How to Start a Food Truck Business

In just the past decade, the street food vendor landscape shifted from plain hot dogs and salted pretzels to unique, gourmet dining experiences. This is, in part, due to the 2008 recession, which spurred the rise of the food trucks we’re familiar with today, as chefs and consumers alike were looking for ways to enjoy food without typical restaurant prices. At the same time, social media use was increasing, making it easy to spread the word and create a sense of urgency (you never know where a food truck might move to next).

As of 2019, there are 23,551 food trucks operating in the U.S., with California, Florida, and Texas boasting the highest volume of food truck businesses compared to other states. There are plenty of opportune markets that have not yet seen saturation.

For entrepreneurial chefs looking to get their start or have more ownership over their menu, food trucks might be a less risky way to break into a notoriously difficult industry. Tight profit margins, employee turnover, and high competition make it difficult for dine-in restaurants to sustain financial health. Food trucks cut overhead costs significantly, but also require more labor from fewer people.

As with any emerging industry, there are many novel challenges to solve. But for those looking to follow their passion for cooking on their own terms, you might be entering the market at the perfect time, benefiting from the growing popularity of street vendors while also learning from the mistakes of those who started out when fewer resources were available.

In This Food Truck Formation Guide

Here at Swyft Filings, we help business owners like yourself during one of the most crucial times in their business’ lifecycle—the beginning. The decisions you make before you hit the ground running will either set you up for success or for avoidable pitfalls.

In this guide, we’re walking you through the most important things you need to know as you start your food truck business: providing some context as to what you can expect in this industry, some key details to consider as you formalize operations, and the legal steps of formation.

What to Expect When Opening a Food Truck

Regardless of the type of business, understanding the industry’s current landscape is vital. In this section, we’ll be taking a look at the state of the food truck industry, so that you have a clear picture of what to expect.

What’s the food truck landscape like in 2019?

As you enter the food truck market, it’s useful to understand the current trends and challenges faced by the industry. It’s better, after all, to know exactly what you’re getting yourself into.

More and more food truck businesses are forming

There’s been consistent growth in the industry for the past 10 years, with an expected 8.4% year-over-year growth in 2019. According to IBIS World, food trucks are one of the best-performing segments of the food service sector overall.

Cities like Austin, Los Angeles, and Portland have increased industry growth by passing laws making it easier for food trucks to operate. As these areas become more saturated, they also become more competitive. There are many markets, however, that still appear to be untapped.

Food trucks tend to have a short average lifespan

Not unlike restaurants, food trucks have a high rate of failure—60% of food trucks close within four years of opening. There’s a lot of speculation as to why this is the case, but some compelling reports have shown that the main cause is an oversimplification. That is, entrepreneurs approaching food trucks as though they’re an easier alternative to opening a dine-in restaurant. But this simply isn’t the case. While opening a food truck does cost less, it’s still a complex system to navigate.

Here are a few tips to avoid common pitfalls for new food trucks:

Avoid unexpected non-compliance fees

One of the trickiest areas to figure out is making sure your food truck is covered with the necessary permits, licenses, and insurance, many of which are unique to your state, county, or city. Unexpected non-compliance fees can hit you hard if you aren’t prepared.

Stay on top of accounting, and budget conservatively

Underestimating how much it will cost to operate your food truck is a sure-fire way to run out of funds. Cash flow is difficult for any new business, but especially when there’s a lack of proper inventory management.

Surround yourself with people who are smarter than you

Accounting, business planning, customer service, and marketing all play a crucial role in a successful food truck business. The possibility of one person having the stamina to be on top of all these things at one time is unrealistic. Given the lower startup costs for food trucks, it’s wise to enlist professional help for the areas that are either not your strength, or that you just don’t have enough time to give 100%.

How much does it cost to start a food truck business?

Startup costs for opening a food truck can vary, ranging from $40,000 to $250,000. This depends on the cost of food for your menu, the appliances you’ll need, and the truck you purchase. Using data from mobile-cuisine.com, we’ve created a chart to help break down the various one-time and recurring costs associated with opening a food truck.

One-Time Costs Estimated Cost Food truck purchase $5,000 - $125,000 Vehicle inspection $100 - $500 Retrofitting $25,000 - $50,000 Generator $1,500 - $10,000 Register/POS system $150 - $2,500 Paint $1,000 - $3,000 Truck wrap $2,500 - $5,000 First food purchases $500 - $2,000 Designing a website $500 - $3,500 Initial advertising & PR fees $500 - $2,000 Legal and consulting fees $500 - $2,000 Recurring Costs Estimated Cost Payroll for 3-4 employees $1,500 - $3,500 Monthly credit card 3% of sales (go cash only processing fees to cut costs) Gas for truck $250 - $400 Insurance $300 - $1,000 (varies by location) Permits and licensing $50 - $10,000 (varies by location)

How much do food trucks make?

How much profit your food truck yields depends heavily on where you’re located. Food trucks in high-traffic, metro cities can average $20,000 to $50,000 in sales per month. Profitable food trucks also tend to offer specialty or high-end cuisine that’s considered a novelty. Those that offer simpler items, like deli sandwiches or hot dogs generally make anywhere between $5,000 and $16,000 a month.

To give you a sense of what a successful food truck with at least two years of operation under its belt might make, a Food Truck Empire survey found that 34% of individual food trucks generate an annual gross income of $100,000 to $149,999. And 30% bring in $150,000 to $199,999.

Managing Your Food Truck Business: Key Decisions to Make

Every food truck owner has to make the following decisions to get their business up and running:

Finding a vehicle

The type of truck you purchase or lease will depend greatly on your budget. Here are a few of your options:

Buying new vs. used

Here are some things to consider as you decide whether to purchase a new or used truck:

Advantages of a new food truck

• Less likely to require expensive repairs

• Can be customized for your needs

• Will likely come with a great warranty

Disadvantages of a new food truck

• New trucks are expensive and, just like cars, they depreciate quickly

• If you spend too much money up front on a new food truck, you may not have the funds needed for renovations as your business grows

Advantages of a used food truck:

• They’ll typically cost less up front

• If the truck was used by a street vendor previously, it may already be retrofitted with much of the equipment you need

Disadvantages of a used food truck:

• Higher risk for costly maintenance

• Shorter life expectancy of the truck

Customizing your food truck

The main component you’ll need to account for when choosing a truck is that it has adequate space for the equipment you’ll need. Consider what’s needed for the type of food you’ll serve, and make sure there’s still enough room for you and your employees to work in the space.

Determining where you’ll park

You’ll need to set aside a budget to pay for parking on an ongoing basis.

Unfortunately, food trucks can’t just park anywhere. Every city has different rules and regulations regarding where food trucks can legally operate. To avoid hefty fines, you’ll want to be confident that you’re complying with local parking restrictions.

A few common parking options for operating food trucks include:

• Finding a permanent parking location - this may be in a designated food truck park or outside a specific business, such as a brewery.

• Committing to a parking agreement with building property managers - with permission from a building property manager, you may be able to park in a building’s lot or in a parking zone on the street.

When in doubt, look to your local food truck community for recommendations on the best places to park, as well as areas that they’ve found more challenging. Another factor to consider is securing overnight parking for when your truck isn’t in use.

What kind of food you’ll serve

Successful food trucks are often known for serving unique dishes and specialty items. Regardless of the type of food you serve, you’ll want to make sure there’s something specific about what you offer that differs from what’s available at other brick-and-mortar restaurants in your area.

A few popular food truck concepts include:

• Fusion dishes

• Organic and health foods

• Gourmet sandwiches

• Pizza

• Regional cuisine

In addition to determining the type of food you’ll serve, you also need to consider how you’ll source that food. This is an area that can greatly increase the cost to run a food truck business. If you’re starting your business with a tight budget, it might be wise to serve dishes that you can use local ingredients for.

Marketing your business

There are a ton of avenues for marketing your new food truck. Understanding your local dining scene and leveraging the resources at your disposal (be that local news coverage or social media) will help you narrow down where you should focus your efforts.

Here are a few marketing opportunities to consider:

Social Media

It’s crucial for any food truck owner to understand the ins and outs of marketing their business on social media, including but not limited to Facebook, Instagram, and Twitter. When first starting your food truck, the main things you’ll want to accomplish through social media are:

1. Spreading the word about your new food truck - Create demand and build excitement

2. Making sure people have the details they need to find you - This is key. Do you have a permanent residence, or does your food truck move around? Make it easy for people to locate you.

There are many ways to use social media to market your business, from crafting your brand voice to providing digital customer service, but here are a few of the core ways popular platforms are used by food trucks specifically:

• Twitter - This is a great place to post updates regarding changes to your menu or where your truck will be located on a given day.

• Facebook - The Facebook business profile makes it easy to highlight important details about your food truck, including hours of operation, locations, menu, and contact information.

• Foursquare - Foursquare will help you reach people in your city, and can help drive traffic via personalized recommendations.

• Instagram - Social media has become vastly more visual in the past few years, and Instagram is the perfect platform to share mouth-watering images of your food. A stylish, fun, and unique look to your food truck will also make your business more appealing for your visitors to share on social.

• LinkedIn - A presence on LinkedIn could help you connect with local vendors and businesses, which can lead to fruitful partnerships later on.

Depending on your level of activity on social media, you may or may not decide to also design and develop a website. Generally speaking, having a website with pertinent information about your food truck business is valuable for consumers and potential business partners. But when first starting out, a robust social media presence may initially be all you need.

Festivals and local events

Participating in local events and festivals is a great way to introduce your food to more people, spread awareness about your business, and connect with other food truck owners in your city, not to mention get some extra sales. Depending on how large your city is, there could be hundreds of events occurring in a single year. Consider working events during the months you anticipate being slower for your business to help cushion profit.

This will require some research and preparation, finding events that make sense for your food offering and making sure you meet application deadlines. Event holders will likely require a copy of your menu, photos of your food truck, information on your service capacity, and links to informational pages, like a social media account or your website.

Getting Started: 8 Steps for Formation

Step 1: Create a food truck business plan

As mentioned earlier, one of the greatest pitfalls of a successful food truck business is an overly-simplified approach. Creating a food truck business plan helps to provide a clear picture of every aspect of your venture. Think of your business plan as the foundation of your business. It’s the document you’ll reference every time you make a decision to discern whether or not it fits within your business’ trajectory.

A strong business plan will provide a clear picture of how you’ll start and grow your business at every stage. Aside from internal use, business plans can also help you inspire investments and potential partners.

Pro Tip: Much of the information in your business plan, like entity type or even your business name, will be determined in the later stages of the business formation process. Though creating a business plan is the first step needed to start your business, it will likely be a continuous process rather than an item to mark off a checklist. If anything, the creation of your business plan will help you make those vital decisions in a methodical and organized fashion.

Opting for a traditional business plan vs. a lean startup business plan

Business plans typically fall into one of two formats: traditional or lean startup. A traditional business plan, which is recommended for food trucks, is the most common and requires more time dedicated to creating them. They’re usually many pages long (think dozens). Lean startup business plans, on the other hand, are often only a page or two long and take just a couple of hours to create.

Aspects of a traditional business plan

Most traditional business plans will contain the following sections:

• Executive summary - This is where you explain what your business is, as well as your mission statement and basic information about your food truck. You can also include a high-level overview of your plans for growth.

• Company description - In this section, you’ll take the opportunity to explain what sets your food truck apart and how it will fit into the current marketplace. Be very specific. Include details about why your business is better suited as a food truck than a brick-and-mortar location, and how you’ll compete with similar restaurants in your area.

• Market analysis - Describe the current state of the food truck industry in your city or state. How will your business do better than what’s already out there, or how will you infiltrate an untapped market?

• Legal structure - Document the entity type you’ve chosen for your food truck.

• Product offering - Explain what type of food you serve, why you’re passionate about it, and why your consumers will want it. What’s your competitive edge?

• Marketing strategy - Layout how you’ll reach your target audience. Where will you advertise? Will you be open year-round, or just in warmer seasons?

• Financial projections - Provide your financial outlook for the next couple of years, supplemented by documents such as forecasted income statements and cash flow statements. This is a significant portion of your business plan—one that will be of interest to potential investors—and may require the assistance of an accountant.

Creating a business plan can be a daunting undertaking. As a new business owner, you can choose to take a stab at it on your own or seek out a service to help you create one. If you go the route of creating it yourself, use templates specific to food trucks to help get you started. 

Step 2: Set up business finances for your food truck

As you put together your business plan, it will become much clearer how much money you’ll need to start your food truck.

Here are a few ways you can fund your new food truck:

• Equipment loan or financing programs - When purchasing a truck, you may be eligible to receive loans from an equipment financier or the truck seller.

• Leasing - If you aren’t in a position to purchase your own food truck, you can lease one with basic equipment for a monthly fee. Some leases will give you the option to buy the truck at the end of the lease term.

• Self-funding - Self-funding your business, known as bootstrapping, is when you use your own financial resources to start and support your business. The resources can also come from friends and family willing to gift or invest in your business.

• Small business loans - Small business loans are a good option if you need assistance with initial capital. Like self-funding, these loans allow you to remain in full control of your business. To receive a loan, you’ll likely need a traditional business plan to share with the lender.

• Venture capital funding - VC funding is often given in exchange for owning a portion of the business. If you are a first-time entrepreneur or if your business is not yet producing high yields, you’ll likely find it challenging to get a VC investment. Another thing to consider when seeking VC funding is that the venture capitalists will most often have a say in how you run and manage your food truck, which may defeat the purpose of opening a food truck rather than a brick-and-mortar restaurant.

• Crowdfunding - Crowdfunding has become a somewhat popular means for funding a new venture. The key here is to get people excited so they want to invest. Unlike applying for a small business loan or seeking an investment, people who give through a crowdfunding platform are your future customers. While this is a great resource for raising some cash, it can be difficult to gain the kind of viral following needed for this to work.

Step 3: Choose a business structure and file

The entity type you choose for your food truck will influence important details such as asset protection, tax laws, and operational implications. Fortunately, there are very clear cut differences between each structure that should make it easy to determine which one will be best for you.

Sole Proprietorship

If you are the only member of your food truck. your business will, by default, be a sole proprietorship. We recommend looking into your other business structure options, as SPs offer little to no protection and also make it very difficult to get funding.

Limited Liability Company

The LLC business structure is the most common entity type for small businesses, and with good reason. Your personal finances and assets will be protected, and the setup process isn’t too complicated. An LLC is worth considering for your food truck business, as it helps mitigate some of the personal risks associated with starting a business in a competitive industry. Click here to learn more about the process of filing an LLC online.

C Corporation

Also known as an inc., c corporations mainly make sense for a business with high profits, multiple trucks, and aspirations of going public. This is also a more attractive structure for traditional investors. Click here to learn more about filing your c corporation online. 

For more information to help you determine which business structure is best for your food truck, check out our comprehensive entity comparison guide. If you already know which entity type you want to move forward with, consider working with an online business filing service like Swyft Filings, which takes the actual filing off your plate and reduces the risk of filing errors.

Step 4: Pick a name

Choosing a name for your food truck is a crucial step in your business formation process. For any business, the name is most often a potential customers’ (or investors’) first impression of the business.

Check out our business naming guide for ideas on how to brainstorm the perfect name, as well as what you’ll need to do to secure and claim ownership of that name.

Step 5: Purchase a domain name and claim a media handle

Once you’ve chosen and secured the name for your business, take immediate steps to purchase a domain name. Ideally, your domain name will perfectly match your business name, but that’s not always possible.

Word to the wise, if you can’t secure your business name for the domain name, consider adding signifying letters or removing words like “the”. For example, let’s say your business name is “Food Truck.” Here are a few domain names that would all work for your website:

• www.thefoodtruck.com

• www.foodtruck.com

• www.food-truck.com

You’ll also want to claim a media handle, as social media platforms will be one of your main avenues for marketing and getting the word out about where you’ll be parked on a given day. It should be simple and short, while also unique so that people can easily search for and find you. If possible, keep it the same across all venues, including Twitter, Instagram, and Facebook.

Step 6: Get federal and state tax IDs

Your federal tax ID, or EIN, is a 9-digit number that essentially serves as the social security number for your food truck business. You’ll need an EIN for things like opening a business bank account or paying taxes for your food truck. You can either get an EIN directly from the Internal Revenue Service website, or you can work with an online EIN filing service.

Step 7: Obtain business licenses, permits, and insurance

This is easily one of the most important steps in the formation process of a food truck, as not having these details sorted out could result in heavy costs and fines later on. Licenses and permits for food trucks typically cost between $100 and $500, depending on location.

The main licenses and permits you’ll need are a business license and a food service permit. Many states, however, require additional permits. Commonly required licenses and permits for food trucks include:

• Vehicle license

• Food handler’s permit

• Health department permit

• Fire certificates

• Parking permits

Check with your local ordinances to ensure you’re remaining in compliance.

Step 8: Open a business bank account

Before you can begin selling food, you’ll need to open a business bank account, as well as set up an account with an online payment service like Paypal. Maintaining separate business and personal bank accounts is simply a good practice, as it simplifies your business accounting. Muddling the two will make it difficult managing day-to-day issues or even paying taxes.

Let us know if you need help starting your food truck!

With the right menu, location, and marketing plan, you’ll be well on your way to starting a successful food truck. If you need help with the legal aspects of your business, like choosing an entity type or securing a registered agent, contact the business experts at Swyft Filings for assistance. You start your dream business. We’ll take care of the paperwork. [