Posted by Neha De
November 20, 2020 | 12-minute read (2264 words)
The food industry has gone mobile, just like the rest of the world. With a projected value of over $3 billion in 2020, food trucks are huge contributors to this change, according to a report by Food Truck Nation. Low investment costs and changing consumer attitudes toward brick-and-mortar food outlets are the top reasons for the popularity of food trucks.
Food trucks are especially in demand now that many physical restaurants have shut down, but they were in vogue even before the coronavirus pandemic hit the world. According to IBISWorld’s Food Trucks in the US market research report, food trucks bring in $804 million every year, and the industry has grown over 12 percent since 2009.
The Expense of Starting a Food Truck Business
Just like most businesses, starting a food truck requires an investment. In addition to culinary skills and good management techniques, you must also possess solid financial practices before venturing into a food truck business. Therefore, it’s crucial to explore the various costs involved and take all the essential steps in order to ensure its success.
While the costs could vary depending on the state, type of equipment, legal fees, customization and niche, according to data collected from Square and CNBC, here are some projected costs associated with launching a food truck business:
- Vehicle costs: Vehicle costs will vary (+/- $20,000) depending on the make and model of the vehicle, as well as on the basis of whether you decide to go with a new vehicle or a used one.
- Equipment costs: The cost of equipment can go up to +/- $45,000, as you may have to install commercial kitchen equipment inside the vehicle. This could include installing a refrigerator, fryers, oven, sink, stovetop, pots and pans, other cooking utensils and cleaning materials, depending on the type of food being served.
- License and permit costs: Getting the necessary permits and licenses can set you back by +/- $25,000. However, the total cost will typically depend on the area. Big cities typically require higher fees than smaller towns. Business licenses, food service licenses, insurance and parking permits are some of the main contributors to license and permit costs.
- Inventory costs: At the beginning, you may have to shell out anywhere between $1,000 and $2,000 per month for purchasing menu and packaging items. Food ingredients, serving utensils (such as plates and spoons), napkins and packaging materials are some examples of inventory costs associated with a food truck business.
- Operational and maintenance-related costs: There are myriad factors that go into the daily operations (and maintenance) of a food truck. Some components of operation costs are lighting, a portable water system, gas heating/air-conditioning, equipment and vehicle repairs, fuel expenses, cash register or POS (point of sale) machine, and payroll. These expenses can range from $500 to $10,000.
Overall, launching a food truck business can cost you approximately $100,000. You can either bootstrap the venture by setting up a small cart at the local farmer’s market or you can take out a small business loan.
Advantages, Challenges of Opening a Food Truck Business
Let’s begin by listing the advantages:
- Tax deductions: As a food truck owner, you can deduct various expenses on your taxes that are not available to standard restaurant owners, including the vehicle itself and rental fees for its storage.
- Mobility: A food truck allows you to move your business from one place to another. This lets you expand your customer base beyond one location and increase your potential for advertising.
- Flexibility: As a food truck owner, you have the flexibility of bringing fresh food directly to festivals and other events without renting equipment. You also have the option to adjust your menus and schedules based on the requirements.
Now, the challenges:
- Zoning laws: It can be challenging for you to stay up-to-date with various zoning restrictions and local ordinances regarding how long you can remain at a single location and where you can park your food truck, among others.
- Competition: Since the food truck market is booming, it can be tough to break through and come up with a concept that will stand out from the available options.
- Long working hours: A food truck business can require several hours of location scouting, event booking, cleaning, maintenance and a lot more.
Steps Involved in Opening a Food Truck
Starting a food truck business can be difficult, but the following steps can help you get started on the right track toward establishing a successful venture.
Step 1: Research and analyze the existing food truck scene: Sixty percent of restaurants fail within three years of operation, and food trucks are no exception. To ensure this doesn’t happen to you, invest time and money in researching the market. Market research and analysis help with identifying existing food truck/restaurant concepts and businesses, what’s currently missing in the market, the most profitable target group, understanding what people typically buy, how they buy and consume food, what the competitors are doing, legalities of running a food truck in the chosen targeted city, available spaces that witness the target crowd and so on.
Step 2: Find your niche: Market research will help you figure out what’s missing from the market and identify the most profitable space. Merge this data with your own specialty and unique style in order to determine the cuisine or concept you’ll be serving.
Step 3: Create a business plan: After establishing your concept, get started on the food truck business plan so you can work out the details of your business before investing in it. A business plan also serves as a formal document to present to potential investors, if needed; therefore, it is crucial to lay out the details meticulously.
A typical food truck business plan includes the following elements:
- Executive summary: This section establishes your business’ identity (what it does and what gaps it fills), lays out your goals and what kind of food you want to sell and why. It can also include what sets your business apart from your competitors.
- Company description: This section includes such information as legal entity type, date of formation and location.
- Industry analysis: This section provides details on your target market, including the size of the market and current trends.
- Customer analysis: This segment includes details about your target customer, including demographics.
- Competitive analysis: This section contains information about competitors, their strengths and weaknesses, and what gives your business an edge over your competitors.
- Management team: This section has names and other details of your management team, if applicable. It can also be used to identify employees you may hire in the future.
- Operations plan: Here, you’ll share the processes your company goes through every day in order to be profitable. It can also include any goals you may have for the future.
- Marketing plan: This section features your advertising plan and different marketing tactics you plan on using to draw in customers.
- Financial plan: This section should include the projected growth and financial plans for your company. It should also add how your business brings in revenue. If this business plan is meant to raise capital, include details about how much you need to raise and how those funds will be used.
Step 4: Raise money: If you are looking to raise funding for your food truck business, consider these options:
- Crowdfunding websites such as Kickstarter and Indiegogo
- Community sponsors
- Getting a business credit card
- Family and friends
- Small Business Administration (SBA) microloans
- Equipment loans and financing programs
Step 5: Apply for various licenses and permits: As with any food business, obtaining proper licenses is extremely critical, and it may be worth your time and money to hire a business consultant or lawyer to guide you through the essentials.
Food truck permits and licenses will vary from one state to the next, as each region has its own unique laws concerning food truck operation. Therefore, it’s best to check with your local jurisdiction like the Health Department, the Chamber of Commerce and the Department of Motor Vehicles (DMV) office to find out their requirements.
While working with your DMV to establish your parking permits and registration, be sure to ask about parking limits and restrictions in your area, as well as areas where overnight parking is allowed.
Here is a list of typical permits and licenses that you may have to apply for:
- Business License: A business license is a basic requirement for starting a food truck anywhere in the world. While any business entity can be used to start a food truck, the majority of operators choose either sole proprietorship, an LLC or a cottage food business designation.
Note that for starting a cottage food business, there are limits to the sales volume you can generate in one calendar year.
- Employer Identification Number (EIN) or Social Security Number: If you plan to hire people, you will need a valid Social Security Number or an Employer Identification Number (EIN) from the IRS.
- Driver’s License: A valid state driver’s license is required for areas where you wish to operate your food truck, since you will be driving it around.
- Health Department Permit: This permit validates that you are have all the necessary processes and equipment in place in order to serve safe food from a mobile unit. In most areas, this permit will have to be clearly displayed outside the truck window when serving the public.
- Commissary Letter of Agreement: Some places require starting each service day at a commercial kitchen. This agreement certifies that you have access to a facility used as a supply for fresh water, food preparation and storage, and waste water and trash disposal.
- Standard Operating Procedures Document: This document requires you to provide the methodology used to prepare each item on the menu, as well as the sanitization and cleaning methods.
- Fire Certificates: Some cities require a certificate by the fire department to verify that it’s safe to operate a food truck in the area. The fire department usually corroborates that there is a fire extinguisher in case of emergency and fire suppression system onboard the truck, as well as inspecting the electrical wiring.
- Parking Permits: A parking permit is needed in some places for parking and selling food on certain streets and during specific times.
- Special Event Permit: Concerts, sporting events, festivals and even farmer’s markets often require a special event permit (also called a vending permit). This temporary permit allows you to serve food for the duration of an event.
- Certificate of Insurance: Food trucks owners are required to acquire and carry their certificate of insurance onboard the truck every time they vend. There are two types of insurance required on a food truck:
- Commercial auto coverage, which protects the food truck from vandalism, theft or in case of an accident.
- General liability insurance, which protects the food truck company from injuries to customers and property damage. In most areas, $1 million in general liability coverage is required.
- Food handlers permit: This permit is required by all food truck owners handling food preparation or storage.
You can also find information on business licenses and permits in your area on the SBA website. On the website, type in the city and state where you’ll be doing business and select “restaurant” as the business type. It will give you a list of items you’ll need to run your food truck and the links to your area’s government pages as well as the specific departments you’ll need to connect with.
Step 6: Buy a food truck: Here are some aspects to consider when selecting your food truck:
- Whether to go for a new or used vehicle
- Whether to own the truck or lease it
- Choosing a reputable food truck dealer
- Selecting customizations for the truck
Step 7: Purchase equipment and supplies: Typical items essential for producing your products and keeping your truck operating efficiently are:
- Cooking equipment including grills, fryers, cooking ranges, microwaves and toasters.
- Warming and holding equipment such as soup kettles, countertop food warmers and fry dump stations.
- Food prep equipment such as knives, cutting boards, pots and pans, work tables, food processors, turners and thermometers.
- Serving equipment like cups, to-go containers, napkins, food trays, disposable utensils, serving utensils and condiment dispensers.
- Refrigeration equipment including prep table, countertop glass door refrigeration and undercounter refrigeration
- Janitorial equipment such as wet mats, sinks, sponges, trash cans, sanitizing chemicals and mops and brooms.
Step 8: Select a POS system: A point of sale (POS) system allows you to accept credit cards directly from your truck, but most require access to the internet. While you can choose to accept only cash, it may limit your customer base as these days customers are less likely to have cash on them.
Step 9: Marketing and advertising: There are several marketing techniques you can use to boost your brand awareness in the public eye. Here are some ideas for food truck marketing:
- Make your eye-catching logo highly visible.
- Design a bold menu board that is legible, appealing and clearly displays your food.
- Create a website that features an “About Our Company” section, your regular locations, photos and so on.
- Create social media accounts to notify your clients about events, see pictures and interact with your company.
- Set up your food truck at unique locations.
- Get featured at community events like local food truck festivals and catered parties to familiarize customers with your brand.
- Sell merchandise, such travel mugs, T-shirts and stickers, with your logo or slogan on it.