What’s in this edition:
- News/Publications to follow
- Financial considerations for your catering business plan
- Industry metrics for guidelines
Public Information to Follow
Financial Considerations for your Business Plan
Seasonal cash flow
Spring and summer weddings, and holiday events in December are what usually drive the demand for caterers. But here’s the catch, catering businesses may face cash flow shortages when demand slows down during off-peak periods. To cope with the slow periods, they might lower their prices to get more clients and build a good reputation, but they still have to make sure they’re earning enough to keep their business profitable.
Variable food costs
It’s common for caterers to secure contracts way ahead of an event, especially for weddings. But there’s a downside to it. If the contract is based on a fixed price per guest and a particular menu, there’s a chance that food and beverage costs could skyrocket before the event, leaving the caterer with slimmer profit margins. While some contracts might have safeguards in place for unexpected wholesale food cost changes, caterers might have to make some changes to their menu choices to keep the costs under control. But, if they’re not careful, these changes might not sit well with the client, which could lead to losing potential future business.
Managing part-time staffing for events
Catering businesses usually rely on part-time staff for events since demand tends to fluctuate. But here’s the thing, during peak seasons, it can be a bit of a struggle to find experienced staff, especially for skilled roles like bartenders. Having a reliable team of experienced part-time staff is crucial for the success of any catering business. It can be a real challenge, but building and maintaining a good relationship with your part-time staff is the key. One great source of part-time staff is college students who are looking for summer jobs or part-time work while they’re in school. They can be a perfect fit for the job and are usually eager to work hard and gain experience.
Profit drivers
- Growing Event Bookings – Caterers are always looking for ways to maximize their revenue by filling their available booking capacity. However, during off-seasons for weddings and holiday parties, it can be a real challenge. But, there are ways to work around this! One option is to offer discounts to attract customers during slow periods. Another idea is to expand marketing efforts to smaller events, such as office lunches. Caterers usually rely on word-of-mouth and referrals for most of their new business. Still, they may also engage in local marketing strategies like direct mail, advertising, and using the Internet to promote their services. Some caterers even go door-to-door handing out free food samples and menus at nearby office buildings. Building relationships and a strong reputation with wedding and event planners and local venue owners can also lead to new business opportunities.
- Managing Food Margins – Caterers need to know their food costs inside out and charge prices that will give them enough profit. This can be challenging as food prices can fluctuate based on weather conditions and local supplies, so caterers must stay up-to-date and regularly adjust their prices. In addition, they must have operational procedures in place to keep track of food inventory and prevent waste due to improper handling or preparation. With careful planning and attention to detail, caterers can keep their food costs under control and maintain healthy margins.
- Efficiently Managing Labor Costs – Catering is hard work and can be extremely demanding during peak seasons or for larger events. To ensure they can meet the needs of their customers, caterers often rely on part-time staff. Having a pool of experienced servers and waitstaff who can be called upon as needed is crucial to delivering quality service. If inexperienced staff are used, it can lead to problems during an event, which can damage the caterer’s reputation irreparably. So it’s important to strike a balance between hiring knowledgeable full-time workers and part-time staff to ensure that the quality of service is high, while avoiding high labor costs.
Recent Industry Metrics (Companies <$5M revenue)
Highlights from this vertical analysis and financial ratios:
- Cash on the balance sheet nearly doubled post pandemic. This may be due to the increased operations in 2022 without having reinvested at this time.
- Days payables decreased during the pandemic and generally maintained that level after the core of the pandemic was over.
- Days receivable increased, nearly tripling, post pandemic resulting likely from weddings increasing in cost and caterers offering more incentives to win business.
If you liked this, subscribe to my newsletter below!
For more information on building financial models see here.
Please contact me here if you found this useful or want more information.