Mistakes to Avoid When Starting a Food Truck as a Family Affair
Starting a food truck as a family business seems like as natural as starting up a family business in any other industry but at the same time it can also create some unique problems. If it is done properly it can bring in a steady income and keep your family employed for years. Done improperly it will keep attorneys paid and employed instead.
Starting a business with family members can truly be rewarding but if you have committed any of the following oversights, you need to take care of them as soon as you can. And if you’re considering launching a mobile food business with family members, don’t even think about cutting corners and making these potentially fatal blunders:
Mix family finances with the business’s
A lot of family run businesses start as a side job or a hobby that eventually turns into a money maker. When you start to outgrow that stage, you need to look into housing it in a formal legal entity like a limited liability company or a corporation. This is especially important if a number of family members might be liable, as would be the case if, say, they signed for loans or chipped in cash or otherwise could be considered partners. Without this protection, you all could end up bankrupt if something goes wrong. That’s not the kind of family sharing you want.
For most small family businesses, an LLC is a great choice. It gives personal liability protection like a corporation, without formalities like a Board of Directors or meeting minutes. An LLC is taxed as a pass-through entity, so business profits flow through to the owner(s) and the LLC pays no separate tax on profits. Also, having a legal entity allows for easier transition planning.
If you don’t form a legal entity like an LLC, or if you want to do business under a catchier name, you need to file for DBA or a “doing business as” status. This is simply a way of stating that your business name is not the same as that of the legal entity controlling it. In many states, not having a DBA will make it hard to open a business checking account and may even keep you from being able to sue a vendor or customer who wronged you.
No employment agreements
You may not want to discuss with Dad what will happen if he calls in sick too many times or how with Grandma how much money she has to pay you. But everyone in a family business has to make their expectations clear about employment, operations, even dissolution. And you have to put the agreements in writing. It may seem awkward to talk about it now, but it will be ten times more awkward after something goes wrong. And something will.
No succession plan
The last thing you want to think about in a family business is what will happen to the company if you are hurt or pass away. It’s no fun to think about, but you should consider who will run the business, either temporarily or permanently, if you can’t run it.
In a mobile food business you may want to identify a professional who might be interested in purchasing your business. Spend time with this person and get him or her acclimated to what you do and how you do it. Introduce them to your recipes, suppliers, payroll, payment issues, website and social media access and a host of other contacts and tools they will need to take over. Let others know you’ve designated an heir and mention it in your will.
Remember that if you do not have a formal legal business entity like an LLC, your food truck business technically passes with you. With the right structures in place you can leave your ownership (or fractions of it) to your loved ones in your will, and they can keep running the business in the same name without interruption. After all, that was the point of having a family run food truck business in the first place, wasn’t it?