How to Start a Food Truck Business
18 May 2020
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Back in the day, food trucks had a very different reputation from what they do today. Once upon a time, they were termed “roach coaches” and associated with catering the employees of factories or construction sites. Today, food trucks have dramatically transformed their purpose and image. Nowadays, gourmet food trucks have popped up everywhere and brick-and-mortar restaurants are using them to expand their markets, customers and revenue streams.
Starting a food truck business, however, is not much easier than opening a restaurant. You may be able to cut some costs with a food truck, but both types of businesses face strict regulations requiring licenses and permits, hefty startup and ongoing costs and the uphill battle of getting financing. If you’re still interested in this business type, read on to find out how to start a food truck business.
1. Write a Business Plan
No matter what type of business you plan to start, you’ll need to commit significant time, research and energy into your business plan. Drafting your business plan should ideally be your first step. Here’s a general outline of a business plan you can follow:
- Executive Summary
- Company Overview
- Industry Analysis
- Competitor Analysis
- Marketing Plan
- Business Operation
- Funding Request
- Financial Analysis
Each section should contain detailed information that demonstrates your knowledge and commitment to bringing your food truck business into being. This kind of detail, especially financial detail, is very important when you’re looking for lenders or alternative sources of funding. Writing your business plan is an essential step, so find out all the components that go into it with this useful restaurant business plan guide.
2. Get Appropriate Licenses and Permits
When it comes to starting a food truck business, you can’t simply drive a food truck or set up a cart wherever and whenever you want. Local governments, either on the city or county level, have various requirements, including business licenses, health department certificates, vehicle permits and parking regulations you’ll need to follow. Since each locality has its own rules, you’ll need to do some research on a fairly granular level to find out what licenses and permits you need to get.
There are several general permits and licenses that most food truck businesses have to abide by. Here are some typical licenses and permits food trucks need to get:
- Business license: Every food truck needs to get a business license in order to operate in a particular city, county or state. A business license serves several purposes, one of them being that it helps the government identify your business. Another is that a business license assures customers that your food truck has met specific compliance requirements. Check with the local Secretary of State office where you intend to start a food truck business to find out more.
- Vehicle license: You’ll need to make sure the food truck and any of its drivers are properly licensed. You may only require a regular driver’s license, but in some states, depending on the weight and length of the food truck, you may have to a commercial driver’s license to operate the vehicle.
- Health permit: As with any restaurant or place serving food, you must have the health department conduct an inspection of your food truck. Each locality has its own processes and fees for health permits, but the main constant is having your health permit renewed annually, if not more often.
- Parking permit: Most cities or counties have zoning restrictions on where food trucks are allowed to park. Hence why you can’t simply post up your food truck in any neighborhood or an indefinite amount of time. The best place to go for a food truck parking permit is the county clerk’s office.
- Employer Identification Number (EIN): This is a requirement of any business that has employees. So, if you’re not a one-man show doing all the driving and cooking, then you’ll likely need to apply for an EIN. You do this by applying through the IRS website.
These are some of the principal top-level business permits and licenses you may need. Again, all these vary from city to city, county to county or state to state. In some states, you’ll need to get additional permits, like a seller’s permit or a food handler’s permit, so be sure to get very specific in your research.
3. Determine Startup Costs
You’ll need to account for a variety of factors when determining startup costs for your food business. Some costs are recurring, others are one-time costs, while other expenses are dependent on location since different localities charge different fees.
- One-time startup costs: These tend to consist of expenses like purchasing your food truck, modifications to the vehicle, a register or point-of-sale (POS) system, truck wrap and decals, website design, office supplies, advertising and PR, plus any professional or legal fees.
- Recurring costs: These are ongoing expenses such as payroll, equipment rental and leasing, credit card processing and fuel. There are also recurring costs in the form of business licenses and permits, which vary from place to place, but most places require renewal on an annual basis.
- Other startup costs: Though not an exhaustive list, some of these include business and vehicle insurance, inventory of food and supplies, vehicle maintenance, fuel for operating kitchen equipment, business phone and internet service, and more.
Once you’ve tackled what your startup costs are, you can then put together a plan for getting financing. If you don’t know the dollar amounts you need to hit in order to launch your food truck, then you’re unlikely to get funding or ever get your business off the ground.
4. Get Financing
Getting funding for your food truck is often the most challenging step you’ll face when starting a food truck business. Having a solid business plan written and finalized, with financial details worked out, can help a lot. Besides a thorough business plan, lenders are going to want to see that you have good personal credit and business credit, if applicable.
The traditional route for getting financing is through an SBA loan or business term loan from a bank. However, both routes can be very difficult for securing funding, especially if you’re just about to start your business. SBA loans and most traditional business loans from banks have minimum requirements for time in existence as a business and amounts of revenue generated. These stipulations often invalidate a wide percentage of entrepreneurs who have no track record for a business that they’re about to start.
Fortunately, these are not the only methods of getting funding for a food truck nowadays. One of the best alternative methods to a traditional business loan is to fund your food truck through personal and business credit cards. Since these financial products are based on your credit history and income, not time in business, many startups are using credit cards to launch their businesses. Check out some of the top credit cards for launching your food truck.
5. Buy the Food Truck
This step requires thorough preparatory work on your part, namely in the area of budgeting. For instance, a brand-new or barely used food truck could easily set you back $100,000. On the other hand, if you’re working with a tight budget and want to work more incrementally, getting a food cart could be the best place to start, with typical carts costing $2,000.
The reason why food trucks can be so expensive is that health departments apply the same rules for food trucks as they do for restaurants. As a result, your vehicle will either need or already have expensive specialty equipment. If you want to find more affordable food trucks, looking for used vehicles is a great place to start. Here are some places to shop for your ideal food truck:
6. Get Business Insurance
Every entrepreneur should look into getting business insurance for their enterprise. As a food truck, your business will be on wheels, which means you’ll definitely need to investigate the various types of insurance you’ll need. A good place to start is to talk to an insurance agent and explain what purpose the truck will serve. For instance, if you’ll have a fully functional pizza oven inside, that’s going to be a major factor in your coverage.
For the actual vehicle, you typically should only have to get standard car insurance. However, your agent will likely need to modify your insurance policy accordingly to account for other risks and liabilities. For the business, you should get general liability insurance. Some insurance agencies, such as Nationwide, have designed specific food liability insurance programs. Liability insurance helps cover your business in case of incidents like slip and falls, illness from food or equipment loss.
7. Find Parking
In a way, this step is sort of like choosing a location for a brick-and-mortar business. As you research the parking permits situation in your city, also investigate in which part of the city you should, and are allowed to, park your food truck. Food trucks are big, and if you plan to get a full-sized vehicle, you’ll likely run into some issues trying to find parking. It’s critical you learn where you can legally park your food truck, but you also need to research where it makes the most business sense to park your food truck. Business parks, heavily-trafficked streets, outside bars that serve no food, these places tend to be common choices of location for many food trucks.
8. Build Your Network and Expand
There’s more to a successful food truck business than simply setting up shop in busy areas during lunch or dinner. Look for business opportunities beyond the basic approach, such as getting involved in catering special and corporate events, community events, farmer’s markets, block parties, private events, weddings and other opportunities. Typically, event planners will pay you to be on their property during an event, which provides customers with ready access to your food so you can earn money through food sales. Build up these connections so you’ll have a veritable network of customers and businesses who know and want your food.
As you build up your following and develop your brand, you should think about expanding. This can include purchasing more vehicles to operate as food trucks or diversifying into catering. You could investigate merchandising or even franchising, in which you earn money by essentially leasing out your trademark to other entrepreneurs who want to run a food truck for your business. As you continue to grow your business, you can get into areas that go beyond your food truck, such as approaching grocers and local stores about selling your food in their shops.
The Bottom Line
Just because a food truck is smaller than a restaurant and not a brick-and-mortar establishment does not mean it is any easier to start a food truck business. Both have similar business license and permit issues and regulations to abide by. Both require significant investments in startup costs and ongoing expenses, such as equipment leasing and maintenance, business insurance, inventory and payroll, unless you’re running the entire enterprise on your own.
The good news is that food trucks are almost always going to be cheaper to purchase than a brick-and-mortar restaurant. Plus, you’ll likely save money by avoiding a property lease or mortgage, while the mobility of a food truck gives you flexibility that a brick-and-mortar restaurant simply cannot offer. Either way, thorough research and substantial thought into things like sound business plan are necessary. Putting the time and effort in before you launch your business will always help you in the long run.
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