How to Start a Food Truck: The Road to Success
At curbsides across the nation, they’ve quickly become a welcome sight for quick, delicious grub: food trucks. Often sporting unique, no-frills fare with a quick service vibe, food trucks embody the proverbial “yin” to the brick and mortar restaurant “yang.” An extension of one’s kitchen, serving food right there on the street.
It’s true; food trucks tend to pop up in certain cities with a vibrant arts and culture scene with rising rents and gentrifying neighborhoods. Think Portland, San Francisco or Austin, but the trend is starting to shift. Statistics show that while the restaurant industry tends to grow at 2% each year, food truck expansion is close by at roughly 1.5%. With approximately 4,000 food trucks in operation now, and sustained exponential growth expected to take the industry from $615 Million to $2.7 B in the next five years, one can safely assume that food trucks are not a fad, but a lauded restaurant concept.
If you’re an adventurous restaurant owner, you may have already considered starting a food truck. Indeed, food trucks are smaller, and generally features more straightforward menus than their traditional counterparts. However, starting a food truck is far more involved than one might think, and brings with it many unique challenges. Read our guide to learn how to plan for, and establish, a successful food truck.
Startup Costs For Food Trucks
Off the bat, you can expect to spend anywhere from $30,000 to $100,00 depending on the specifics of your food truck. Some of the costs to consider include:
- Your truck/vehicle.
- Insurance for your truck/vehicle.
- Signage, and decals for your truck/vehicle.
- Your inventory and menu.
- Your cooking equipment.
- Propane and generator costs.
- Staffing and payroll.
- Your payment processing software.
- Permits and licenses.
Please note that while there will be immediate costs to starting a food truck, many of these costs will also be recurring, like payment processing fees, insurance, and staffing payroll. Don’t skimp on the planning here, and make sure you plan for everything. In fact, it’s almost always better to overestimate your costs than to underestimate. One of the leading reasons for food truck failure is when operators fail to account for recurring expenses from the beginning and then must scramble to reach equilibrium.
With your food truck’s costs and finances mapped out, you’ll want to research the market for food trucks in your particular area. Do you have much competition? What niches do your competitors fill and how can you compete with them? Do they serve a specific ethnic food? What will you offer that’s different?
On the flipside, do you live in an area with no food trucks? This deficit could be a problem. Sure, it might make you the trendsetter, and give you a monopoly on the market, but it also might mean an uphill battle as you fight to create visibility and interest in a “new” concept that hasn’t hit the area yet, and consumers aren’t familiar with.
Ultimately, it’s important to remember why customers choose food trucks: they’re convenient, novel and direct. Many of them possess a sort of “best-kept secret” vibe, an alternative to the sit-down restaurants and chains in town. You want to make sure there’s an actual demand for this fare before you start a food truck.
Food Truck Permits and Licenses
While these costs may be on the lower end compared to your other equipment, (ranging from $100-500 a permit) they’re essential. Without them, you risk violating city codes and ordinances, which will cost you much more in the long run. The specific permits and licenses you need will vary by state and city, and the list isn’t comprehensive. However, you cannot operate without the following:
Food Safety Permit
All restaurants require these, along with regular safety inspections to keep the license current. It’s important to remember that while all restaurants receive a heavy inspection, food trucks are under even higher scrutiny because of the connotation of “street food.” These registrations usually don’t cost much, often in the $25 range. Keep your food truck clean and your permit on hand at all times.
Zoning and Parking Permits
One significant advantage of starting a food truck is the freedom to move locations and maximize guest traffic. However, you want to make sure you’re operating within the bounds of local laws. You can expect bigger cities like New York or Los Angeles to have reasonably strict zoning and parking permits which dictate where you can operate, and for how long. These permits will also be more expensive. The bigger the city, the more specific the requirements become.
Regardless, once you’ve determined where to operate, you’ll need permits to park your truck there. Don’t take chances here, either. If you’re in a competitive area, it’s not uncommon for competing truck operators to report those they believe to be skirting these licenses, resulting in fines and other penalties. Don’t leave it up to chance. Protect yourself with paperwork.
Business Permit or License
All businesses need a license to operate, whether they’re on wheels or not. The exact requirements for this license will vary by city and state and will require an application and a fee. You can expect to pay anywhere from $25 to $7000 here, depending on the type of business and projected profit margins. You can also expect to pay a registration fee, which is usually around $50. We will tackle this in greater depth later, but it’s best to have a solid business plan and proposal when obtaining a business license as they will likely ask you questions about what you plan on earning, what you will serve, and more.
Food Truck Financing
It’s likely you’ll need some startup capital to start a food truck, and for many, this means turning to loans and financing to do it. There are numerous options for restaurant financing and credits, which all have certain benefits and disadvantages.
These loans often let you purchase technology and equipment for your truck, with 100% financing on it, so you don’t have to pay all of it out of pocket. The collateral for these loans is usually the equipment itself; thus you aren’t placing any personal assets on the line. You will often require a down payment for these loans though.
Equipment leasing may be a better option for you. It’s important to remember that you may be required to keep the equipment until the end of the lease term and replace it with new equipment when the term ends.
For your actual inventory, you may decide to get a loan or a line of credit. Since your inventory tends to be sold off more quickly (unlike equipment), you can expect the repayment window to be short. Like equipment loans, the stock itself is usually the collateral here. Remember though, a short-term loan will have a higher interest rate, and some require a UCC lien, which means you risk losing your truck if you miss any payments.
These loans are for your discretion and tend to be short-term with a maximum amount of $250,000. Ideally, you’d probably want something with a longer-term repayment schedule, but if you’re looking for just straightforward capital, this may be your best option.
Small Business Administration Loans
You can use these loans in various ways, as they tend to feature very generous borrowing limits with low-interest rates. The disadvantages here are they usually require a large down payment (10% in some cases) and a long time to process. Where many loans take just days to procure, an SBA loan can take weeks or even months.
Merchant Cash Advance
These loans differ from those above in that they’re an advance against your truck’s future sales. They provide the funds, and you repay them as a percentage of your daily revenues. These loans are suitable for those with low credit scores, and there’s lower risk if you’re having a slow week or month. The percentages adjust to reflect it. These loans have very high APR percentages (50-250%!), though, so in the long run, you can expect to pay a lot more.
Lines of Credit
A line of credit for your food truck would work the same as a line of credit in any other context. They’re funds you can access “as needed” and you only pay interest on what you take out. For many, merely having the credit line provides peace of mind. You will need to apply for these lines of credit and remember that charges may come with interest.
A Clear Business Plan
Whether applying for business licenses or loans, you’ll need a healthy business plan. These plans give lenders and licensors confidence in your business and let them know you’ve considered the future and all its possibilities. Even if you aren’t applying for funding, though, a healthy business plan will help in your efforts.
Your business plan should include:
- Your credit score
- Any outstanding debt you have
- Your net worth
- Market research
- Staffing needs
- Your offerings and brand differentiators
- Your financial projections and goals
Remember that a thorough business plan, along with factors like your credit and debt, will determine your funding. Don’t expect to whizz right through this step, as it requires ample research, honest evaluation, and tact.
Concept and Brand
Since food trucks already act as an alternative to the traditional brick and mortar style restaurant, they’ve already got a brand in them. Still, a strong name, concept, and brand is crucial to keeping your food truck on the map. Some art and logo work will help transform your truck from a plain vehicle to something alluring, enticing and wholly identifiable as a place to procure food. Examine other food trucks and their names.
Since food trucks often present a “down home” feel, their names reflect it. “Hank’s Hot Dogs” for example. Others go for more esoteric, enticing names like “the ambivalent bull.” Your ideal market will help you determine your specific brand and name, but don’t let yourself default to “the food truck with the burritos.” You want your customers to be able to identify you by name and to recognize your signage in the wild.
Food Truck Marketing
That’s right. Food trucks need marketing just like other restaurants do, even if its a bit scaled back. Word of mouth is powerful for food trucks, but in today’s internet age, there’s no reason you can’t establish a healthy online presence. Many food trucks use social media platforms (like Twitter or Facebook) to let customers know where they’ll be that day.
It’s also not uncommon for food trucks to feature a simple website with a listed menu, contact info and even a calendar detailing their presence at local events and such. Since food trucks present a more “direct” approach to food, your customers will appreciate any opportunity and platform they can use to reach you, learn more about you and your brand, or contact you.
The more payment options you provide your customers, the more opportunities you have to make money, and the more convenient you are for them.
Some food trucks go the traditional way of the “cash only” street vendor. While this sidesteps any installation costs or payment processing fees, it also opens you up to inaccurate reporting, theft and other risks. In 2018, it’s difficult to recommend a “cash only” approach with so many better options available.
You may use a cash-box along with a mobile card processing software, (like a tablet card reader) giving your customers the opportunity to pay with cash or card. You’ll likely pay recurring costs on the card software and a connection to the internet to process payments. Deciding which mobile payment platform is best for you might require some side-by-side comparisons. This “hybrid” setup may be a good, intermediate option for some though. You may consider working the prices to account for the transaction fees associated with card processing software.
A point-of-sale system, coupled with card processing software, helps you operate a bit more like a traditional restaurant. It eliminates clutter and inaccuracies and can even give you detailed data analytics and reporting, to aid in making improvements to your restaurant. Do what’s right for you, but remember that when things get busy, a POS can help you get orders in more quickly and eliminates much of the guesswork that comes from doing things “old skool.” Plus, your customers will likely appreciate being able to pay with a card instead of cash. It’s just easier.
Advantages of Starting a Food Truck
You’re a smaller operation and can make changes, like branding and menu tweaks, much quicker than a brick and mortar restaurant can. You also don’t have to worry about any table management, interior decor, or anything equivalent.
Freedom and Autonomy
You’ve got reasonably independent business ownership. You’ve got a small, manageable operation and can make the decisions you need to without having to pass them up a chain of leadership and bureaucracy.
You’re mobile. You can change locations as you see fit, and go where the money is. You aren’t rooted in any one area.
It’s a growing market. As mentioned before, we can expect to see about a 1.5% expansion in the food truck market every year. These establishments are only becoming more popular, so the earlier you get in on it, the better.
Cons of Starting a Food Truck
There’s a substantial time investment. What many don’t realize is that even though food trucks are relatively small, an operator will often work more extended hours than one would at a brick and mortar. When a brick and mortar closes, the staff cleans, locks up and goes home. In a food truck, your day doesn’t end at closing time. You’ve still got to transport your truck to and from your location, refuel and even provide maintenance on your it. It’s a rewarding job, but do not fall into the trap of thinking it’s an easy alternative to running a brick and mortar restaurant. It’s not, and this underestimation is one reason many food trucks fail.
Always on the Move
You can’t always expect customers to come to you. If a location isn’t working, or if there’s a local event, you’ve got to be ready to invest the time relocating and setting up. While some food trucks have built up enough of a reputation that they can operate from the same corner every day, it takes a long time to get to that point. If you’re not willing to chase customer hotspots, you risk being forgotten or crowded out by other trucks. You cannot be complacent here; this takes foresight and a lot of planning.
It’s a growing market, which means its competitive. You can expect other operators to get in on the space you’re occupying, which means you need to be continually re-evaluating your market and brand to be viable.
You’re subject to many of the elements brick-and-mortar restaurants aren’t. When the weather is terrible, you can expect poor customer turnout. You’re also subject to the laws of the city regarding where you can operate. You’re also continually putting miles, wear and tear on your vehicle moving with the customers.
Ready to Start a Food Truck?
Ultimately, the food truck market will continue to grow as guests crave unique, convenient dining experiences. This creates significant opportunities for guests and potential operators to start a food truck. Knowing what to expect, both in preparing for and operating a food truck will help you stay on top of a rapidly developing restaurant segment.
About the Author
Dylan Chadwick is a Content Marketing Specialist at QSR Automations. He graduated from Brigham Young University with an English degree and journalism focus and loves to write about technology. When left to his own devices, he enjoys loud music, adorable dogs and documentaries about the aforementioned.