What Does It Really Cost To Start A Food Truck Business?

What Does It Really Cost To Start A Food Truck Business?

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What sort of funding will your food truck business need? Unless you’re independently wealthy the question of funding is likely to be one of if not the most significant challenge early in your mobile food company’s story. Your beginning funding will determine whether your culinary dreams lives up to its potential or fizzles out when customers fail to show up at the expected volume.

Food Truck funding

That said, there’s a surprising range of views on how a food truck startup should plan its early life. In my conversations with food truck owners, I’ve learned that even among the most successful, one can find very divergent views on how to fund a new food truck. In general, these opinions can be divided into two basic categories.

The first school of thought holds that you should raise as much cash as humanly possible. This means hitting up other people, whether they’re angel investors, or members of your family. You can also try finding government grants, taking out loans, saving up beforehand, (maxing out your credit cards or even draining your personal retirement accounts are additional options…but never recommended). Can you raise too much? Sure you can, but according to this school of thought, you should just proceed to spend what you raise if you don’t have enough money, ensuring that your fledgling food truck can survive even if takes a long period of time to build up your customer base.

Most of the truck owners I’ve had the opportunity to speak with don’t align themselves in this camp due to the fact that they are unable to raise a lot of capital without having to give majority ownership in their mobile food company away. The more common occurrence is the one that holds that you should carefully estimate your initial costs and ongoing burn rate for one year to a year and a half, then attempt to raise enough money to last that period of time. When you’re six months from running out of cash, start planning to raise more, with the amount of the second funding round determined by how far away profitability appears to be.

If you belong to this second group, you can begin making a few more intelligent predictions about how much you’ll need. Networking within local food truck owners can get you some good advice from peers, which together with your own calculations on initial costs (rental of commissary space, the truck itself, equipment in your kitchen and staff wages) will help produce what seems like a good figure.

Got your figure? Good. Now add 10 to 20 percent. That’s the figure that I’ve seen as the average cost overrun for dozens of food truck projects that have started over the last 5 years. While this may seem like a large amount of additional investment, it is a good way to deal with one of the most common errors a start up food trucks can run into: Nothing will unfold the way you plan. And in a startup food truck business, your only safety net is your cash reserves.

Check out this article for more detailed information on the costs of starting a food truck business.

2 COMMENTS

  1. Regardless of your start up plans/funding, have an exit strategy. The Gourmet trucks are fading – Some trucks will hang in for years to come, accepting declining sales and profits. But like the Pet Rock, Chia Pets, and Sea Monkeys, eventually the mass appeal is gone. The days of being able to gross 3-4k per day are long gone, and while there are still opportunities, they are getting fewer and farther in between. In LA and OC, the Gourmet truck frenzy has subsided, and trucks have almost “jumped the shark”. Realize that trucks are just hitting some areas in other parts of the Country, but they will have a “shelf life”.

    That being said, trucks are still a viable method for “proof of concept” for a food business or restaurant, if that is your goal. That said, exit strategy involves your start up costs; run rate, costs, and sales; and then the “value” of your business once you’re ready to step out of it. Compare your investment to what your business might be worth when you’re ready to move on, and factor in costs you will incur along the way. I think a lot of truck owner/operators worry about start up, then ongoing costs, and never think about what happens when they’re ready to move ahead.

    Conservatively, a $75k investment to start up a truck before it hits the street + “Burn rate” to ramp up business, and Monthly fixed and variable expenses over a 24 to 36 month period (Labor, fuel, propane, paper goods, business licenses, insurances, payroll, sales tax, maintenance, depreciation, repairs, marketing, etc), plus food cost and waste, beverage, and the owner/operator’s earnings. Over a 2 year period, these expenses with initial investment can top $150k easily. Take your project Sales for 2 years, and subtract this number, and you’ll get an idea of the value of your business after 2 years.

    And in 2 years, will the food truck “thing” still be a “thing”? No one knows, but remember, it’s not always about the initial investment, it’s about what it’s worth to someone else when you’re done…

    • Thank you for your comment. You are right, nobody knows if food trucks will last (our guess is that they will, the industry will adjust over time) but if planned properly, a truck owner can still make a great living.

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