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.
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.