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LinkedIn: https://www.linkedin.com/company/lawpracticecle Twitter: https://twitter.com/LawPracticeCLE Starting and Running a Food Truck Business Rachel Schaffer Lawson, Esq. Schaffer Law Frim I. Introduction
Why are food trucks so popular amongst food service entrepreneurs?
Cost is typically drastically less than a brick & mortar restaurant
Profit margins tend to be higher than brick & mortar establishments
Mobile food units can be used to test the viability of a concept before committing to brick & mortar I. Introduction (cont’d)
The first “modern” food truck started in 2008 in Las Angeles by two entrepreneurs craving Korean-style beef in a Mexican taco.
Kogi Korean BBQ would gross $2 million in its first year of operations
Kogi’s success has spawned a mobile food revolution of imitators seeking to ride Kogi’s coattails to financial success
According to Food Nation, a U.S. Chamber of Commerce Foundation, there are currently 300+ active food trucks in U.S. cities.
The industry is estimated to have reached $2.7 billion in revenue in 2017
This is a massive jump from the $650 million in 2008 I. Introduction (cont’d)
How does Nashville measure up? According to Food Nation, Nashville is ranked 10th out of the top 20 food truck cities Ranking is based on scoring in 3 categories:
obtaining permits and licenses
Complying with restrictions
Operating a food truck Nashville operating costs appear to be average and the interactions with city officials appear to be manageable Truck registration costs are on the high side, according to the Nashville Business Journal II. Types of Mobile Food Units
So you are considering the possibility of starting a mobile food unit.
What types of units are out there?
What are the cost differences between mobile and brick & mortar?
The type of vehicle you use for food vending can:
limit the revenue you could earn each day
decide parking or vending locations
dictate the type of products you can offer
impact the bureaucratic process you have to experience II. Types of Mobile Food Units (cont’d)
Type Pros Cons Average Cost Food Truck • No towing required • Startup costs can vary vastly $30,000 to $100,000 • Easy to park
Food Cart • Lower startup costs • Can only accommodate a limited amount of varies • Easy to clean and maintain equipment and inventory • Possibly faster permitting • Limited range of product offerings
Food Trailer • Ability to serve bigger crowds • Large initial and overhead costs $100,000+ • Offer larger variety of products • Towing vehicle required • Better pricing and profit margins • Restricted to only vending at certain locations
Food Bike • Lowest startup costs • Viability depends on products and location varies • Weather can cause seasonality
Bustaurant • Unique approach; double-decker bus re-purposed • Requires commercial drivers’ license $250,000+ to accommodate a commercial kitchen and • Very large initial investment (could rival a brick & upstairs dining area mortar restaurant) • Large product variety
Brick & Mortar Restaurant • No need to travel to your customers • Most expensive to start $500,000+ II. Types of Mobile Food Units (cont’d)
The most important factors to keep in mind when considering what type of mobile food unit to start:
budget
revenue goals and operating processes
finding a balance between all three III. Legal issues/Considerations
A. Entity Selection and Formation Choosing the proper type of entity is an issue for all types of businesses as every type of business has some degree of risk.
In food service, the risk tends to be higher due to the public ingesting the end product It is not advised to start a food service business as an unincorporated partnership or sole proprietorship The incorporated options left on the table are limited liability company or LLC, C- corporation (“C-corp”) and S-corporation (“S-Corp”)
All of these types of entities will provide a shield of liability protection between the owners’ personal assets and the general public
C-corps can easily be taken out of consideration due to the double-tax issue
Revenue is taxed first at a corporate rate and again when the owners pull money out of the business
This fact makes the C-corp not ideal for most small businesses III. Legal issues/Considerations (cont’d)
A. Entity Selection and Formation (cont’d)
The LLC and S-corp are both “pass-through” tax entities
revenue is “passed through” the corporate entity directly to the owners
One of the major differences between LLCs and S-corps is how owners are treated
LLC - owners are called Members and are required to pay quarterly estimated taxes
S-corp - owners are considered employees of the business and taxes are withheld from paychecks
I do not typically recommend an S-corp for a new businesses owner
revenues will not be steady starting out
managing payroll tax immediately is not something a business should have to worry about in the startup phase III. Legal issues/Considerations (cont’d)
A. Entity Selection and Formation (cont’d) Many food service businesses are started with multiple owners
Put an agreement in place amongst the owners before making a single sale
Issues owners need to address before getting into business:
profit and loss split
equity split
what to do in the event of a conflict
what to do if one of the owners dies or becomes severely incapacitated III. Legal issues/Considerations (cont’d)
B. Trademark protection Competition for market share in the food service industry is fierce; coming up with a good brand name and logo design can be critical to success.
Large amount of players in the marketplace - trademark infringement runs rampant
It is highly encouraged for anyone starting a food service business to engage in a full state and federal trademark search of the proposed name and logo
While it may not be possible to federally protect a local mobile food business, taking the steps to protect the name in the state of incorporation is highly advised
could deter a local competitor from trying to use the name
could defeat or cancel a federal trademark filed after the local business has begun operating III. Legal issues/Considerations (cont’d)
C. Permitting As with any food service business, food trucks require permitting in order to operate. City and county business licenses are needed certificates of registration for sales & use tax inspections by local health departments are all required
In certain areas of Metro Nashville, the business must obtain the proper permit through the Public Works Department in order to congregate at various locations around the city. other cities throughout Tennessee have similar requirements outside of Nashville - check city and county permitting requirements before making sales III. Legal issues/Considerations (cont’d)
C. Permitting Most mobile food units do not have the capacity or ability to prepare food directly on the unit. Therefore, they need an off-site location in order to store food products and prepare them. This location MUST:
be a health-inspected certified commercial kitchen (i.e. preparing items in your home kitchen is not permitted).
needs to have a receptacle to dispose of gray and waste water from the truck each day. Metro Nashville Public Works requires evidence of an agreement with a commissary kitchen in order to get permits to congregate in designated food truck areas III. Legal issues/Considerations (cont’d)
C. Permitting Commissary kitchens are available throughout most cities. Due to popularity of food trucks, many have wait lists Will require some kind of contractual commitment (i.e. typically a month-to-month leasing arrangement) in order to use their premises Ideally, a commissary kitchen will have the following available:
Dry goods storage
Adequate freezer and refrigeration storage
Adequate cooking facilities (many commissaries have a “shared” kitchen that several businesses use)
Dock for deliveries
Parking for unit overnight that includes power hook ups
Gray and waste water disposal IV. Conclusion
Mobile food businesses can be a fantastic way to test a food concept before committing to brick & mortar (examples: Biscuit Love and The Grilled Cheeserie).
Profit margins tend to be higher on mobile food units than brick & mortar
It is recommended that anyone looking to start a mobile food business due a considerable amount of diligent research about cost before jumping into this business Thank you!
Contact us at:
www.schafferlawfirmtn.com
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