Food lovers with an entrepreneurial itch may not always be able to afford to start a brick-and-mortar restaurant right away. Even with a lack of demand for established storefronts, the costs associated with renting and security deposits remain high in cities, and that is all before you start to brand the space for your food. Not everyone will be able to afford that, but they may be able to start a food truck business. This guide will explain how to start a food truck business and why it may be the best way to get your new restaurant idea off the ground.
How to start a food truck
A food truck is a mobile vending unit with a kitchen to make and serve food. They have been popping up across urban and suburban regions in the United States and are becoming increasingly popular. Many entrepreneurs opt for a food truck because the costs to secure a restaurant location are very expensive while food trucks are much more affordable.
Before you forge ahead, here’s what you need to know about the startup costs, funding options, how to find a food truck and more. [Related Content: 10 Things to Do Before Opening a Food Truck.]
Food truck startup costs
Many factors go into determining startup costs for a food truck business. There are also one-time costs and costs that can vary by location.
One-time startup costs consist of expenses like purchasing your food truck, a register or point-of-sale (POS) system, a truck wrap, website design, office supplies, advertising and public relations and any professional, legal or consulting fees. While this list is not comprehensive, it gives potential food truck owners an idea of some of the upfront expenses.
“While we purchased the food truck itself for just $15,000, we didn’t realize that we’d spent more than double that to have it modified to fit the local fire and health regulations, which vary quite significantly depending on the municipality,” said Rachel Angulo, owner of La Cocinita food truck.
Then, there are recurring costs, such as payroll, ingredient sourcing, generator power for electricity, equipment rental, credit card processing and, of course, fuel. Every new food truck business also has to obtain the proper licenses and permits, which vary depending on location.
While the cost of starting a food truck business varies greatly depending on your specific situation, costs can range from $28,000 to $114,000 to get the business off the ground. This range is significant due to factors like the size of the truck, the number of people operating the truck, the hours of operation and other variable factors. Additional startup costs can be expected when launching, including:
- Insurance: $1,000 to $4,000 per year
- Initial monthly product inventory: $1,000 to $2,500
- Payment processing: $200 to $1,000
- Commissary fees: $200 to $1,200
- Permits and licenses: $100 to $7500
While the cost of starting a food truck business varies greatly, costs can range from $28,000 to $114,000 to get the business off the ground.
Food truck funding options
Acquiring funding may be the biggest challenge you’ll face when starting a food truck business.
Your first goal should be to put together a solid business plan. You should also have good personal and business credit, as this will increase your chances of receiving a business loan.
There are other, more creative ways, too, to get funding for your new food truck business.
Here are some ways to start your business with minimal funding:
- Talk with someone who already owns a food truck and negotiate a lease or rental agreement.
- Start with a low-cost, used cart or trailer.
- Start selling at a farmer’s market, fair booth or pop-up.
- Talk to successful restaurant owners about running a food truck for the owner’s business.
- If your truck idea includes providing a public service or benefit to the community, then look to obtain sponsors.
- You may qualify for a loan advance if you already have a payment processor.
Create a food truck business plan
Every food truck owner should create and maintain a business plan. It should be the first concrete step you take when you decide you want to start a food truck business. This document is important to attract investors, gain funding and get your business up and running.
A business plan for a food truck is structurally no different than the business plan for any other new venture. Every business plan, especially one for a food truck, should include the following elements:
- An executive summary: An executive summary is an introduction to your business; it should provide an overview of your business plan. The executive summary should be concise as the details will be discussed in other sections of the plan.
- Company description: This section should describe who you are and what defines you as a company. Describe what niche you are filling and why your customers will choose you over the competition.
- Market analysis: In this section, you explain who your target customers are, what their needs are, where they are located and how you will attract them to your business. Additionally, this section should explain how your business will impact the existing market and it should demonstrate your knowledge of the existing local food market. For a food business, it is more important to highlight direct and indirect competition; who are your competitors in the neighborhood that sell the same cuisine or sell to the customer base is important.
- Organization and management: Next, you want to detail how your business is organized as a legal business entity, such as sole proprietor, limited liability company or partnership. List the owners of the company and their percentage of ownership. You also want to list key players, such as your management team as well as their experience, salary and prior employment.
- Service or product line: For a food truck business, your primary product is the food you serve. In this section, describe your menu and how you plan to attract new customers. Additionally, consider how your business will evolve and address new market needs. It is also important to plan for seasonality ― if you are thinking of selling food that is popular during the winter you need to consider the demand for that product during the summer and come up with alternatives.
- Marketing and sales: In this section, you want to expound on your marketing strategies. Explain how you plan to spread the word about your business, identify all marketing platforms, such as social media, a website or paid advertisements, you plan to use and how you will gain an edge over your competition. This section must also include your sales strategy, such as menu prices, minimum sales requirements to stay in business and seasonal trends that may affect sales.
- Funding request: This section is required for food truck entrepreneurs seeking investment funds or other types of outside funding. Specify how much money you are asking for and describe, in fine detail, how every dollar will be spent to grow the business.
- Financial projections: While it can be difficult to detail financial projections, especially for new businesses without a financial history, calculate how much money your business will make over the next three to five years.
- Appendix: Not every business plan requires an appendix, but it is a good place to include additional information that you feel is important to convey to lenders or investors. This can include anything from letters of reference to produce photos.
How to find food trucks for sale
Angulo found her truck on Craigslist back in 2011 and, while that is still a great place to search, there are many new resources out there, including:
- Local online classifieds: This is a good option; used trucks are cheaper and if they are local, you can easily inspect them.
- National online classifieds: This will open a lot more inventory but get as many details and pertinent information about the truck from the seller as possible since you most likely won’t see it in person before pickup.
- New custom trucks: While this is the most expensive option, it is the best way to ensure that your truck is up to code and standards and that it can be customized to your specifications.
- Leasing and franchising: You may be able to find a local truck to lease or from a national truck leasing company. Yet another option is to franchise a truck from an established company. However, among the drawbacks to consider are that you do not have control over the product, marketing or menu.
Here are some places to hunt for your ideal food truck:
Mobile POS options
Most food truck customers are used to paying with cash but credit cards and mobile payments are popular. [Related story: Best POS Systems]
“We’ve always used Square and have been very happy with both their credit card processing and their POS service,” said Angulo.
Below are a few options for processing sales, listed from the lowest-priced option to the most advanced.
Cash box and cash-only sales
- Advantages: Low-priced; you can purchase a lockable box for under $20
- Disadvantages: Doesn’t track sales or food inventory; you cannot process card payments
- Ongoing costs: None
Cash box + mobile card processor
- Advantages: Low-priced; mobile processors can simply charge swipe fees, but you’ll need Wi-Fi access and/or a good data plan to connect to the processing service
- Disadvantages: Most mobile processors include a simple inventory system and limited additional features
- Ongoing costs: Credit and debit card processing fees and mobile data fees
Cash box + POS system + mobile processing
- Advantages: Mobile credit and debit card processing, plus sales and inventory tracking
- Disadvantages: An additional monthly service fee and hardware costs
- Ongoing costs: Monthly POS service fee, card processing, mobile data service and possible hardware fees
Related Content: Guide on How to Accept Credit Cards
The advantages of a food truck business
- Business ownership: Numerous tax advantages come with business ownership and, while it is difficult to own and run a business, at least there is a little bit of relief on the tax front.
- Freedom: Choosing menu items, the vendors you want to purchase from, your employees and the events at which you want to vend are just some of the freedoms you enjoy as a food truck business owner. You also have full control of your social media, marketing and schedule.
- Mobility: Being able to bring your business to different locations based on demand during different periods of the day, days of the week, and so on, is a huge advantage, said Angulo.
- Virtual kitchen: With established brick-and-mortar businesses not always able to bring in supplemental revenue through virtual kitchens due to a lack of proximity to a large customer base, a food truck can house multiple brands if an owner is not brand attached.
The challenges of a food truck business
- Time: Long hours are the norm with a food truck business. With issues like shopping, prep, marketing, event booking, cleaning, truck maintenance, accounting and tax obligations, running such a business is more than a full-time job.
- Competition and market: Carefully research your market to increase the chance of success ― you will most certainly have competition with other food trucks.
- Ordinances and zoning: Every area is different in terms of where you can park your food truck and how long you can park there. Make sure you know the rules in each location where you plan on operating to prevent tickets and fines.
- Foot traffic: As a food truck is reliant on potential customers walking by, it can be difficult to plan for sudden changes in demand due to weather or with the hybrid schedule of office workers for example.
Food truck permits and regulations
It is important to research the different areas you are considering for your business location and consider the necessary permits and regulations there.
Here are a few main things to look out for:
- Food safety: You’ll need to comply with local food safety requirements, just like any other restaurant in the area. Contact the local health department to find out more information, such as if you need to prepare all your food in a professional kitchen or if you can use your own facilities. [Related Article: Small Business Guide to POS: Point-of-Sale Systems and Software]
- Seller’s permit: Some states require food truck owners to apply for a seller’s permit, which allows you to purchase food and equipment at wholesale prices without incurring sales tax.
- Zoning and parking: There may be restrictions on where you can park your truck; make sure you research that before setting up shop. There could be commercial versus noncommercial zoning restrictions, parking time limits or distance restrictions from other establishments. Your city and local motor vehicle department can help you.
- Vehicle license: Because your business operates from a vehicle, every driver must be properly licensed and trained to operate the vehicle. Depending on your state and the size of your vehicle, you may have to obtain a commercial driver’s license to legally operate the food truck.
- Fire certificates: If you’re using equipment on the truck to cook food, you will likely need to undergo a fire department inspection. The requirements for a fire certificate vary by state.
- Employee identification number (EIN): If you plan on hiring employees, you will need to apply for an EIN, which is a federal tax ID issued by the IRS to identify a business entity. An EIN also enables you to open a business bank account and start establishing a business credit history.
- Business permits and licenses: As with any business, you’ll need certain licenses to operate your food truck, including a doing-business-as (DBA) and a state sales tax permit, which is low-priced and easy to obtain. To form your business, check your home state’s requirements. For an easy option, try an online service like LegalZoom. To help you decide which legal structure is best for your business, read our guide on How to Choose the Best Legal Structure for Your Business.
Bring the restaurant to your customers with a food truck
Ultimately, whether you decide to visit different locations and communicate with your social media following or only operate on Tuesdays on one corner street, your food truck is a reference point for other people to follow. Leveraging your customer base by providing a high-level quality of food will be the only way to grow your customer base quickly to account for a variation in demand and sudden expenses. Catering orders are a great way to also bring in additional revenue after a certain period of time when you know that a specific weekend will see a significant drop in foot traffic.
Whether you are trying out your lifelong dream of selling sweet pierogies or want to see if pizza slices to go from trucks are scalable, your objective remains the same with an added twist ― every day you’ll be traveling your kitchen to your customers. That can be exciting but also physically draining and you’ll have to account for that every day you operate.