Open a Food Truck: Operational and Financing Tips

Food trucks are commonplace in both small towns and large cities, and they provide a wide variety of cuisines, ranging from inexpensive Thai street food to upscale French crepes.

Becoming a food truck entrepreneur can be the best choice for you if you have a strong connection to your neighborhood, value versatility, and don’t have much money to put down a restaurant business (the startup costs associated with a restaurant are notoriously high). Food trucks offer a drastically cheaper alternative to starting a conventional restaurant in terms of startup costs. And, even better, some of the best food trucks are able to open physical locations once they have proof of concept that their restaurant idea works. Here is what we’ll cover in this look at the operational and financing logistics of opening a food truck:

How Much Money Is Needed to Begin Operating a Food Truck?

In order to start a business, you will need to price out exactly what the startup costs are going to be in advance. This is a core component of any good business plan. You will want to take into consideration all of the expenditures associated with the operational costs of a food truck and include those costs in your overall budget projections for the initial stages of running your food truck.

The following is a rundown of financial costs that owners of food trucks will incur when getting started:

Vehicle

The vehicle itself will probably be the item with the highest price tag that you buy (or trailer). The price of the truck may vary anywhere from $50,000 to $175,000, depending on the equipment that is included as well as the condition of the vehicle (i.e. are you buying new or used and if you are buying used, what condition is the vehicle in).

This is not a small upfront cost by any means. However, it will typically be the biggest upfront cost that you will have to cover in order to get your food truck operation started. And this is a much lower cost than the cost of starting a physical restaurant, which can range from $175,000 to $750,000+.

License

The amount of money required to get the necessary permits and licenses might range anywhere from a few hundred to several thousand dollars. This all varies based on location, and the differences can be quite drastic. In the city of Boston, for instance, the cost of acquiring all of the essential permits and licenses for a food truck is over $17,000. On the other hand, the cost is around $600 in Indianapolis, meaning its licenses and permits are 29x more expensive in Boston than in Indianapolis!

Equipment

Create a detailed inventory of the components and accessories that your vehicle will need and be sure to keep track of the associated costs. Your planned menu items should eventually serve as the inspiration for your list. Depending on what sorts of food you plan to make, obviously, the kind of equipment you need in the truck will vary.

If the cost of the equipment is beginning to make you feel overwhelmed, keep in mind that many financial institutions provide substantial loans for purchasing equipment specifically for this reason. We’ll discuss these sorts of financing options later in the article.

Don’t forget to include everything, from knife sets and takeaway containers all the way down to countertop barbecues.

System for the Point of Sale

This system represents a significant portion of the initial investment for the food truck. A dependable point of sale (POS system) is something you will need to invest in since you will want a simple and efficient method for consumers to pay you. There are tons of great POS systems on the market nowadays, many of which are designed specifically for food trucks and restaurants. So be sure to do your research and choose one that has all the features you need or think you may need in advance. It is much easier to choose the right system in the beginning than to try to migrate over to a new system later on.

If the system needs you to have Wi-Fi, check to see that you will have easy access to it wherever you want to park your vehicle.

Truck Design

Truck design will be a huge factor in enticing potential customers to come and try your food. There is no doubt that people use visuals as a way to decisions, and an appealing truck exterior can make all the difference. There are a lot of options for how you can design your truck.

You have the option of either doing this with a vinyl paint wrap, which is a little more costly but lasts for a longer period of time, or you can paint your vehicle. A high-quality vinyl wrap for your food truck typically costs around $2,500 to $5,000. However, with the right design, your return on investment could be huge.  

When deciding on a final design, make sure that your design is an integral element of a bigger food truck idea, complete with an attention-grabbing logo and other marketing literature that is part of a consistent branding strategy.

If you have some extra money in the budget, you may want to think about employing a custom food truck builder that specializes in the field. Not only will they assist you with designing and outfitting your vehicle, but they also can help you create a truly eye-catching truck.

Food

The actual food is another variable expense that will change depending on what you choose to serve. Estimating the supply of each ingredient you will need is definitely one of the hardest parts of any food operation. Typically, this is a skill that will come with time as you start to figure out what the demand is for each menu item and how many ingredients you will need to have on hand on any given day. It’s not easy to master how much food you need to order.

Employees

Take some time to think about the size of the staff that will be required to operate your restaurant as well. You will have to take into account compensation and any benefits you will provide them with. Ideally, you will be able to provide a lot of the early manpower yourself when it comes to operating the food truck. However, over time, you will likely need at least a few employees to assist you as you get off the ground and running. For example, if you plan on being the chef, then you will need someone to take orders and serve the food. Or, if you plan on handling that part of the equation, you’ll need a good chef to be able to execute the recipes you have in mind.

Running a Food Truck Business

It is important to keep in mind that during the setup process, there is a substantial amount of paperwork that needs to be in place to ensure that you are operating legally. By completing all of the necessary documentation, acquiring the proper insurance, and abiding by local and state regulations and ordinances, you can ensure that your company is in compliance with all applicable state and municipal regulations.

Insurance for Mobile Kitchens

The owners of food trucks are required to have both general liability insurance for their companies as well as vehicle insurance for their vehicles. You’ll want to look carefully into different pricing options and coverage to find out what suits your needs. You may consider an insurance broker as part of this search to help you find the policy that matches your individual circumstances.

Restrictions

Conduct research about the precise regulations that apply to food truck operators in your area. For instance, in the city of Seattle, food trucks are prohibited from doing business within fifty feet of a restaurant, but they are required to park within two hundred feet of a public lavatory.

Before you start operating, you will need to know all the local ordinances to ensure that your business is operating in compliance. Otherwise, you could receive business damaging fines.

Pre-Planning Tips and Tricks

Starting a food truck business is not that much different than having a brick-and-mortar restaurant (except for the substantial reduction in startup costs). There are a lot of areas to take care of ranging from business financing, food services, kind of food options, business ideas, and food safety.

Do some market research

Learn about your target market in order to determine what it loves (and doesn’t like) and how you might approach them to sell your products or services. What sort of cuisine is popular right now in your city? Or, alternatively, what cuisine is not being offered yet, but which you think people would enjoy? Think about how your food truck concept would fit into this market. What niche would it be servicing? Is there enough demand?

The next step is to investigate the competition in the region by looking into the other food trucks and restaurants that are in the same market as you. If other restaurants are in the same market as you, then you should check into them as well. If there is a glut of Italian restaurants and food trucks in your city, odds are you will not want to open up an Italian food truck. It will be very difficult to differentiate yourself from the competition and drive business under such circumstances.

Do a SWOT analysis to determine where your food truck has the most potential for growth.

Create a plan for your company

Your business strategy will serve as the compass that guides your mobile kitchen. When you begin your new company, it is helpful to have a written record and food truck business plan outlining your most important goals and objectives, as well as the methods you intend to use in order to achieve those goals in both the short term and the long term.

Create a unique menu

Since you do not have a large amount of room for food preparation, your menu has to consist of just a few essential products that can be cooked in a constrained area. This means you will want to focus on unique items that are delicious and will set you apart from your competition. The menu of a food truck is critical. You may want to do some market research and get feedback on some of your best recipes before starting your food truck, since having a great menu that customers enjoy from day one will be critical. You want to make sure your food truck makes a good first impression by offering the best quality food right at the beginning. It will be much harder to run a successful operation if you have to overhaul your menu one or more times after your launch.

Another thing to keep in mind is that, because your customers will be waiting outside your truck while you prepare their food, you need to be sure that the foods you want to sell can either be prepared in advance or cooked in a short amount of time.

Create a Marketing Strategy

Developing a good marketing strategy will be incredibly important. Are there local food fairs that you can attend to spread the word and give out samples? Where can you post fliers? Do you already know where you plan to park your truck each day of the week to maximize foot traffic?

Indeed, particularly in the early days, marketing will be half the game in terms of creating a successful food truck operation. Social media and online marketing will be critical, but don’t forget about local grassroots marketing as well. Word of mouth, physical advertisements, and more will be your bread and butter for spreading the word cheaply and efficiently.

What Financing Options Are Available?

Odds are you may need to tap into some form of financing to get your food truck off the ground. Fortunately, there is a wide range of financing options available to individuals looking to get started, each of which has its own structure, terms, and conditions.

Loans offered by the Small Business Administration (SBA)

Small Business Administration (SBA) loans are a great resource for individuals looking to start a small business. Because they are backed by the federal government, they are easier for small businesses to obtain than traditional brick-and-mortar loans. However, this doesn’t mean they are a walk in the park. They still require a lengthy application process and business owners need to prove they have a series of qualifications.

One of the advantages of the SBA is that they only allow lenders who meet their stringent qualifications to lend money through the program. This can give you added confidence that your loan will be from a quality lender.

While the SBA offers a wide array of loan options, SBA Microloans can be ideal for food truck startups, as they are smaller loans that are more easily obtainable. They offer borrowers up to $50,000 in funding and are often given to startup businesses looking for their first loan.

Business Term Loan

Term loans are another options that small businesses can look into when starting up a food truck. Borrowers are given the opportunity to get a lump sum amount via the use of a term loan, which will then be returned in its whole at the conclusion of a predetermined term length.

Terms loans can be obtained from both brick-and-mortar banks (where qualifications and requirements will be stringent) or alternative lenders (where requirements will be significantly more relaxed, but interest rates may be higher). These are the most traditional of all loan types and are a common resource for startup businesses.

Line of Credit

When compared to companies that have an established track record financially, newer, smaller enterprises often have a more difficult time gaining access to commercial lines of credit. However, this doesn’t mean they are unattainable.

Lines of credit give businesses a set amount of money they can draw from at any time. Then, once they repay what they have borrowed (plus the associated interest), they can draw money from the line again. This makes them a great way for businesses have to quick and easy access to capital and cash flow when needed.

Equipment Loans

Equipment loans are one of the best resources available for food trucks. With equipment loans, the equipment you are purchasing serves as collateral on the loan. This reduces the risk for lenders, as they know that even if you default there will still be an asset that they can recover some of their money from.

Personal Loans

Personal loans are offered by the vast majority of financial institutions, including banks and credit unions. When determining whether or not to approve you for a personal loan, lenders look at both your credit score and your personal credit history.

You can often apply online with the banking institution of your choice. When compared to a loan for a small business, a personal loan used to establish a food truck may be simpler to get. However, the size of the loan will typically be much smaller and there are risks associated with personal loans. In particular, if you default on the loan, you will be personally liable for it, which means it may put your assets at risk. One of the core benefits of having, for example, an LLC is that it helps protect your personal assets in the event of bankruptcy. Using personal loans will remove a lot of these protections.

Like most loans, interest rates may vary quite a bit depending on creditworthiness. Candidates who have good to exceptional credit are often given the most beneficial terms when applying for loans.

How Much Money Do Food Trucks Make?

Food Truck Empire reports that thirty-four percent of food trucks generate a gross revenue of between one hundred thousand and one hundred fifty thousand dollars. And thirty percent earn between one hundred and ninety thousand dollars.

You need to do a break-even analysis as well as a consistent cash flow analysis if you want to determine whether or not your food truck business is profitable. It is important to pay strict attention to the costs of labor, meals, licenses, and any other continuous business expenses.

Your company’s sustainability, stability, and profitability over the long term may all be evaluated with the use of financial analysis, which is another helpful tool.

Overview

Like any other business, starting a food truck requires hard work, perseverance, and dedication. It’s not easy work and you will have to combine culinary expertise with business savvy in order to make it work. However, that doesn’t mean it’s out of reach. There are thousands of incredibly successful food truck companies – your food truck concept could be the next one!

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