Luz Urrutia leads Opportunity Fund, the nation’s leading nonprofit small business lender.
Entrepreneurs are a creative, resourceful, resilient and hopeful bunch. I find this is especially true with food entrepreneurs who are called by an art, and a craft, to create flavors and community. Like many folks stepping into business ownership, they’re generally more focused on developing their product or core service than on unit margins and cash flow projections. But obsessing over your craft at the expense of putting time into your financial planning can be detrimental — so much that it can lead to a denial of permits from your local health department and even press the pause button on any startup loans you thought you’d clinch.
Before the Covid-19 pandemic, food trucks and carts had officially arrived as a business concept, a great way to serve innovative, authentic, budget-friendly food. The mobile food service industry was estimated to generate roughly $1 billion in revenue in 2019. Last year, the food truck industry alone was forecast to grow by 20%.
Food trucks and carts offer a wide entrepreneurial on-ramp for women, immigrants and people of color, as well. Although there’s not much national research on ownership in the industry, an internal survey of 300 entrepreneurs among San Francisco’s Off the Grid’s food truck community found that 30% of owners are immigrants, 30% are women, 8% are members of the LGBTQ community and 2% are veterans.
As the Covid-19 pandemic continues to hammer the restaurant and food service industry, interest in setting up a food truck, cart or tent has increased in some areas. For some restaurateurs, a scaled-down version of their tables-and-banquettes model is purely about survival. For others, it’s a way to provide (with masks) face-to-face interactions with customers in an environment where the al fresco aspect reduces concerns related to eating outside the home.
Unfortunately, as new applications for food trucks come in, we’re also seeing myriad accompanying first-timer mistakes. As the CEO of a nonprofit community development financial institution (CDFI) that lends extensively to food trucks in California, I’ve seen how defeated an eager, hopeful entrepreneur can feel when we have to put a hold on their loan application because they don’t have the proper permit or health department approval.
And, with the pandemic, there are hold-ups in permitting that make it even tougher to launch a mobile food business right now. But with proper planning, you can get your business up and running without glitches from local authorities or lenders. Here are five essential steps to get there.
1. Remember that a menu plan is not a business plan. It’s likely that your menu is already well thought out, down to the shaved portobellos on your pasta. But your business plan requires equal, if not more, attention. That means determining your startup costs — such as settling on truck versus cart and new versus used — and how you’ll finance them. It means investigating locations, local permit regulations, customer tastes, marketing options, suppliers and competition. It means knowing where you will source your food, which commissary you will use and how you will transport it.
Fortunately, this is a well-traveled road. Many cities and counties offer step-by-step instructions on their websites, such as Portland, Oregon’s Multnomah County) while industry organizations, such as Off the Grid, offer online applications and assistance. And there’s always good old-fashioned talking with other food truck owners to hear their experiences and get a ground-level feel for the work.
You should also decide which type of business you will set up. There are several types — sole proprietorship, partnership, corporation, S Corporation or limited liability company — and each has its own ramifications for your tax obligations and personal liability. Most mobile food purveyors are either sole proprietors or partners.
2. Secure financing. Startup costs for mobile food businesses vary wildly, depending on whether you will be building, buying or refurbishing your setup. If you have large savings or a family loan to draw on, congratulations. But if you will be seeking a loan, you will likely have more success with a CDFI, minority depository institution (MDI), credit union or microlender. Many traditional lenders reject food truck loan applicants because they consider them high-risk and insufficiently profitable. (Our experience proves to be different.) So look into alternative lenders with a solid track record of responsible and affordable lending in the mobile food industry. Nonprofit lenders in particular, such as CDFIs and mission-based lenders, may also be able to connect you with reliable financial coaching and technical assistance.
3. Secure commercial space. All mobile food providers need a health department-approved commissary in which to prepare their food — home kitchens are outlawed in most places or need special certification. And if you intend to operate out of a truck, you will need to arrange for a garage or parking. Be ready to verify both of these items to licensing and permitting authorities.
4. Have your paperwork in order. There is a simple rule when it comes to permits and licenses: Deficient paperwork equals no mobile food business. So, before you meet with any local authorities or lenders, double-check everything, such as licenses, permits, insurance, trademarks, etc. And then check it again.
5. Keep an eye on the essentials. Now that the work of starting your business is done, the real work of operating the business begins. You will learn as you go and as you grow, but it is essential to keep an eye on your cash flow, inventory, customer preferences, neighborhood demographics, new housing construction and suppliers — in short, anything that could affect your business. And stay financially healthy. Don’t take on more debt than you can afford. If you find yourself with an opportunity to grow or need to get through a rough patch, always work with safe, reputable lenders.
With these items in place, new food truck operators will be ready to start their ovens — and their engines.
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