Food trucks are cooking these days. They’ve expanded beyond cities to suburbs and show no sign of slowing down—except to feed hungry customers. It’s no wonder that would-be entrepreneurs who also fancy themselves foodies would be interested in climbing aboard.
Compared to brick-and-mortar restaurants, food trucks are generally more cost-effective and offer greater flexibility. Their mobility allows business owners to target multiple areas and go where the demand is. However, they also require compliance with numerous regulations, and the market is often highly competitive.
The industry has demonstrated impressive growth, but there’s still room for new entrants. U.S. food truck revenues have increased at a compound annual growth rate of 15.9% since 2020. According to Toast, individual food trucks generate an average yearly income of $250,000 to $500,000. Keep reading to learn essential information you need to get your food truck rolling.
Planning your food truck
Planning is an indispensable part of the recipe for a successful food truck. For example, conducting market research is essential to determine which items to sell, such as those within a specific cuisine or theme (e.g., Mexican-style street food).
Most food truck operators offer food that has a unique component and isn’t too complicated to prepare. Also consider how and where you’ll source necessary ingredients at a cost that yields a reasonable profit.
In addition, identify and research your target audience. Helpful information includes:
Demographics (for example, age and and income level)
Psychographics (attitudes, values, and lifestyles)
Where are they and at what times of the day
The amount they’re willing to spend at food trucks
Generate a competitive analysis of both food trucks and local restaurants, too:
How well do food trucks do in your desired area?
Is the market saturated?
Which trucks and restaurants do the most business, and what sets them apart?
What type of food isn’t yet offered; where is there a market opportunity?
Proper pricing is another vital part of planning. Your competitive analysis should include their pricing. Competitor pricing shouldn’t be the last word, though. Instead, base your pricing primarily on your “cost of goods sold” (COGS), meaning the total cost to produce an item.
To calculate your COGS, you must account for all of your costs, including:
Labor
Ingredients
Packaging
Supplies
Marketing
Overhead (for example, truck expenses, compliance costs, and insurance)
You can calculate your COGS for each item or the entire menu. With the latter approach, you can adjust prices accordingly—sell some items below their individual COGS and others above their COGS so you come out above your total COGS in the end.
It’s never too soon to research promising locations to park. The most opportune spots typically boast heavy foot traffic and people looking for quick and easy meal or treat options. When you find such spots, you need to further research the best times of the day, as well as where exactly you can park, for how long, and other applicable restrictions.
The information above should be included in your formal business plan. A business plan is crucial for keeping you on track for your goals. Your plan should consist of these components:
Executive summary (the introduction to your food truck)
Company description (greater detail on your business’s set-up and history)
Market analysis (data and research on the viability and profitability of your business)
Financials (budgets, expense and cash flow projections, funding sources, revenue sources, etc.)
Products and services (descriptions of your offerings)
Marketing strategy (how you will build a customer base and sell your products and services; see below)
Ensure your financial plans are specific and fact-based, rather than what you hope for in an ideal world. You should budget for both your startup and ongoing costs, including:
Business registration, license, and/or permit fees
Truck
Commissary kitchen costs
Equipment and supplies
Food/ingredients inventory
Fuel
Equipment and vehicle maintenance
Insurance
Marketing expenses
Technology (point-of-sale (POS) system, payroll, and accounting software)
Wages and benefits (if applicable)
Square estimates average food truck startup costs as follows:
Food truck | $40,000–$150,000 |
Licenses and permits | $1,864–$28,276 |
Startup inventory | $2,000–$3,000 |
Serveware | $300 |
Fuel and maintenance | $500–$1,000 |
Insurance | Varies |
It’s worth noting that the high-end figure for licenses and permits comes from a U.S. Chamber of Commerce report that found, on average, starting and maintaining a food truck for one year requires an entrepreneur to complete 45 government-mandated procedures over the course of 37 business days, and spend $28,276 on permits, licenses, and ongoing legal compliance. The report was released in 2018, and many municipalities have since eased or at least streamlined their permitting requirements and processes.
Track your costs closely in the first year to more accurately budget for the future. Once you’re out of the startup phase, your budgets should also include a salary for yourself, a profit to invest in the business, and taxes.
New entrepreneurs have been known to underestimate their tax obligations. Consult with a professional to reduce the risk of unexpectedly high tax bills, plus penalties and interest for noncompliance with the numerous tax rules for businesses, such as the mandatory quarterly payment of estimated taxes and withholding requirements for income, payroll, and sales taxes.
Funding your food truck
Food trucks typically require a sizable upfront investment. If you lack the personal funds to “bootstrap” it, you may be able to tap friends, family, or other investors for funding.
The U.S. Small Business Administration has several loan programs to explore, and you could qualify for grants from other federal or state governmental agencies, nonprofits, or corporations. The U.S. Chamber of Commerce has compiled a list of grants, loans, and other financial programs available to small businesses. Your chances of qualifying will improve if you have a detailed business plan to show potential funders.
It can be challenging for new businesses to secure bank loans, but a secured vehicle loan may be a viable alternative. Your truck is used as collateral to score a lower interest rate.
Satisfying the legal requirements
One of the first key decisions you’ll need to make is the choice of a business structure—or business entity. A food truck is typically formed as a sole proprietorship, partnership, C corporation, limited liability company (LLC), or S corporation.
Your choice directly affects your legal and tax liability. For example, while a sole proprietorship is usually easiest, if you go this route then you’ll be personally liable for all business debts and liabilities, and you’ll have to pay self-employment taxes. With an LLC, you can avoid personal liability for the business and pay less in taxes, but it’s more complicated, and you must satisfy certain ongoing formalities.
You may also be required to register your business with the local government, city, and/or state. These jurisdictions may also require specific licenses or permits. You may also need to obtain a “doing business as” (DBA) if you conduct business under a name other than your own.
The above requirements apply to businesses in general. Food trucks are subject to many additional rules and regulations, which vary significantly by location. For example, you can count on regulations regarding food handling certifications and health inspections. They’re intended to ensure you properly handle, prepare, and store food to reduce the risk of foodborne illnesses and cross-contamination.
You’ll probably also need a:
Mobile food facility permit
Seller’s permit
Parking permit
Fire certification
Temporary use permit
Obtaining all the necessary permits and certifications can take several months; therefore, it is advisable to start the process early. Bear in mind that you must satisfy the requirements for every jurisdiction where you do business.
Some cities require food trucks to operate from an approved commissary kitchen, using the kitchen for:
Food preparation and storage
Inventory storage
Waste management
Water refills
Equipment cleaning
With the limited space in food trucks, a commissary kitchen can be a good idea even if not legally mandated.
Cities often require access to a bathroom if you’ll be parked in one location for more than an hour or two. You typically must be within 200-500 feet of a bathroom with handwashing facilities.
Protecting your business
Comprehensive insurance coverage, while not legally mandated, is generally wise. A food truck may need some or all of the following types of business insurance listed below.
Commercial auto: Your personal auto coverage doesn’t apply to accidents that occur while you’re driving for business purposes. Commercial auto covers those, as well as theft, weather damage, and vandalism to your vehicle and any permanently attached appliances and equipment.
General liability: This provides coverage if someone sues your business for bodily injury, property damage, or personal injury for things like defamation or invasion of privacy.
Commercial property: Property insurance applies to losses to your owned or rented equipment and supplies that result from fire, burglary, theft, wind, or lightning.
Equipment breakdown insurance: The policy insures your equipment against sudden perils not covered by commercial property insurance (for example, short circuits and internal mechanical failures).
Workers’ compensation: Workers’ compensation is likely required by your state if you have employees. It covers expenses stemming from work-related illnesses or injuries, including medical expenses, lost wages, disability, rehabilitation, and job retraining.
Business owners’ policy: This policy bundles general liability, commercial property, and business interruption insurance into a single policy.
Product liability: The coverage will apply if a customer becomes ill or injured from your products, from an allergic reaction or contamination, for example.
Inland marine: The coverage protects your commercial property (including the truck, equipment, and inventory) while you’re in transit.
Contamination and spoilage: This insurance generally helps you replace lost inventory, clean contaminated equipment, and obtain medical tests for your employees if your food goes bad due to extended power outages, equipment breakdowns, improper storage, or contamination. Some insurers also offer perishable foods in transit coverage, for food that spoils while you’re on the move.
Cyber liability: The coverage applies to claims arising from cybercrime incidents. For example, if you store customers’ personally identifiable information (such as name, email, or phone number) in a digital database, the insurance would cover the often hefty remediation costs if their information is compromised through a data breach.
Setting up operations
When it comes to the actual truck, it can be new or used, and leased or purchased. You’ll also want to decorate the exterior, generally with paint or a vinyl wrap. A wrap may be more expensive, but is usually more durable.
Inside the truck, you’ll need equipment for preparation, cooking, serving, warming/holding, refrigeration, and cleaning. You should also have a POS system so that customers can pay with credit cards.
There’s no need to rush out and get the latest and greatest equipment. You can do just fine with quality used equipment from Craigslist, Facebook Marketplace, eBay, garage sales, going-out-of-business sales, or auctions. You also might have luck with local or online restaurant supply stores.
You’ll also need to source your containers, packaging, utensils, napkins, and ingredients. When evaluating your ingredient options, consider more than just cost. You want high-quality ingredients from reliable suppliers, backed by client testimonials. Thanks to the internet, you’re not limited to local suppliers, although local sourcing can give you a competitive edge. The cost may be a bit higher, but the tradeoff—peak freshness and a reputation for caring about sustainability—may be worth it. Tap your connections in the food industry to get sourcing recommendations.
Daily or weekly ordering can help you reduce waste and won’t leave you locked into specific menu items. It’s better to under-order than to over-order and end up with spoiled food. Plus, selling out can position your food truck as something not to be missed.
Expanding your team
You might launch your food truck as a solo operation, but, if it takes off, you’ll soon need help with food prep, cooking, and customer service.
When it’s time to hire, you have a lot to consider. For example, should you hire full-fledged employees or independent contractors? Contractors generally are cheaper, but the tests for contractors are strict, and misclassification can prove very costly. You could owe back pay, along with penalties, and end up liable for withheld employee benefits.
You’ll need to write a job description that details the responsibilities and requirements for each position. Post them where your ideal workers will see them, such as local cooking schools or relevant Facebook groups. Food truck experience is preferable, but at least look for people with some restaurant or food industry experience. You’ll also want to look for people you can imagine spending long hours with in a cramped space and sometimes stressful environment.
It’s advisable to run background checks for all employees, especially those who will be handling cash and credit cards. Check references, as well.
You can help your workers perform better by developing protocols, checklists, and training that describe food preparation, cleaning/sanitation, and other processes. This will ensure consistency and high standards.
When you hire your first employee, you must obtain an Employer Identification Number from the IRS. You may also need to register with the state department of revenue. You’ll be expected to withhold and deposit income tax withholding and each employee’s share of Social Security and Medicare taxes under the Federal Insurance Contributions Act (FICA). FICA is a federal tax that is split between employers and employees. You’ll also be required to pay unemployment insurance taxes and satisfy a range of federal and state reporting obligations.
Those obligations are among the many administrative headaches that come with entrepreneurship. B2B vendors and software can ease your administrative load dramatically, though, so you can concentrate more on the parts you enjoy.
Marketing your food truck
How will you reach potential customers? It starts with branding. Your brand name can reflect not just what you sell but also your vision, values, and quality standards. When you come up with a few prospects, check with the U.S. Patent and Trademark Office and the local secretary of state office to ensure they’re available.
Branding is about more than your name, though. You must be consistent in the visual aspects
—color scheme, logo, fonts, etc.—on your truck, website, menu board, packaging, ads, and any merchandise. You want your brand to be instantly recognizable to your target audience.
Word of mouth can make a significant difference for food trucks. Participating in community events, such as food truck festivals, street fairs, farmers’ markets, and sporting events, can go a long way toward building brand awareness. Think, too, about collaborating with breweries, coffee shops, and concert venues that don’t serve food.
Digital marketing is a must-have but also a highly cost-effective tool. The bare minimum is a website with sample menus, regular locations, photos, and a brief description of the story behind your truck, including your mission and values. You should also leverage social media, posting at least daily with featured items, where you’ll be that day, the schedule for the next week, behind-the-scenes footage, and similar content. Interact with customers to cultivate a connection. Join platforms like Roaming Hunger or StreetFoodFinder to extend your reach even further.
One thing is certain: When you start a food truck, your plate is going to be full. Gusto’s affordable payroll, employee benefits, and HR solutions can free you up to focus more on the aspects that feed your soul.
