Lesson 6: Food Trucks
A food truck may seem like a big investment, but it can also give you the mobility you need to reach a bigger audience for your creations. It’s a big step, but hopefully, this lesson will give you food for thought.
Food Trucks
Financing Your Food Truck
Food trucks are definitely a step up in terms of your food business. There is more risk and more costs than simply running a small operation out of your home kitchen or selling at farmer’s markets.
The good news is that if you have successfully moved through these two stages, you’ve already done a lot of the groundwork that can serve as the foundation of a formal business plan. A business plan is essential if you’re seeking funding.
If you’re jumping right into a food truck business without perfecting your products, brand and value proposition first, you have a lot more work to do. We’ve covered the Business Canvas in our Entrepreneur Academy, which is great for a business that doesn’t need financing. But it won’t get your foot in the door of a financial institution because the canvas model is more focused on customers than financials.
Banks want to know that you are a reasonable risk, that you are on solid footing, that you have a recipe for success, and that the money they loan them will get a good return on their investment.
This is why an articulate, detailed business plan is essential. While the steps can vary, we’ll provide you with a summary of the things you want to include in a business plan.
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Courses
Introduction
1. Cottage Food Basics
2. The Business Plan
3. Pricing
4. Marketing
5. Food Booths
6. Food Trucks
7. Pop-Ups
8. Brick & Mortar
9. Exit Strategy
Business Plan Components
1. Executive Summary
More than likely, the person reading your business plan knows nothing about you and your business. This is where you tell them. You want to be concise and engaging without going into too many details. In many ways, it is your elevator pitch. Get them excited about your concept and how you are confident it will succeed.
Be sure that you cover your experience or expertise in the industry. If you’ve built a successful Cottage Food or food booth business or are a locally renowned chef, showcase it here.
The summary should also cover the type of food you plan to offer, where you’re going to sell it, why there is a demand for it, the projected costs and profit calculations and your future goals. Again, you don’t need to go into great detail. You’ll have plenty of time to do that later.
Tip: Although this is the first thing a financier will read, it should be the last thing you write. In completing the rest of the plan first, you will have a clearer idea of what you want to say since everything you write in the Executive Summary is supported by what you say in the ensuing pages.
2. Company Description
Start with the basics: your business name, structure, UBI number, ownership, years in business, address, etc.
Then, describe the food truck business you plan to operate.
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- What kind of truck will it be (truck, trailer, food cart)?
- Why is a food truck a better solution than a brick-and-mortar location?
- Will the food be prepared in the truck or in a commercial/commissary kitchen?
- Who are your biggest competitors, and how will you compete with them and any brick-and-mortar operations in the target area? Price? Quality? Uniqueness? Service?
- Who are your target customers?
3. Market Analysis
It’s not good enough to say that your food truck business will be successful. You need to demonstrate it with data and back it up with research.
In this section, you will want to go in-depth on the following topics:
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- Describe the food industry in general and the food truck industry specifically. Cover current and predicted future trends, growth rate, major customer segments, etc.
- Break down the customer base by age group, geographic area, socioeconomic status and any other key metrics that show you understand your target market and that there is a market for what you are offering.
- Define the size and growth potential of your target market.
- Identify any seasonal changes that may affect your business as well as seasonal opportunities to grow revenue in any anticipated slow months.
- How will you gain market share, especially in a new market with established competitors, including brick-and-mortar operations?
- Explain your pricing structure, gross margins and factors that may affect pricing and margins.
- What obstacles face your food truck business that need to be addressed and overcome?
- What codes and other regulations (local, county, state, federal) affect your business? Is there any legislation being considered that could impact you in the near future?
4. Organization & Management
Explain your organization and proposed management structure. This includes the management team who will run the business, their decision-making responsibilities, division of labor and other employees who will be working under the management team. An organization chart is an excellent way to think about it, and a diagram will help those reviewing your business plan understand how you are organized and how you operate on a day-to-day basis.
Here are the things to include in this section:
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- Legal Structure
- Are you a sole proprietor? Partnership? LLC? S-Corp?
- If a partnership or LLC, what percentage of the company does each owner hold?
- Management Team
- Full name of each manager
- Primary responsibilities
- Job Title
- Educational background
- Business background (specifically, what experience tracks to owning and operating a successful small business or food industry business)
- Skills they bring to the management team
- Any past track record of success, including data to back up any claims
- Community involvement
- Proposed or current salary
- Legal Structure
5. Product Line
This is your chance to explain what your products are, why your target audience will want to buy them and why they will become loyal customers down the road.
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- What are you selling?
- What variations in the product are available (flavors, fillings, colors, shapes, etc.)?
- Why are you so passionate about what you’re selling?
- Why will customers want to buy from you?
- What is your competitive advantage?
- Have your products been market-tested? If so, how was it received? Where was it tested?
- Are the recipes well-established or still being developed?
- What might cause a decline in demand? Would it be temporary or something you need to continually be aware of so new products can be introduced to increase demand?
6. Intellectual Property
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- Do you have any trade secrets or patents that need intellectual property protections?
- Will staff need to sign non-disclosure or non-compete agreements as a result?
7. Projections
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- Will your product line change over time? If so, how?
- Are new products in development?
- Will you expand your business model into new pursuits?
- Catering
- For-hire activities
- Food truck fleet
- Brick-and-mortar operation
8. Marketing & Sales
Attracting customers, getting them to buy and keeping them is at the core of everything you do in your business. A potential financier will want to know how you plan to do this on a sustained basis.
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- How will you compete with other food trucks in the area?
- Will you have lower prices, higher quality or products that aren’t currently on the market?
- Will products be sold from the truck, or will you sell through other channels?
- What type of events will you attend?
- How will you reach current and prospective customers?
- Will you advertise? If so, where?
- Will you have a website?
- Is online ordering planned?
- Social media? If so, what platforms?
- Will you offer special discounts or limited-time sales?
- Can customers get a free sample?
- What food truck apps will you use to help customers know where you will be next?
- If a loyalty program is planned, how will it work?
- What sales volumes are required to be profitable?
- What is a fair price for the products you will be selling?
- How many products will you need to sell daily to meet sales goals?
- How many days will your food truck be in operation each year?
- Is it year-round or seasonal? If seasonal, how many days, weeks or months will your food truck be in storage?
9. Requested Funding
This is where the rubber meets the road. It’s time to tell the lender how much you are asking for. As you consider costs, don’t forget the cost of any new or replacement equipment you will need, including a new generator if required, permits and licenses, signage, painting or wrapping the food truck and any other hard costs you’ll have for taking your business from a Cottage Food or food booth operation to a food truck. If you’re moving right into a food truck, factor in the additional cost of utensils, bowls, bakeware and ingredients.
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- How much capital do you need?
- What amount are you investing?
- What collateral are you offering to secure a loan?
- How will you use the funds?
- Provide a breakdown by cost center.
- Will additional funds be needed in the future?
- How will you repay your loans?
- What are the potential benefits to an investor if your truck does well?
- What is the projected return on investment (ROI)?
As you formulate this portion of your business plan, remember that a lender will typically look at five areas, known as the 5 Cs of Credit:
CAPITAL/CASH. This is your investment. Owners usually pony up 25 to 30% of the funds needed to start a new business.
CAPACITY/CASH FLOW. The object is to show you have the experience, passion and desire to make the business successful. This may include your business training and management experience, your business plan and cash flow projections — information showing you can meet your obligations, including paying back the loan.
COLLATERAL. This can include business property, furnishings, fixtures, equipment and inventory, and the owner’s assets such as stocks, real estate, etc.
CHARACTER. You’ll want to show that you take this whole thing very seriously and that you are a responsible person, which may be evidenced through your personal credit history and letters of reference from prominent members of the community.
CONDITIONS. Factors such as the overall health of the economy and your particular sector, industry trends, market forces, etc. and how these will affect your chances of success.
10. Financial Projections
If you’re starting from scratch, making projections can be tricky since it’s hard to lock down real-world costs while you are still in the startup stage. Again, Commerce’s SizeUp Tool can be helpful in planning.
If you are currently running a Cottage Food business or selling in a food booth, you will have a much clearer understanding of your costs, outside of the cost of the truck and related expenses. You will also have some data on historical sales, project margins, growth projections and other financial information that can help a lender make an informed decision.
If possible, project sales, costs and projected monthly and yearly profits for at least two years. Include a break-even point and the projected point in your startup cycle where you will consistently turn a profit.
11. Appendix
This is an optional section, but if you need any supporting documentation, management team CVs, letters of reference, etc., this is where it goes.