Starting a Food Truck
Food trucks are not a new concept in the United States. In fact, their history dates all the way back to chuckwagons. Those mobile kitchens were pivotal to large ranches and farms in the late 1800s. In the 1900s, food trucks served a similar purpose, bringing food to large groups of blue and white-collar workers alike. There were, of course, hot dog and taco trucks in major cities as far back as the 1940s and perhaps earlier. However, it was not until the recession of the early 2000s that the modern, high-concept food truck was born.
Since then, the food truck industry has boomed. It is a $2 billion industry according to Food Truck Nation, and the average food truck in America makes between $250,000 and $500,000 a year. A food truck is an appealing option to many budding restauranteurs because the startup costs are lower, and there is a lot more flexibility. That translates into more room for error as you learn and grow your business. How much you will need to get started depends on several choices that you will have to make.
Purchasing or Renting a Food Truck
Your most significant initial expense will be the food truck itself. You have four core options when it comes to your truck:
- Renting a truck
- Purchasing a used food truck
- Buying a preconfigured vehicle
- Buying a custom-designed model
Leasing a Food Truck
Renting or owning is one of the core dilemmas that all food truck operators share. The advantage of renting is that you get to test your concept with a much lower initial investment. The rented truck will likely cost you more on a month-to-month basis, but perhaps not as much as you think. This is because many of the companies that specialize in renting food trucks cover the maintenance expenses. In addition, if your truck is out of order, the company will provide you with a replacement. If you want to rent, you can expect an average cost of about $2,000 a month and a 12-month lease requirement.
Purchasing a Used Food Truck
If you want to own rather than lease, a used food truck is by far the cheapest option in the short term. That said, it is essential to evaluate life expectancy and maintenance costs in order to understand the long-term costs. A potential concern with a used truck is the limited designs available, but the used food truck market in the U.S. is robust. You should not have a problem finding a configuration that meets your needs as long as you are willing to have the truck shipped. Expect to pay around $50,000 for a used food truck and as much as $100,000 if it is fully equipped.
Buying a New Truck
New food trucks start at about $50,000 without a kitchen and sales equipment included, but the average entrepreneur will pay between $75,000 and $125,000. Many of the companies that sell food trucks offer a range of preconfigured layouts and upgrade packages. This approach allows them to lower their overhead and save you money. The downside is that you will not have as much creative control. If you have specific and unique ideas for your mobile kitchen, then you will likely want a custom food truck.
Buying a New Custom Food Truck
You can expect the price of a fully custom food truck with branding to cost about $200,000. The cost can be as much as $250,000 if the truck comes with all of the kitchen and sales equipment preinstalled. It is also important to note that food trucks have a permit and license requirement. An advantage of a preconfigured food truck is that the layout is already approved. When custom designing a truck, there are more challenges in this regard, and acquiring the necessary permit will likely take additional time.
Purchasing Equipment
Another advantage of leasing when just starting out is that leased food trucks are typically fully equipped. If you purchase a food truck that is not equipped, then you must account for the equipment you will need. Common examples include a flat-top grill, refrigerator, and microwave.
You also need food prep equipment, such as saucepans, knives, and cutting boards. Other food truck supplies you may need include aluminum and plastic wrap, containers, squeeze bottles, and condiment dispensers. You also need janitorial equipment to keep the kitchen clean. You can expect to spend at least $20,000 on your equipment. Experienced food truck owners recommend buying what you absolutely need and expanding as you learn what else you must have.
Acquiring Permits and Licenses
Food trucks are commercial vehicles. There are federal, state, and local requirements regarding them. If you are purchasing a food truck, it is important that you have permit approval prior to the purchase. If there are issues, getting a permit after the fact can be expensive and time-consuming.
Permits and licenses may cost a lot more than you expect. The U.S. Chamber of Commerce Foundation estimates that the average food truck operator pays between $25,000 and $30,000 in the first year. You may need health, sales, and employee health permits. You will also have to acquire food service and peddler licenses.
After the first year, annual permit costs are between $1,500 and $2,000 on average. This does vary greatly by location, however. Consider that average permit costs in Denver are about $800 while they are more than $5,000 in Portland.
Insurance
Whether you lease or purchase, you will need commercial automobile liability insurance. Comprehensive insurance for the truck is highly recommended and may be necessary if you lease or finance. You also likely want insurance for the contents of the truck, including your food and equipment. You may also want to consider business liability insurance and business interruption insurance. If you are unsure what is required in your state and county, it is essential to speak with an insurance agent early in the process of developing your business plan.
Fuel and Maintenance
Most food truck experts recommend having a fixed location. Even if that location changes depending on the day of the week, it is better than the fuel and maintenance costs associated with always being on the move. Experts recommend accounting for $500 to $1,000 a month for fuel and maintenance if you will be in a fixed location. If the business will be more mobile in nature, increase that amount by three times or more.
Location and Parking
Paying for a fixed location where your truck will be every day will give you better visibility and allow you to earn loyal customers. The challenge is finding a good spot, and you should expect to pay $1,500 for a top location in a popular area. Parking the vehicle when it is not in use is a consideration as well. If you can park it at home, then that is a cost you can avoid, but many counties in the U.S. do not allow parking commercial vehicles on residential property for extended periods. If you need to park elsewhere, experts recommend a secure facility, which may cost another $1,500 a month. You will also have to factor in the additional fuel and maintenance costs of traveling to and from that facility each day.
Professional Advice and Support
You will likely want to secure the services of an accountant early in the process of starting a food truck business. Ideally, you should choose an accountant with restaurant experience because there are unique challenges relative to other businesses. Your account can assist with the business plan and also ensure that you are ahead of the game when it comes to documenting tax deductions. You must also budget for any other professional services you may need, including an attorney.
Salaries
Common advice in the food truck industry is that it will take two years for your food truck to be profitable. That means that you need enough capital to pay your own salary for at least 96 weeks. Those costs are going to rise dramatically if you have employees. You not only have to pay their wages but social security. Your insurance and permit costs will go up as well. Most food truck owners agree that having employees should be a long-term goal. In the short term, they recommend running your business on your own or as a couple and relying on your family when you need help.
Inventory
You also need enough capital to cover the inventory required during the first two years. You need food ingredients and items like napkins, paper plates, wax paper, and plastic utensils. Food truck operators can generally expect to spend $150 a day on inventory. Keep your ingredient list as small as possible to start. Avoid buying food in bulk. Ideally, you should purchase only what you need for the day each morning. This approach ensures fresh ingredients and also helps you to avoid waste while you are learning how much food you will sell each day. As for napkins and the like, buying in bulk can help you save, but avoid buying multiple months in advance. Prices and your needs may change.
Other Operating Expenses
You will need a point of sale (POS) system. Some food truck owners simply use their smartphones for this. If you want a more advanced setup, shop around. Some POS companies charge a monthly fee, while others take a processing fee for each credit card. If you want a portable Wi-Fi system, expect an additional $30 to $50 monthly expense. Experts recommend allotting $250 a month for accounting expenses and an additional $200 for miscellaneous expenses. Festivals and events are another way that food trucks can make a lot of money. You should generally set aside $500 for each day a month that you may attend an event.
Marketing
The general rule for new businesses is to spend between 12% and 20% of revenue on marketing, but that can be a lot for a food truck. Good marketing for a food truck begins with attractive and compelling branding. You may also want to take advantage of the power of social media. Both Facebook and X, which was formerly called Twitter, are powerful tools in this regard. If you are social media savvy, you can also use platforms like YouTube and Twitch to create awareness about your food truck and even generate an additional revenue stream.
Other Ways to Minimize Your Costs
If you’d like to open up a restaurant-style food truck, we recommend leasing the vehicle for at least six months to a year. During this time, you will learn what the ideal truck is for your business. You should also keep the menu small. Small menus require less overhead and work. You can always expand the menu later as you experience more success. Food delivery is a popular way to open up an additional revenue stream. However, you may want to consider delivering through a third party. Doing so will limit wear and tear on your truck and also avoid the additional overhead of providing this service yourself.
Get a Business Loan for Your Food Truck
A business loan is often the best way to get started with a food truck. The right loan will provide you with the capital you need and allow you to pay it back on a schedule that makes sense for your business. At American Business Credit, we have extensive experience helping small business owners launch their food trucks successfully and achieve long-term success. We have helped entrepreneurs succeed through startup loans, working capital loans, unsecured business loans, and business lines of credit. Contact us today to discuss your business plan for your new endeavor and how we can help with financing.