, make sure you take the time to set the strategic direction of the business and ensure it is moving in the right direction. It is important to keep up with industry developments as well as what your peers are doing, if you are going to be competitive and win new customers.

Becoming too inwardly focused could mean that you miss out on commercial opportunities, or, worse still, you fail to spot broader issues that pose a real threat to your business.

The 2008 financial crash taught me this valuable lesson. At the time I was working in my first business in building renovations, and I was so focused on getting the job done that I missed the oncoming finance crisis. It was the end for that business.

As you scale up, you will want to dedicate more time to your role as company chief executive.

A small budget should be no reason to shy away from starting a catering business. Keep focused on your strategy to keep moving forward, include a healthy profit margin in your pricing, and pay close attention to the books – especially your costs. With determination and drive, being your own boss could soon be a reality.

By Lee Murphy is the founder of Pandle, the cloud bookkeeping software specifically for small businesses and the self-employed