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Start Up

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If you are one of the thousands of people that are currently considering starting up a mobile food truck selling gourmet burgers, tacos or grilled cheese sandwiches by the truck load, the first thing to seriously consider is not your budget, not the mobile kitchen and not the hours you will be working. The first thing you must consider is the food you will be selling.

Everything else will flow from the food, so make sure you understand the food you plan on selling from your menu before making business or emotional decisions on everything else.

Food truck kitchenYour major investment will obviously be in the purchase of the food truck itself; however the type of food you will be preparing and selling will govern the type of kitchen you are going to need. The first thing to do is to research which types of kitchens are most used for selling the food you will be basing your business on; this will serve to narrow down the list of mobile kitchen equipment and components to something that is more manageable for you to realistically research in depth and contrast and compare.

The type of food you will be offering will also lead you to consider your storage and refrigeration requirements. If you are selling ice cream or frozen yogurts, you are going to need a lot of refrigeration capacity, but a lot less will be needed if you are going to be cooking burgers all day.

How much actual cooking will be required – if you are going to be grilling chicken and pork then you may want extra grill space, but if you are making up subs or other cold sandwiches, do you really need any grilling space at all? You may want to maximize the food prep space instead.

One question is how the food will be served; it’s a simple deal to hand over a bahn-mi in a bun, take the money, give change and smile at the next customer in the line, but do you want to offer something more for your customers, such as a place to sit down and take some time while they eat (if this is something your local municipality allows)? Just because this is a mobile operation does not mean you have to ditch adding value for customers, or employing strategies to help differentiate you from the rest of the competition.

Another issue you will need to consider is the volume of food sales you are going to be striving for; this will affect how many people you are going to need inside the food truck to assist with food prep and sales, and this in turn will affect the actual total storage, prep and selling space you are going to need in the truck itself. If it is too small, you may lose sales and valuable business; too large and you waste valuable investment capital.

Consider how you will prepare the food and the timescales involved, between acquiring the basic ingredients for your food offering, and time to selling it. Particularly, do you have to prep and store food off-site, or do you need to do this in the on the truck? The more reliance you place on your mobile kitchen, the greater your need for a good layout, more storage, more prep space and more refrigeration.

We hope this article will help those who are looking to start your own mobile cuisine business or expand your current food truck fleet. If you have any questions about the article, please be sure to leave them in the comment section below.

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food truck startup tips

While I have yet to open my own food truck, I have been watching the industry for a long time now. I have kept an eye on many of the food trucks that have opened since 2010 and watched as many have succeeded beyond their owners wildest dreams. At the same time, I have seen many food truck operators flounder. Running a food truck is not an easy road to follow, but if done properly it can be the most rewarding venture you will ever enter into.

Here is a list of 8 tips new food truck owners can use to help them do it right:

Focus. Many first-time food truck operators feel the need to jump at every “opportunity” they are approached with. Opportunities are often wolves in sheep’s clothing. Avoid getting side-tracked. Juggling multiple ventures will spread you thin and limit both your effectiveness and productivity. Do one thing perfectly (your food), not 10 things poorly. If you feel the need to jump onto another project, that might mean something about your original concept.
Know what you do. Do what you know. Don’t start a food truck simply because it seems sexy or boasts large hypothetical profit margins and returns. Do what you love. Mobile food businesses built around your strengths and talents will have a greater chance of success. It’s not only important to create a profitable mobile venture, it’s also important that you’re happy managing and growing it day in and day out. If your heart isn’t in it, you will not be successful.
Say it in 30 seconds or don’t say it at all. From a chance encounter with an investor, a curious customer or even a local news crew, always be ready to pitch your food truck. State your truck’s mission, service and goals in a clear and concise manner. Fit the pitch to the person. Less is always more.
Know what you know, what you don’t know and who knows what you don’t. No one knows everything, so don’t come off as a know-it-all. Surround yourself with advisers and mentors who will nurture you to become a better mobile food vendor and businessman. Find successful, knowledgeable individuals in the food truck or restaurant industry with whom you share common interests and mutual business goals that see value in working with you for the long-term.
Act like a startup. Forget about fancy offices and fat expense accounts. Your wallet is your company’s life-blood. Practice and perfect the art of being frugal. Watch every dollar and triple-check every expense. Maintain a low overhead and manage your cash flow effectively.
Learn under fire. No food truck business book (although Running a Food Truck for Dummies comes close :)) or business plan can predict the future or fully prepare you to become a successful food truck operator. There is no such thing as the perfect plan. There is no perfect road or one less traveled. Never jump right into a food truck business without any thought or planning, but don’t spend months or years waiting to execute. You will become well-rounded when tested under fire. The most important thing you can do is learn from your mistakes–and never make the same mistake twice.
Be healthy. Owning a food truck is a lifestyle, not a 9-to-5 profession. Working to the point of exhaustion will burn you out and make you less productive. Don’t make excuses. Eat right, exercise and find time for yourself.
Don’t fall victim to your own B.S.  Don’t talk the talk unless you can walk the walk. Impress with action not conversation. Endorse your business enthusiastically, yet tastefully. Avoid exaggerating truths and touting far reaching goals as certainties. In short, put up or shut up.

While there are many more tips that I could have given, this list is a great starting point. If you have additional tips, please feel free to share them in the comment section below.

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Taking the work food truck owners have put into their mobile businesses and leveraging it into brick and mortar restaurants is a  trend that started a few years ago in the mobile food industry. From New York to Texas to Portland, food truck and food cart owners are expanding their empires with very few if any having to close within the first year. This lesson is something hopeful restaurant start ups should consider before opening the doors to a new restaurant of their own.

brunch_box_1

Portland’s Brunch Box recently announced the opening a brick and mortar restaurant.

With only a forty percent chance of success in the first year, starting a restaurant (as with most small businesses) is a high-risk venture. There have been many articles, guides and books that have been written to assist in improving the odds of success. The majority of reasons restaurant fail are avoidable. Lack of experience, lack of capital, poor locations, inventory mismanagement are common mistakes found in floundering restaurant businesses. Often would be owners have a great restaurant idea and lots of motivation but little knowledge or experience of the restaurant industry.

Many factors go into running a successful business and many owners do not realize the skills and knowledge needed to start and keep their restaurant successful. Turning a profit is crucial undoubtedly; however, a profitable restaurant can be shut down for repeated health or safety codes.

The food service industry and economy are constantly changing. Restaurant owners must stay abreast of trends, regulations, consumer wants and a number of other dynamics. One way to obtain these skills is to start small, and why we feel that in most cases starting a food truck before plunging into opening a full restaurant is the best ways to help improve your odds at opening and maintain a successful restaurant.

Here are 6 reasons many prospective restaurant owners should consider opening a food truck first:

Less Skin in the Game

The costs involved in opening a restaurant vary based on the concept you develop. Opening a high end dining establishment can start at 500K and can run into the millions. Opening a food truck using the same style (only smaller) of menu can cost as little as $50,000. By starting small, you will learn many of the same lessons in a truck as you would in a restaurant. Operating any food service business is risky, but if your idea fails, would you rather have a smaller investment to lose than a much larger one?

Build Your Brand

Building a successful brand for a restaurant can take years. If you take the wrong path in developing your restaurant brand, it will take much longer since you will have to re-brand until you get it right. Operating a food truck allows a culinary entrepreneur to make modifications to their brand as easily as it is to find a new location to park in. Once finding a brand that works, you will be able to build up a base of customers that will in all likelihood follow you into your new restaurant.

Work Out the Kinks

Operations in a restaurant is what will make the business run smoothly. From your customer service to the way you order and prepare the food you plan to serve your customers. Operating a food truck requires that most owners learn every job within a truck. This will give you incite in how to improve your operational systems that will eventually translate into your restaurant.

Understanding Your Local Legal System

Unless you have an attorney that has extensive experience in the process of opening a restaurant, it can take a lot of time and effort to navigate through most community legal systems. Permitting for and construction and operations can be a daunting task, but it can be even more difficult to walk through for food truck owners. Getting to know your local municipal permitting organizations will be a valuable tool once you determine it’s time to plan for your restaurant. You will get to know the individuals in the permitting office as well as the health department. Building a rapport with them as a truck own will easily translate once you begin your restaurant permitting.

Get to Know Your Customers

So who is your target market? Will it be the over 40 crowd looking for a fine sit down meal with linen napkins or the new generation of millennials who are looking for locally produced meals with a gourmet flair? Until a food business opens their doors and customers start showing up, it can be difficult to understand who they are. By creating a food truck menu, you will be able to find out what types of food will be a success with your targeted customers and which will bomb. You will be able to test various menu options without needing to revamp your entire kitchen as most trucks have the exact same types of kitchen equipment a restaurant has. What are your customers willing to pay for particular items? While food trucks typically have lower price points than their brick and mortar competitors, you can easily scale your truck’s menu to a full service restaurant menu with a little basic math.

Location Location Location

Finding the best location for a restaurant is one of the key ingredients to operating a successful restaurant. At times it can seem like a crap shoot in finding the best location to plant your roots. By operating a food truck in your local area, you will gain the understanding of where your customers are coming from, and how to bring a storefront into their neighborhood. Once again, by running a food truck, you are able to speak with your customers and get to know them and where they live or work. This is invaluable research data that can only be tested if your concept is mobile.

food truck to restaurant

Roy Choi was able to expand his work from Kogi BBQ into his A Frame restaurant in LA.

By opening a food truck or food cart first, you have helped yourself in beating the odds that the typical start up restaurateur has to deal with.

 

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food truck business plan

Have you ever thought that starting a food truck business or other variation of a mobile food eatery? Whether you are already culinary trained or a home based foodie who is interested in taking their show on the road, there are a few things to consider before taking the time, money or effort to begin your adventure. A common question we receive is how to attain capital for starting a food truck business.

In today’s economy, many have drained their savings accounts, and maxed out their personal credit lines. Because of this they need to reach out to others to get this money. The solution lies in coming up with a well thought out and professional food truck business plan that can be submitted when they apply for loans. Unfortunately, many people have never learned how to write a proper business plan and immediately look to the Internet to search for a food truck business plan sample or template they can purchase. In our opinion, this is the wrong solution.

Don’t buy a food truck business plan sample

When purchasing a food truck business plan sample, people often force their concept into the boilerplate template rather and creating a plan that highlights it. A friend of MCM had recently made this type of purchase, filled in the blanks and gave it to us to review. Our first question was how he had determined that within his first five years he would have 15% growth annually. His sheepish answer, “it was in the food truck business plan sample.”

There are certain points that financiers will look at when reviewing you loan application which will include a food truck business plan. Too many of the available templates just don’t cover them.

When you sit down to start writing your plan, you must remember that it is your argument to show your idea is worth backing. Those that use the excuse that they cannot write a food truck business plan are the same people who have never thought out all of the aspects of starting a food truck business. In other cases they may have thought out the business aspects, but have not taken the time to understand what holes exist in them.

Questions a food truck business plan should answer:

  • What problem or problems exist that your business is trying to solve?
  • What is the potential consumer’s pain?
  • How deep and compelling is this pain?
  • What solutions does your business have to resolve the problem(s)?
  • How much will it cost to solve these problems now?
  • What will the customer pay you to solve this problem?
  • How will solving this problem make your company a lot of money?
  • What alliances or relationships can you leverage with other companies to help yours?
  • How big can your business growth if given the requested capital?
  • How much cash do you need to find a path to profitability?
  • How will the skills of your business team, their business knowledge, and track record of execution make this happen?
  • What will be the investors’ exit strategy?

food truck business planOne additional word of advice; once you have written your food truck business plan but before you pass it on to a lender, do as our earlier example did, have it reviewed and read by a friend or relative. After they have read it, have them give you a verbal explanation as to how they think your new business will work, based on your plan. If they do not understand the plan or cannot explain the business concept from what you have provided, there is a very good chance that a financier will not understand the business concepts either.

If they have questions, incorporate the answers into the plan or clarify an answer so that the question is automatically resolved when the financier reads it. In most cases, this is a business that you know about. This becomes another stumbling block people will run into. They write their business plan so that it is self-explanatory, but leave it at that. The business plan you write for your future food truck, cart of catering venture must make sense to those who are reading it, and most of them, know nothing about our industry.

We hope this article was helpful for those of you who maybe thing about starting a food truck business.

Still have questions about writing a food truck business plan?

You can find a full breakdown of each food truck business plan section in my book, Running a Food Truck for Dummies. If you’ve read the book and still have questions please feel free to submit a question in the comment section below or to admin@mobile-cuisine.com, we promise to get back to you as soon as we possibly can about your food truck business plan.

 

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In a mobile food business, sales are what will determine if you are able to make it through your first year of operation. Projecting your future sales is a critical step in ensuring that your food truck or cart venture is profitable. Before you open, it is definitely worth it to have an idea of whether or not your sales will support your business needs. Pulling a number out of thin air does nothing for you, and although there is no actual formula for projecting sales for your start up  making a well-informed guess is critical to planning your first-year funds. We have put together some guidelines for estimating the amount of funds you can bring in from your mobile food truck or cart in its first year.

money

Do not base your estimations on how many people you can serve with your truck or cart at full capacity, since this may be unlikely for your first year of business. Figure out how many customers you can serve and then plan for about 75% of that case. Pay attention to your area demographics. People may flock to a similar cuisine food truck in the area already, but may not be excited about going to yours, or vice versa. A lot depends on your concept and where or when you will be serving the public.

Estimate Customer Numbers

By now you will likely have a few specific areas you plan to use as regular locations, or at least a general idea. A great way to learn about how many of walk up customers you may expect is by comparing your potential business to existing mobile kitchens in the area. Visit trucks or carts of similar size and cuisine type.  Although these businesses may turn out to be your competitors, you can obtain valuable information by observing how many covers they serve during peak hours. You may even speak with the owner to learn about how many covers they see in a week.

Estimate Average Spending Per Customer

Once you have a customer count estimate, you will need to come up with a per person average based on your menu prices. Make sure you use middle-of-the-road cost values from your menu to figure this out. That means choosing moderately-priced menu items in lieu of the least pricey or costliest. After all, you cannot expect all of your guests to buy the most expensive item on your menu every time. In general, your sales are a function of how many people you serve and how much they spend.

Also, be sure to take in to consideration the difference in number of customers and per customer spending averages for different meal periods. For example, lunch periods tend to bring in lower average sales than dinner periods, unless you are able to find locations to park in central business district where there is a lot of foot traffic and hungry workers. Days of the week will also bring in different sales as well. For example, Thursday nights are usually more profitable for food trucks than Monday nights.

Generate a chart showing estimated number of customers per meal period each day, as well as the per person spending average.

Estimate Sales for the Year

After mapping out sales projections for the week, some mobile food vendors will merely multiply their weekly sales totals by 52 weeks to get a year’s sales projection. Other owners will divide the year into seasons to reflect the business they will receive during different times of the year. This is a little more complicated because seasons vary depending on region, but it can be more accurate since some months are usually busier than others. Think about what an average week’s sales might look like, and then ask yourself what you might make in the work of a slow week and in the work of a busy week.

Consulting seasoned food truck employees or owners in your area will help you to decide what kind of traffic or sales volume to expect at different times of the year. These estimations will vary from truck to truck, depending on your menu and your locations. After even a few months of operating, you will have a much better idea of what to anticipate as far as sales go, and you can alter your estimations accordingly. You should also evaluate your operations and promotion efforts if sales are not matching the projections in your business plan.

Running a mobile food business is no small endeavor, and you are more likely to succeed when you have done the appropriate research and made some rational estimates. Figure out what you might expect as far as visitor attendance and sales per person by checking out the competition and determining what is rational for your idea, location and customer demographics. This will also help make sure you are financially prepared for the revenue your rolling bistro will bring in during the course of your hard first year.

 

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One of the most popular articles to date at Mobile Cuisine is Writing a Food Truck Business Plan where we covered the aspects of writing a business plan for your future food truck business. Due to its popularity, we are in the process of putting together a through example of a plan that will be downloadable for our readers use. Until that project is finished, we have decided to add another article for those currently working on a plan and are having a tough time finishing it.

jump-start

The most common question we receive on this topic is how long it should take to put a complete project together. Unfortunately, it’s not something that you should be able to develop overnight unless you have quite a bit of experience in putting business plans together. Because of this, we felt we would give you some tips to help in your business plan creation.

Rome Wasn’t Planned, Funded, and Built in One Day

The process of putting together a coherent business plan will probably take longer that you estimate. Along the way you will probably stop and think, “you know, we haven’t really thought our strategies out very well, have we?” or “we don’t really know our competition as well as we thought we did,” and you will take the time to hone your strategies and get up to speed on the competition before you finish the plan and present it to prospective lenders.

Start Small

Start your business plan as an outline. By breaking the large task down into smaller components, the task won’t seem as scary. Your business plan should be looked at as simply as the answers to a series of questions.

Change Things Up

The visual aspects of the document should not be overlooked. Color charts, tables of data to break up the text, paragraph headings and varying the typestyles all contribute to making a plan easier to read and to clearly explain your thoughts.

Study

People who write novels are generally those who have read many, many, stories. They learn their craft by studying the works of their favorite authors. You need to do the same thing. Look at examples of business plans to get in your mind the writing style, the sequence in which the ideas are presented, and the parts to a plan. Sample plans are available on the Internet at sites devoted to assisting entrepreneurs in just about every business. I would suggest looking at plans structured on a restaurant, bar or if you can find one, another food truck.

Pick An Easy Section

If you have never written a business plan before, you may have difficulty getting the project started. It will seem as though you have an awful lot of blank pages staring back at you. To get the plan moving, start with the section that is easiest for you, or of most interest.

Quality Time

People often underestimate the effort and energy it takes to write a business plan. They try to write it at night or when everything else at work is finished, in other words, when they are mentally and sometimes physically exhausted. A better approach is to write the plan when you have energy available to put into it: go in early and think and write for an hour before the phones start ringing.

The First Draft

The first draft of your plan will undoubtedly resemble incoherent ramblings or a jumbled stream of ideas that look nothing like what you had hoped it would. Don’t let this get you frustrated.

Take A Break

Put the draft away for a few days, come back to it fresh, and begin revising and rewriting. Magically, after several more revisions, the ideas will all come together and the language of the plan will flow.

Your Plan Needs To Look And Sound Like You

Your business plan should reflect the personality of your management team, and the type of mobile business you want to create. As the reader (aka lender) goes through it, they should get to know the people involved in the company, their vision, their objectives, and their enthusiasm for the company and the mobile food industry. Tell the story of your food truck in your own voice.

Not Everyone Is A Professional Writer

Business plans are essentially works of fiction. They are documents that discuss what you imagine, plan and hope may occur in the future of your food truck business, not what has already occurred. This type of writing is difficult for everyone. You’ve heard of “writer’s block”. The problems you are having keeping the words flowing are precisely the ones faced by professional writers, except many of them have to keep going because the publisher has given them a unreachable deadline and they’ve already spent their advance, but you of course, having read tip #1 Rome Wasn’t Planned, Funded, and Built in One Day have allowed plenty of time to finish the business plan; so there’s no reason to feel pressured. Right?

 

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tip of the dayThere are many rewarding things about being a food truck entrepreneur: the autonomy, the recognition, the creativity, not to mention the fact that you are pursuing your culinary dreams. But starting a mobile food business is never easy and not everyone is cracked up to be their own boss. Before you embark on a solo venture, remember that there are downsides too.

Being a food truck owner requires high risk, hard work, and many, many tradeoffs. The glamour of the got-rich-quick mobile food entrepreneur is often a far cry from what it’s really like in the trenches. Take a hard look at your life and be sure you know what you are risking before you set up your own food truck business.

 

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food truck start up cost

A common question we are asked by our readers relates to food truck start up cost. Due to varied factors that can be used to determine this answer, we typically provide a broad range of $40,000 – $250,000. While it technically answers the question, it’s still a bit broad for someone trying to determine if opening a food truck business is something they can afford, or something they need to get a loan for. Because of this, we have generated this chart to help those interested in joining the mobile food industry.

In the chart, you’ll find three areas; one time start up costs, re-occurring start up costs and costs that vary from area to area. Each of these sections is subdivided by three price ranges; $ = low, $$ = average and $$$ = high for each area.

While this guide should be used as a general group of ranges, it is helpful for those interested in finding how much starting up a food truck business can cost.

Food Truck Business Start Up Costs

$ $$ $$$
One time start-up costs
Purchasing your food truck 5000 25000 125000
Vehicle inspection 100 300 500
Retrofitting and/or bring the truck up to code 25000 40000 50000
Generator 1500 5000 10000
Register/POS System 150 1250 2500
Paint 1000 2000 3000
Truck wrap 2500 3500 5000
Initial food purchases 500 1250 2000
Utensils and paper goods 500 1000 3500
Website design 500 3500 7500
Initial office equipment and supplies 200 500 1000
Initial advertising and PR 500 750 1000
Professional, legal and consulting fees 500 2000 5000
Reoccurring start-up costs
Payroll 1500 2500 3500
Commercial kitchen/Commissary rent 500 1500 3000
Credit card processing equipment 50 150 500
Fuel 250 300 400
Start-up costs which vary by location
Permits and licensing  50  500  10000
Insurance  300 500  1000

Please note:

  • Prices shown are not set in stone, and can change without notice.
  • Prices shown in the reoccurring categories are for 1 week.
  • Prices shown which vary by location are for 1 month.

So what do you think about the cost to start a food truck?

cost to start a food truck

While is may seem like a steep price to start a food truck business, try to compare these costs to that of a brick and mortar restaurant. The high end prices in this chart don’t come close to comparing to starting a small quick service restaurant.

Be sure to keep an eye open for contests. In season three of The Great Food Truck Race, they gave away a food truck to the eventual winners. Talk about a great way to cut your food truck start up cost.

So how much were your food truck start up costs? Let us know in the comment section or drop us a line via our contact page if you would prefer to keep your food truck business start up cost a little more private.

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Family Business

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?

 

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When starting up a new mobile food business, one of the first areas most prospective vendors get discouraged by is how they will come up with the money they will need to get their rolling bistros onto the street. We have put together a series of articles that will help you get past this hurdle and better understand what financing you will need, as well as the various avenues you can use to get it.

In our first article we discussed the different types of financing for different stages of your mobile food vending business’ growth and have an idea of how much capital you will need. How does this financing work? In this article we will explain it to you.

Types of Capital

You have two choices when deciding which type of capital funding you want for your prospective mobile food service business.

With debt capital, you will be getting a loan that must be paid back over a set period of time, with interest and possibly some additional fees. In this scenario, you maintain full control of your company, but you will also have a loan to pay back when everything is said and done.

Equity capital is funding provided by people or firms who want to own a part of your food truck business and reap some of its rewards once you become a success. What you must ask yourself with this style of capital is, do you want to give away part of your company in exchange for the cash you need to make it happen? Or, do you think you will be able to make the monthly payments towards a loan so you will be able to maintain full control and ownership of your brand?

To determine the type of funding you should go after, ask yourself questions like these:

  • Could I qualify for debt financing?
  • Am I willing to lose my house if the business does go under?
  • Will I be able to make the monthly payments to pay off the debt?
  • Will the lender give me more money if I need it?

Or, for equity financing:

  • Would investors even be interested in my concept?
  • Am I really the control freak people say I am?
  • Am I okay with someone going through my financial information?
  • Am I going to be able to give investors the information they need?
  • Am I going to have a problem sharing my hard-earned profits?

Once you’ve mulled over those questions, and are completely confused, remember, you can always make use of more than one funding source. Some of your choices for funding your new food truck or cart include:

  • Personal savings
  • Borrowing from friends and family
  • Getting a loan from a bank
  • Getting a loan through the U.S. Small Business Administration
  • Getting a partner and using his or her personal funds
  • Going through a commercial finance company
  • Going the venture-capital route

Please note, you will probably be able to get more money from investors than from a loan, but one of the top reasons culinary geniuses start up a mobile food business as opposed to a brick and mortar establishement is because they do not need as much capital to start up.

Now we’ll wade through the the first two sources for funding, and go over some of the pluses and minuses of each. In future articles we will go into more detail about the other sources listed.

Using Personal Funds

Depending on how much cash that you determine you will need, you may find that using personal funds is your best option. Over 50% of small business start-ups are financed with personal funds. If your business plan does not require hiring employees, or paying exorbitant amounts of cash for permitting, licenses and fees, then you probably can get along fine without much in the way of financing. But, remember our list of operating expenses from the last article. Your business is going to need to purchasing your food truck or cart, which means spending money. This means you will go into your savings account, take out a second mortgage or home equity loan, get a personal loan, or dig up that jar buried in the back yard.

home equity loan is a low-risk, relatively simple way to secure funding for your mobile food business. The bank doesn’t really care what you are using the money for, and you’ll be financing your business yourself. Often, having a larger financial investment in the business personally will have more weight if or when you attempt to get a business loan.

personal loan is also a possibility, but make sure you let the bank know that you plan on using the money for your food truck business.

Or, start taking advantage of some of those pre-approved credit cards you get in the mail every day. Just be sure you investigate the interest rates, annual fees, and late fee charges.

If yours is a simple business model, you could also bootstrap it. This means that, with a very small investment, you get the business going and then use the profits from each sale to grow your food truck business. This approach works well in the mobile food service industry when you do not need employees initially. 

Borrowing from Friends and Family

Before you use up all of your personal savings to open your food truck, think about your other options. Have you asked Mom and Dad for a loan? Does Grandma have a few thousand dollars that she might like to invest? Has that college roommate really been as successful as he said he was at the last reunion? Tapping into the pockets of friends and family does have some benefits, but it also has its share of drawbacks.

For one, you have to ask them for the money.

If you do end up asking friends and family, make sure you present the business to them just like you would pitch it to a bank. Let them decide whether they want to take the risk. Make sure you have a written agreement or promissory note that specifies the details of the loan. And don’t get upset when they pester you with questions about how their money is doing. This is another drawback of tapping into this particular money source.

Overall, borrowing from friends or family is probably not your best choice, simply because of the strain it may put on relationships. However, it does work for many people and may even strengthen your relationship if your business takes off and is successful.

We hope you found this article helpful in your introductory steps to creating your own food truck enterprise. In future articles of this series we will go over the other forms of attaining capital such as getting a loan from a bank or SBA.

Part 1

Part 3

 

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