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Updated on Friday, May 31, 2019
Food trucks are the focus of festivals, neighborhood events, movies and TV shows. And their trendy appeal doesn’t seem to be diminishing anytime soon, which means there’s room for growth if business owners are willing to do the work it takes to stand out in a crowd.
The food truck industry in the U.S. is expected to reach $1 billion in revenue in 2019, according to IBISWorld, an industry researcher. Nearly 24,000 food trucks and their owners can benefit from increased consumer spending, but also must deal with increased competition.
“Probably a large misconception most people have is, first of all, that this is going to be easy,” said David Stuck, co-founder of The Tin Kitchen food truck in Charlotte, N.C.
Stuck is also the chief operating officer of Tin Partners, a food-services group that Stuck and his partner Nick Lischerong launched following the success of the food truck. Tin Partners offers catering and event planning services, as well as culinary consulting.
When Stuck and Licheron opened The Tin Kitchen in 2010 they had trouble finding places to park, as the food truck scene hadn’t yet taken off in the city and businesses didn’t want trucks on their property. Now, there are three Tin Kitchen trucks among the dozens of trucks driving around Charlotte, similar to cities across the country.
“Just be aware that there is a tremendous amount of competition at the moment,” Stuck said. “You better be able to cook good food and you better have a good plan or you’re going to flounder.”
7 steps to start a food truck
To get your food truck up and running, there are several steps to follow. Here’s how to get the process started.
1. Set up your business entity.
When starting a food truck business, you would need to choose a structure, or entity, for your operation. The structure you choose would impact how much you pay in business taxes and whether you would be personally liable for the business.
A limited liability company, or LLC, is a common entity choice for food truck owners, said Zana Tomich, a business attorney and founding partner of Detroit-based law firm Dalton and Tomich. According to Tomich, an LLC isn’t as formal as other entities, like a corporation, but it would protect you from personal liability.
2. Check your state and city regulations.
As a mobile food establishment, a food truck may need to follow state and local rules, Tomich said. In her home state of Michigan, food truck owners not only need permits to operate in the state, but also local approval to set up shop in a specific city. Focusing on a single city, at least at first, might make the most sense for new food truck owners who may not have the resources to juggle multiple municipalities with different sets of rules.
“Usually food truck operators will focus on one place to make sure they’re within the bounds of the rules,” she said.
On average, food truck owners in the U.S. must complete 45 separate government-mandated procedures to start and maintain the business for one year. In that year, owners spend more than $28,000 on permits, licenses and ongoing legal compliance, such as regular safety and health inspections and vehicle registration, according to research from the U.S. Chamber of Commerce Foundation.
To obtain operational licenses, you would likely need to start with your state agency, which varies by state, Tomich said. In Michigan, food truck owners must first go to the state department of agriculture, but owners in other areas may need to start with their state’s secretary of state office, she said.
Next, your local health department would need to approve your food truck. Then, you’d need to make a visit to your city planning and permitting offices to get additional approval to park in certain areas of the city or on private property, Tomich said.
“Once the state permits are obtained, which are a little more cumbersome, going through the local permitting process is pretty straightforward,” Tomich said.
3. Purchase a truck.
Purchasing a used food truck is often an economical option for new business owners. You could find a truck for as low as $15,000 to $20,000, though it may not have the layout and equipment needed for the type of food you plan to prepare, Stuck noted. For instance, Stuck initially purchased a former barbecue truck, which wasn’t outfitted to make tacos, The Tin Kitchen’s primary offering.
“If you’re doing scoop-and-serve barbecue, that’s different than cooking things to order,” he said. “We sort of forced it to work.”
If you have a bigger budget, you could buy a custom truck from a food truck manufacturer. A brand-new truck could cost between $50,000 and $150,000, but you’d be able to design the kitchen layout and install equipment that works best for your business, Stuck said. You may be eligible for financing to ease the purchasing process — we’ll discuss financing options for food truck owners in a later section.
Your kitchen equipment would depend on the type of dishes you plan to sell. Common food truck appliances include:
- Pots and pans
- Storage containers
- Knives and other utensils
How you arrange your equipment is also crucial, said Stuck. Work stations should be organized in a way that allows you to quickly prepare and serve food to waiting customers. In addition to kitchen equipment, you would also need a point-of-sale system to take orders and a generator to power the truck with electricity.
4. Buy insurance.
Several types of business insurance policies exist to protect certain assets, like your equipment, inventory and personal property. According to Tomich, as a food truck owner, you should at least consider purchasing general liability insurance. General liability insurance protects business owners from property damage and bodily injury claims, and also covers costs involving claims of false advertising, libel and slander.
Business vehicle insurance or a commercial auto policy would also be a necessary purchase, as you would be required to provide collision and comprehensive coverage for the food truck. It could also cover any equipment that is permanently attached to the truck. If you have employees, you’ll likely be required to buy a workers’ compensation policy as well, to protect them if they are injured at work. Unemployment and disability insurance would also be required.
“When it comes down to it, it’s a vehicle,” Tomich said. “Accidents happen.”
Insurance could add up to $2,000 to $4,000 each year, depending on your coverage. A licensed insurance agent could help you decide what policies you need to protect your food truck business.
5. Hire employees.
Unless you’re able to take orders, cook food and drive the truck yourself, you’re likely going to have to hire employees to help operate the business. According to Tomich, you would need to classify workers correctly in the eyes of the Internal Revenue Service or risk facing penalties. You can classify workers either as independent contractors or employees of the business, the latter of which would result in federal and state employment taxes.
But while it may be tempting to classify workers as contractors to avoid paying taxes on their earnings, you may end up owing back taxes if you misclassify your staff, Tomich said. If workers earn a regular wage at an hourly or weekly rate or have access to benefits like health insurance, they should be classified as an employee and not a contractor.
6. Develop your menu.
Your menu should include dishes that can be prepared in a tight space. You may want to consider items that can be made in advance or cooked quickly to prevent your customers from waiting outside your truck too long.
A new food truck owner could initially spend upwards of $1,000 or $2,000 on cooking supplies, including menu ingredients, cooking oil, spices, napkins, plates, cups and other serveware.
Wholesale food retailers like Restaurant Depot or Chef’Store are typical choices for food truck owners, Stuck said. You would likely need to stock up on supplies each day or every other day. Determining how much inventory to buy can be tricky, and you don’t want to make the wrong calculation, he said.
“That’s a very delicate line to walk,” he said. “If you buy too much, a lot of it can perish before you sell it. If you don’t buy enough, you’ll sell out of food.”
You could rent space in a shared commercial kitchen or commissary kitchen to store supplies and prepare food if you don’t have room on the truck. Most kitchens are fully equipped, and some are even specifically designed for food truck owners.
Propane is also necessary inventory for food truck owners to power gas stoves, water heaters or other kitchen equipment in the truck. Filling up once or twice a week is common practice, and you may want to plan around your busy days, said Stuck; for example, he noted that the Tin Kitchen trucks fill up on Mondays and Fridays, bookending the weekends. Businesses like U-Haul have propane refill stations onsite that food truck owners can use.
7. Find a place to park.
Once you have your truck, supplies and employees ready to roll, you would be ready to open your windows and start serving customers. Where you can park your truck would depend on local regulations and permits you’ve acquired, Tomich said. Be wary of private property, as some locations may require food trucks to get permission to operate on the premises, she said.
There may be rules about how close a food truck can park to schools, parks, restaurants, crosswalks, building entrances or another food truck. Some may even limit street parking or how many days in a row you can park in the same spot.
Community events can be valuable, according to Stuck. However, the growing number of food trucks has upped the competition for spots at large gatherings, he said. In some cases, you may have to pay a fee for entrance into the event. For instance, the International Night Market in Atlanta requires food truck owners to pay $1,000 for a space at the three-day event.
Food truck startup costs
$50,000 to $150,000
$15,000 to $20,000
$1,000 to $2,000
$2,000 to $4,000
Permits and legal compliance
$40,000 to $50,000
Financing a food truck business
From food to permits to propane to maintenance and repairs, the costs of running a food truck can quickly add up. Securing financing for your business could help you cover major expenses and allow you to reserve your daily operating capital, Stuck said.
If you need funding to keep your food truck on the road, consider these types of food truck financing that you could obtain from traditional banks or alternative business lenders.
Food truck equipment loan
Equipment financing can be used to buy tools like ovens and refrigerators, as well as the food truck itself. Many lenders categorize food trucks as equipment and you can secure a loan with the vehicle. Because the truck or other asset would act as collateral, an equipment loan is less risky for the lender and more accessible for you as the business owner. But you may need to make a 10% to 20% down payment when obtaining an equipment loan. If you need to finance equipment that you plan to replace often, an equipment lease may be a better choice. You would make payments to use the equipment for the length of the lease, then return the asset or purchase it for a discounted priced when the term ends.
Microloans are available in small amounts up to $50,000 and are usually reserved for community development efforts or certain types of business owners, such as women, minority, veteran or low-income entrepreneurs. Microloans can be used to cover working capital expenses like inventory, supplies or machinery, and you may need to offer collateral to secure funding. Microloans are also a useful tool to build your business credit profile so you could apply for a larger amount of financing in the future. The U.S. Small Business Administration has a well-known microloan program.
Short-term business loans also typically come in smaller amounts with repayment terms between three and 18 months. Interest rates could be high depending on the length of your term, your business’s cash flow, your credit profile and collateral. If approved, you could use a short-term loan to cover any business expense. The repayment schedule could be quick, so be prepared to make daily, weekly or monthly payments.
Business line of credit
A revolving business line of credit would help you pay for ongoing food truck expenses. You could draw funds from your credit line on an as-needed basis and only pay interest on what you borrow. However, you could be required to pay a maintenance fee to keep the line open. To qualify, you may need to offer collateral, and your interest rate would depend on your credit profile. Low-credit applicants typically have a higher likelihood of securing a line of credit than a traditional business loan, so it could be an attractive option if your credit is less than perfect.
Online crowdfunding platforms like GoFundMe, Kickstarter and Indiegogo would allow you to raise funds for your food truck from the general public. Some platforms simply let you accept donations, while others would require you to offer a product or stake in the business in exchange for funding. Compared with other types of financing, it may take a long time to raise enough money to cover substantial business costs. However, exposure on a crowdfunding site could help you build a fan following before opening your food truck.
Is the food truck industry right for you?
If you have experience in food service or have dreamt of owning your own dining establishment, a food truck may seem like a relatively affordable way to start your entrepreneurial journey. Food trucks have cheaper average startup costs than brick-and-mortar restaurants — less than $200,000 compared to $1 million or more. Full-time food trucks typically generate $100,000 to $150,000 in annual gross revenue, according to a survey from Food Truck Enterprise.
However, the expenses of running a food truck aren’t limited to startup costs. Ongoing maintenance could cost $40,000 to $50,000 a year, Stuck said. Older, used trucks need near-constant repairs as machinery like water pumps, propane tanks, coolers and generators wear down, he said.
“Stuff breaks all the time,” Stuck said. “I knew there would be some of that, but I don’t think I anticipated how substantial that workload was at first.”
Owning a food truck instead of a restaurant also wouldn’t allow you to escape the scrutiny of regulatory industries, as food trucks and restaurants must comply with strict food safety policies, Tomich said.
“They both have to go through health department approval,” she said. “But with brick and mortar, you’re dealing with a larger space and a larger menu.”
Competition within the industry adds increased pressure to make your food truck stand out. Social media can be a valuable asset when building your brand if you make a consistent effort across all your platforms, Stuck said. You should take time to post crisp, clear photos along with captions and content that establish a brand personality.
Market saturation could make it difficult to build a following and regular customer base, but the crowded industry shouldn’t deter newcomers, Stuck said, as long as you’re prepared to put in the work.
“I would do extra diligence at this time,” he said. “You really need to think through it and prepare.”