A sole proprietorship can be a business with only one member that has not been incorporated by state filing. There are pros and cons to sole proprietorships. However, there is no distinction between owner and business and no liability protection. While sole proprietorships can reduce startup costs, they won’t limit your personal liability.

No matter how your business structure is set up, it is important to keep your personal and business finances separate. Combining funds can lead to huge tax, accounting, and liability headaches. Chase ranked first in our review of the best business bank options. A $300 bonus is available to new customers.

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Sole Proprietorship: Pros and cons

 

The advantages of a sole proprietorship	Cons of Sole Proprietorship
Simple Setup and Affordable	Unlimitable Liability
No corporate business taxes	There is no ongoing business life
There are no annual reports/filings	It is difficult to raise money
No restrictions on the use of formal business structures	Inability to take on business debt
Simple Recordkeeping	It can be regarded as unprofessional

 

 

5 Advantages of a Sole Proprietorship

The easiest type of business is a sole proprietorship. This type of business does not require any formal setup, annual administration, dedicated taxes or formal record keeping. A sole proprietorship allows you to simply sell goods and services. All bills and debts are your responsibility. All income from business is pass-through, and can be filed on your personal tax returns.

These are the five benefits of being a sole proprietorship:

1. 1. Easy setup and low cost

A sole proprietorship does not require you to file any paperwork or complete formal business structures. The only thing you need to do is start your business. You don’t even have to pay any filing fees or incorporation fees. You may need a permit, special license, surety bonds or business insurance policy depending on your industry. However, you don’t have to file any filings with the state.

This ease of setup and low cost of administration/management makes sole proprietorships great for cottage industries and seasonal businesses. It can be very beneficial to start a new venture, especially one that does not have significant liability.

Sole proprietorships are so easy to establish that they don’t require owners to take the necessary steps to incorporate. This would give them liability protection and other benefits. These steps are not required for sole proprietorships, and they also forfeit the liability protection that comes with formal business structures.

You can protect your liability by incorporating as an LLC using a service such as Rocket Lawyer. You can legally seperate yourself from your business by having them assist you with federal and state filings.

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2. 2.

You don’t have to pay 21% corporate taxes on your business profits as a sole proprietor. You simply keep filing personal tax returns, and any income you receive from your business is claimed as pass-through taxes. All income is subject to your normal income tax rate. Solo proprietors often are exempted from the state franchise and excises taxes.

These exemptions make taxes for sole proprietorships much simpler and less expensive than those of C-corps. Revenue is taxed at company level, and then again when dividends are paid to shareholders. The current dividend tax rate is between 15-20% and 41%, meaning you can pay up to 41% on your taxable profits. This does not include income tax that you pay on your salary.

Pass-through tax benefits are not only available to sole proprietorships. Both LLCs and Scorps can be considered pass-through entities. They avoid double taxation as well as the corporate tax rate. However, LLCs can be subject to franchise or excises tax depending on their operations. This means that taxes may still be higher than sole proprietorships depending on the level of profit.

As a sole proprietor, you might be subject to the following taxes:

• Normal income tax – As a sole proprietor, there is no salary. All profits are instead filed on your personal tax return, and taxed at the ordinary income tax rate.
• Self-employment taxes – If you own a business, you will have to pay self employment tax on all income earned by that business. This is the employer-portion FICAtax. This means that you will pay 7.65% additional taxes, or 15.3-16.2% FICA taxes.
• Sales Tax – Depending on the nature of your business, you might need to collect and pay sales taxes if you sell goods. The amount varies from one state to another, but is usually between 6-9%.

3. There are no annual reports or filings

Solo proprietorships don’t need to file annual reports with the state. You don’t even have to file any other tax returns. This is in contrast with LLCs or S-corporations which generally have to file an annual report after they are formed. This report usually requires the updating of managers or members’ lists.

You would need to file many additional filings if you decide to use an LLC or LLP, Scorp, C-corp, or other entity instead of a sole proprietorship.

• When you officially establish a company.
• Annual filing- Charged in most states to keep you company current
• You must notify the state if you are changing managers or directors.
• List members –Many types companies must inform the state when their members change
• An annual audit – Some companies must submit an audit every year
• Company tax returns Certain types of companies must prepare corporate tax returns, and pay separate taxes for business profits

It is beneficial that sole proprietorships do not have to file an annual return. This saves time and headaches. However, most states charge a fee of $50-$200 for annual filings. Solo proprietors need only file their annual tax returns.

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4. 4.

Others, which are more structured, have certain restrictions on their operations and must meet additional requirements. These requirements do not apply to sole proprietorships. As a sole proprietor, you are free to make any business decision you like, provided it is legal. There is no approval or formal review.

You can skip certain requirements for other business types if you are sole proprietor:

• Annual meetings –Companies like LLCs must hold an annual meeting to review the lists of members and managers
• Board Meetings – Some companies must have certain business decisions officially approved by directors
• Recorded Minutes –Formal minutes must be kept for these meetings of LLCs and corporations
• Shareholder votes Any formal actions by the company, such as appointing new managers or admitting members, must be voted upon
• Formal Reviews – Managers need to be formally re-appointed and certain actions must be reviewed.

5. Simple Record Keeping

An LLC or other formal-structured business requires you to separate your personal and business finances. You run the risk of being open to unlimited liability. This is known as “piercing corporate veil.”

Sole proprietors are subject to unlimited liability so many sole proprietors don’t separate their finances. Sole proprietors deposit their business income directly into personal accounts and pay all bills and debts themselves. They treat the business as an extension to their personal finances. This could make it easier to run a sole proprietorship than an LLC.

Although it is simpler to keep business and personal finances separate, it is often not a good idea. Separate records allow you to monitor cash flow and help you manage your business better. First, open a checking account for your business.

Separating finances in a sole proprietorship won’t protect your assets, but it can assist with bookkeeping, as the business grows. If you choose to change to an LLC, or any other type of business structure, it will make things easier. Chase was voted the best business account by us after we reviewed them all. Bonuses are available to new customers.

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5 Con’s of a Sole Proprietorship

Consider the pros and cons of sole proprietorship. One of the biggest disadvantages to sole proprietorship is that it allows for unlimited liability. The business owner can be held responsible for all obligations. If you are looking to grow your business, it is possible that W2 employees won’t be available (only 1099 contract employees).

The following are major disadvantages to sole proprietorships:

1. 1. Unlimited Liability

You don’t have the limited liability protections that an LLP, LLC or S-corporation offers if you are a sole proprietor. If someone is hurt by your business, a product you sell, or a mistake that you make, then you are personally responsible for any business expenses or debts. This means there is no legal distinction between you and your company.

You’ll be responsible for some liabilities in a sole proprietorship.

• Your business’s expenses
• Business-related debts
• Product-related Liability
• Property-related injuries
• Insufficient or inappropriate service can result in civil damages

A sole proprietorship has unlimited personal liability. Customers, vendors, and lenders can seek your personal assets to pay any business obligations. This is in contrast with LLCs, Scorps and C-corps which provide a shield of liability between the business and its owners.

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The personal assets of the company owners are protected in an LLC or Ccorp. They cannot be taken by customers, lenders, or vendors to meet the company’s obligations unless the business owners do anything that would allow the corporate veil be lifted or if the owner signed a personal guarantee. A sole proprietorship may not be the right choice if you are looking to legally protect yourself.

Rocket Lawyer can help you form a single-member LLC. This will protect you from any liabilities that may arise from your company. You can visit them right away and receive legal documents in no time.

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 An LLC is a limited-liability company that protects your personal assets from creditors and lawsuits. Others entities, such as sole proprietorships and general partnerships, are unlimited liability companies. These businesses have the same owner and company. Therefore, you are liable for all debts of the business, even if the partner takes them on.”

– Josh Zimmelman, President, Westwood Tax & Consulting

2. 2.

Your business will survive if you set it up as an LLC or C-corp. Your business can continue to exist as long as your business files are current and you have proper licensing. However, if you are a sole proprietor and you have to go bankrupt, it is the end of your business.

There is no way to ensure continuity in a sole proprietorship. A family member or employee may be able to continue working in your business but they would be starting a brand new company. They wouldn’t be sustaining your operations. This makes it difficult to plan for the long-term and make succession plans for your eventual exit.

Sole proprietorships cannot hire full-time employees or W2 employees. Although you can hire 1099 independent contractors to work for you, it is not possible to manage payroll or retain employees over the long-term. You will need to incorporate an S-corporation or C-corp if you plan to hire employees in future.

3. It is difficult to raise capital

If you need to raise capital from outside investors, structuring your business as a sole proprietorship may not be a good idea. Because there is no business to sell, it is almost impossible to raise capital unless you have tangible assets and intellectual property that investors could buy into.

Sole proprietorships do not have equity shares and are not licensed businesses. There is no formal process for reviewing business decisions and approvals. Shareholders in sole proprietorships have virtually no rights. These concerns are why investors don’t usually invest in sole proprietorships.

Even an LLC can make it difficult to raise capital. However, you can elect an S-corp, which makes it much easier. A C-corporation is the best option if you need to raise capital, particularly from angel investors or venture capital firms.

4. You can’t take on business debt

A sole proprietorship is not a company that has been established. Therefore, it is not possible to obtain a loan for a business. All debt, even those you borrow to grow your business or run it, is considered personal debt. Lenders may require that all loans are personally guaranteed by the sole proprietor. This means they have the right to seize your personal assets in the event of default.

Because a sole proprietorship does not constitute a separate business entity, you own the business. You are personally guaranteeing the repayment of any business loans to sole proprietorships.

This may not be the case for other business structures. Even if you are an LLC, you will likely need to personally guarantee any type or loan you get, including an SBA Loan. When you take on business debt, make sure that you understand all of your personal responsibilities.

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5. 5. Perceived lack of professionalism

Customers and business partners often think sole proprietors lack professionalism. This may not be an issue for people who want to start a small business from home or make extra money. It is worth taking into consideration the pros and cons associated with a sole proprietorship when you are deciding on the type of business structure that you would like to use.

C-corporations, which are at the opposite end of the spectrum of sole proprietorships and partnerships, are commonly used by large companies around the globe. They are considered the most professional and well-respected. These entities are known for having the most rigid organizational structure and oversight regulations. However, they offer the best opportunity to raise outside capital and provide the highest liability protection.

Solo proprietorships on the other side do not have any form of oversight or management. A sole proprietorship simply means that someone is selling products or working for themselves. Sole proprietors often receive income from their business. Many bills are paid out of their personal accounts.

You can avoid some of this unprofessionalism by opening a small business checking bank in your business’s name. Many providers allow you to use an “doing business under” (DBA) alias. This will depend on the institution. You can find more information in our article on the Best Checking Accounts.

Sole Proprietorship Examples

The pros and cons of sole proprietorships make them ideal for small-scale entrepreneurs just starting out in low cost, low-liability ventures. This is also a better option for small-business owners with no substantial assets, which a creditor could pursue if the business fails.

These are some examples of sole proprietorships that are worth mentioning:

Amazon Businesses

Amazon businesses are often started by people who white label products. This can be done easily as a sole proprietor. You can find more information in our article How to Sell on Amazon.

Etsy Shops

To avoid the expense of setting up and managing a formal business entity, many sellers using Etsy are sole proprietors. You can find more information in our How to Sell on Etsy article.

Other Personal Business

Solo proprietorships can be used to run a variety of other businesses. Sole proprietorships can also be suited to independent service providers such as massage therapists or consultants via platforms like Upwork.

A sole proprietorship can work well for even a small snow-shoving or lawn-mowing business. In these instances, it is important to change to a business that offers liability protection prior to purchasing trucks and other equipment. For example, moving to an LLC or Scorp would protect you against personal liability in the event of injury.

If their business is only a small, part-time venture or a weekend business, some small business owners prefer to be sole proprietors. This allows them to avoid having to register or manage an LLC. However, those who grow eventually opt for a more formal structure which provides greater liability protection.

Alternatives to Sole Proprietorship

There are many business structures that can be used in place of a sole proprietorship.

Limited Liability Company

LLCs make it easy to create and manage a company. You can create them online in most states in as little as 5-10 minutes for $150-$200. Although LLCs offer limited liability protection for company owners, they require annual filings, up-to-date member lists, tax filings with K-1s issued members, and more formal administration.

Limited Liability Partnership

Limited liability partnerships are not available in all states. They can only be used to practice a licensed profession. They are tax-exempt entities and tax liability is passed to their owners based upon the ownership stake.

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Although LLPs function in the same way as LLCs, they can only be used within certain industries.

• Accounting
• Architecture
• Law

S-Corporations

S-corps, closely held corporations, are generally considered pass-throughs and receive special tax treatment in some areas. S-corps owners can pay their own salary, but the IRS doesn’t recognize LLC owners being entitled to a salary. However, they may deduct this expense from the corporate profit.

You can find more information in our article C-corps.

C-Corporations

C-corps are the most stable and expensive of all the business structures. C-corps are subjected to double taxation. Corporate profits are taxed at 21%. These profits are then subject to double taxation once they are distributed as dividends to owners of the company, at the individual income tax rate.

You can find more information in our article Ccorps and S-corps .

Is a Sole Proprietorship Right for

The pros and cons of sole proprietorships are beneficial for new business owners who are just starting out. They should not be entering a risky field or needing a lot of capital. They shouldn’t have to borrow money or be at risk of injury. Ideal would be a cottage industry.

Solo proprietorships work best for those business owners who do not have significant assets that could be taken over by creditors, vendors, or customers as a result of debts or liabilities incurred from the operation. This type of business is ideal for entrepreneurs who are just starting their business and plan to move to a formal structure later.

Frequently Asked Questions (FAQs

1. What are the advantages of an LLC over a sole proprietorship?

An LLC is a better option than a sole proprietorship because it limits your liability as business owner. The sole proprietor of a business is responsible for all its debts and obligations. An LLC allows business assets to be segregated from personal financial accounts. You are personally responsible for any business obligations only if you give a personal guarantee or do anything that would allow “piercing” the corporate veil.

2. 2.Why is it good to be a sole proprietor?

There are pros and cons to sole proprietorships. They can be very beneficial for small businesses or new ones. Unfortunately, many businesses fail. So it’s a good idea to start as a sole proprietorship until you know if your business will succeed. This is especially true for businesses that don’t require large amounts of outside investment or involve a lot of liability.

3. Are You Required to Register as a Sole Proprietor

You don’t need to register as sole proprietor. Depending on the industry you work in, you may need to register for specific licenses.

4. What is the best way to pay taxes as sole proprietor?

You can structure your business as sole proprietorship and continue to pay your personal taxes. You can claim any income you earn from business operations and pay self-employment taxes. Depending on the location of your business, you may need to collect and pay local and state sales tax for any goods that are sold.

Bottom Line

The sole proprietorship is an informal, great structure for small business owners. It is important to weigh the pros and cons when choosing a business structure. These businesses don’t offer liability protection or make it difficult for their owners to raise funds, but they are easy to set up and manage.

A solid marketing strategy is essential to help build your customer base and create a compelling concept for a food truck. A food truck is an excellent money-making venture idea. Food trucks that are successful can make more than $500,000 annually, and the startup cost is around $40,000.

It takes approximately three to twelve months to start a food truck. These nine steps are necessary:

1. Find out more about local food trucks and the laws that govern them
2. Select a name and a concept
3. Register your company and open a bank accounts
4. Fundraise for your food truck
5. Licenses, permits, or insurance?
6. Get your food truck registered
7. Equipment and supplies can be purchased
8. Train and hire staff
9. Your food truck can be marketed

Let’s look at each step.

1. 1.

Restaurant MBA estimates that the failure rate for food truck businesses is 60% within three years. Planning is often the key to a successful food truck or a failure. It is important to plan your food truck business so that you fill a gap in the market, supply a demand and operate within the law. Do your initial research and find out about the local food truck scene. Also, research local regulations and laws. These facts will help you determine if a food cart is the right business model for you.

Well-targeted food trucks draw big crowds.
(Image by James Frid from Pexels)

Evaluation of the Food Truck Scene

There are many food trucks in different areas. Before you start sketching your menu business plan, it is important to get an idea of the type of food trucks that are available in your area. Local food trucks can be found at festivals, farmers’ markets, and food truck festivals. You can start your search by simply searching the internet for “food trucks” along with the name of your county.

Take note of the following:

• Cuisine You want to choose a food idea that isn’t being offered by other food trucks around your area. You don’t want to be the only falafel food truck operating in a small community. You also want to choose a cuisine that is popular.
• Prices If most food trucks in your neighborhood sell food between $5 and $8, you won’t be able to go too far from this price range. If your area has many gourmet-style, higher-priced trucks, you’ll be able to let your imagination run wild.
• Parking Location This will allow you to see which neighborhoods are truck-friendly and which ones aren’t.
• Hours of operation: Breakfast or lunch is a popular time for trucks if many people commute to your area for work. It is a smart idea to develop a breakfast or lunch menu. You might prefer a late-night snack or dinner menu if you’re in a college or tourist town.

Take note of the service style and menu sizes at local trucks. Also, take note of where they park and how busy they are. You can also check out their social media accounts to see how well local trucks market themselves. Ask truck owners about their most pressing operational issues. They will be eager to share their experience with a new food trucker. The camaraderie and support from other food truck operators is one of the greatest aspects of most food truck networks.

Investigating Local Food Truck Laws

There are three main categories of regulations for food trucks: health, zoning and vehicle requirements. The health regulations regulate what equipment you must have for your truck, what permits your employees require, and whether or not you need a commissary. Zoning regulations dictate where your truck can be parked for service, in what areas, and how long you can leave it there overnight. You will need to register your truck, get a commercial driver’s licence (CDL), and determine what vehicle type you can use.

Each state, county, or major city has its own regulations for street vending and food trucks.

New York City requires that every person who works on a food truck must have a mobile food vendor license. Los Angeles requires all food trucks to display No Smoking signs on their trucks. All food trucks must have a current contract with the commissary kitchen in many major cities.

The Commissary Kitchen is A commercial kitchen that can be rented by the hour or daily and which supports mobile food operations. The kitchens in commissaries have refrigeration equipment and cooking equipment. They also have storage areas that can be used to meet the needs of local health departments. Many provide grease disposal and greywater areas, truck maintenance areas, and secure overnight parking.

You can usually find your local regulations by making a few phone calls to your county or city health department, and one to your county clerk’s or city department. You should always ask questions when you speak to someone.

• What permits and licenses are required for a food truck? And what does it cost?
• Are separate food safety certificates required for each employee or can one safety license suffice?
• What equipment is required for on-truck refrigeration and cooking?
• Do all pieces of equipment have to be professionally installed
• Do I have to use a registered commissary chef?
• Are separate vending licenses required for each employee or for the entire business?
• Is there a limit on vehicle size?
• What regulations must street vending trucks adhere to?
• Is it necessary to have a commercial driver’s licence in order to drive a food truck?

These questions will impact how much it costs to open a food truck in your area and how long it takes to complete the process.

2. 2.

Once you have an idea of the regulations that you will need to follow and what food types work in your area, it is possible to narrow down your options and name your food truck. While you need to take into account consumer demand, food trucks are well-known for their creative mixes and personal flavour. Food trucks that are successful reflect the owner’s personal interests and experiences. Buldogis is a popular Las Vegas food truck that serves Korean-inflected gourmet hot dog. Its owners are both American and Korean.

These are some of the most popular food truck concepts:

• Fusion dishes This concept combines two distinct cuisines in order to create dishes that appeal more to a wider audience, such as Tex-Mex and sushi burritos.
• Regional cuisine: Popular dishes like breakfast tacos from Texas or lobster rolls from New England are always a big hit, especially when they’re in tourist areas.
• Health and organic foods:Acai Bowls, cold-pressed juice and intriguing salad combinations are just a few examples of trendy health food options.
• Comfort food: From fried chicken to mac & cheese, grilled cheese and tacos, comfort foods often equal big food truck business.
• Gourmet sandwiches Who doesn’t like a good sandwich! Use non-traditional ingredients, or a theme to make your sandwich stand out.
• Pizza: A wood-fired pizza cart is very popular. However, it might require a permit from the fire department.

Name your food truck

Once you have a basic idea of the concept, you can choose a name that best describes your food. The truck name will be your logo and social media handle. It will also be displayed on the truck’s side. This guide to naming a business provides a detailed overview. Our restaurant name generator will get you started.

Here are some tips to help you choose a name for your food truck.

• Use a unique name. If another restaurant or food truck uses the same name, you risk violating a trademark. To check if your name has been taken, you can use the United States Patent and Trademark Office online search tool.
• Be descriptive of your name: Your name should be descriptive of your food, theme and concept. This will make it easy for potential customers to understand what you offer.
• Be memorable in your name and easy to pronounce Food trucks rely heavily on word-of mouth for a lot of their business. Avoid confusing names. Aim for four words.
• Select a name that is scalable: A business name that is catchy and fun will help you grow your business, whether you open new restaurants, add more trucks or create new menu items.

Create your Food Truck Logo

A business logo is the final piece of your food truck concept puzzle. It should be able to evoke quality food and compete with other food truck operators. Your logo will be used on all marketing materials, including menus, business cards and social media. If you have uniforms or truck designs, it will be the foundation for them.

The impact of your logo on how people approach your truck can be huge. A skilled designer is the best person to help you with this crucial marketing element. This doesn’t have to cost a lot of money. Fiverr lets you view portfolios of freelance graphic artists. They can design simple logos for food trucks or full vehicle wraps starting at $5.

3. Register your business and open a bank account

You will need to register your state and create a business entity before you can start a food truck. There are many business structures available, including sole proprietorship, partnership and corporation. An LLC is the best choice for most food truck operators. It protects you and your assets in the event that your business goes under, or becomes bankrupt.

While filing fees can vary from one state to the next, forming an LLC doesn’t have to be expensive. The cost of filing an LLC can range from $40 to $500. You can find all the forms on the state’s website for business offices. However, it can be difficult and complicated to file LLC paperwork. We recommend that you use a legal website such as Incfile if you require assistance. Incfile does not charge additional fees for filing your LLC. They can often process LLC paperwork within the next business day.

Register for a Business Bank Account

A business bank account will allow you to seperate your personal and business finances. The account will contain funds that you have invested in your company and can be used to pay licensing fees, permits, and vendor fees. Once your truck is operational, credit card deposits will be transferred to this account. You will also pay your employees and suppliers from the account. Ask your bank about business banking options. You can also see our list of the best checking accounts .

4. 4.

The cost of starting a food truck company can vary depending on where you live, what type of equipment you use, and what truck you buy. The table below, based on data from mobile–cuisine.com gives an estimate of the estimated costs for starting a food truck company.

Food Truck Startup Costs

Food Truck Startup Idea	Estimated Cost
One-time charges
Buying a Food Truck	$5,000 to $125,000
Vehicle Inspection	From $100 to $500
Retrofitting your Truck to Code	$25,000. – $50,000
Generator	From $1,500 to $10,000
POS Software System and Hardware	From $500 to $1,500
Paint	From $1,000 to $3,000
Truck Wrap	From $2,500 to $5,000
First Food Purchases	500 to $2,000
Papers, Utensils and Goods	500 to $2,000
Website Design	From $500 to $3,500
Initial Office Equipment and Supplies	From $200 to $1,000
Advertising and Public Relations	500 to $2,000
Consulting, Professional, and Legal Fees	500 to $2,000
Recurring startup expenses
Payroll (Up To Four Staff Members)	From $1,500 to 3,500
Commissary and Commercial Kitchen Rent	From $500 to $3,000
Monthly Credit Card Processing Fees	The average sales price is 3%
Fuel	$250 to $400
Insurance	$5,000
Permits & Licensing	50 to $10,000 depending on where you live
Total Estimated Costs	$40,000 – $200,000

Write a Food Truck Business Plan

If you want your food truck to succeed, it will need a well-written business plan. A business plan is what you put on paper to show potential investors and loan officers that your food truck can be a viable investment. A plan to become profitable will help you understand how long it will take your food truck turn a profit, and what funding you need to keep your business going until then. The food truck business plan is a blueprint for how your business will start, grow, and run.

These sections should be included in your food truck business plan:

• Executive Summary: Briefly discuss the current and future prospects of the food truck industry in your area, as well as your concept and theme. Also, consider other markets and industries that could have a direct impact on your business. This should not exceed a page.
• Competitive analysis Determine market trends and analyze your competitors in the food truck market. Are there other food trucks selling similar food or traditional restaurants serving the same type of food in your local area? This will help you to explain how your truck can appeal to these people by offering a unique take on a favorite dish, or spiced it up with a secret sauce.
• Organizational and management: Describe how you intend to manage your business. This includes standard operating procedures, staffing and the responsibilities of each key employee and partner. Is your truck only street-side or will it cater to private events? What will you use to prepare and store most of your food? Please describe the layout of your truck. What number of customers can you service in an hour?
• Product line List your menu and ingredients. Also, list the cost of cooking the food and the price you intend to sell it. Note if you’re sourcing ingredients from a notable vendor or local farm. This section should demonstrate that you are well-versed in food costs and profitability.
• Market plan: Describe your plans to market your food truck company. Word-of-mouth and influencer marketing are important marketing channels for food trucks. Your marketing efforts can be boosted by attending well-attended festivals featuring food trucks.
• Financial projections Break down your projected expenses and profits for the first three to five year. You should have a monthly breakdown of busy and slow months if you live in an area with many seasonal changes.
• Financial requirements: Describe how much money you will need to fund your food truck. When applying for a loan, indicate how much money you require.

Make sure you include every detail when preparing your business plan. In other words, you should list your marketing strategy and explain how each line item will reach the target audience, what it will cost, and how many customers they will bring in. Your product line should include all food items. The ingredients and price of each item must be listed. Include logos and branded menus. Include photos of the truck as well as a rendering by an artist if you have purchased a truck.

Food Truck Funding

Many people don’t have the capital to start a food truck. A key step in financing your business is financing. A majority of lenders will require you to prepare a business plan prior to issuing a loan. Make sure that you have this plan, as well as the amount and credit history.

These are some financing options for food truck owners who want to start their own business:

• Loan/finance program for equipment: You can borrow money from truck sellers or equipment financiers to buy the truck.
• Rollover to business startups (ROBS: If you have more than $50,000 in retirement accounts, you can create a ROBS. This will allow you to use retirement funds to fund your business without having to pay early withdrawal penalties.
• Business credit cards If your ability to pay off debt is a strong point, a company credit card might be a good choice.
• Personal Loan: This is an option for those with good credit and less than $50,000.
• Microloan From Small Business Administration (SBA: Although microloans are smaller than traditional business loans, they may still be large enough to cover startup costs for food trucks. For loans less than $50,000, check out the Microloan Program of SBA.
• Find investors: It doesn’t matter if it’s a family member or a friend, finding investors to fund your food truck venture requires strategy. To convince investors to finance your venture, prepare your business plan and your concept.

Some funding is not provided by banks or big investors. Crowdfunding can help you to cover some or all your initial budget if your friends and family are supportive of your food truck idea. The business plan can be used as a starting point for creating a convincing crowdfunding page. Crowdfunding for food trucks is a great way to get a crowd of people excited about your truck.

Our How to Crowdfund a Small Business guide will provide a more detailed explanation of crowdfunding.

5. 5.Obtain Licenses, Permits and Insurance

Did you do the same research as in step 1? This is the time to take action and get all required licenses and permits, as well as insurance. There are three types of licenses or permits you will need: general business licenses; food service licenses; and vehicle licenses. Most food truck permits and licenses will cost $100 to $500 depending on where you live.

A mobile food vending permit is one of the licenses your truck needs.
(Image from Charleston-SC.gov)

• General Business Licenses
• Foodservice Licences
• Vehicle Licences
• Food Truck Insurance

Licenses for general business include:

• Doing business as (DBA) registration: If you want to operate your truck in a sole proprietorship, or under a different name than the LLC registered with the state you will need to obtain a DBA.
• Employer Identification number (EIN), This number is given by the IRS to your business and serves as your identification for tax purposes. You will need an EIN if you are going to hire employees. Register for free at the IRS Website.
• Business license All small business owners need a licence to operate in the state where they are located. The cost of this license varies from one state to the next, but is usually less than $500. Some states combine the process of obtaining a business license with business registrations, but this is not the case in all cases. To find out the requirements in your area, you should consult your state’s business agencies.
• State sales permit: This license registers you business with the state’s sales tax authority. All food truck sales are subjected to local and state sales taxes. To ensure that you accurately log your sales tax payments, you must register with your state. This permit is usually free.
• Reseller’s License: This license allows you to buy wholesale goods and resell them tax-free.

6. Get your food truck registered

Many of the licenses and permits you will need depend on what type of vehicle you buy. This step usually occurs simultaneously with your permit process. A food truck can run from $3,250 to $300,000 depending on its condition.

No matter what your budget is, it’s important to invest in the highest quality food truck that you can afford. You can reduce the risk of having to repair the truck later. Look for a local builder to make sure that your requirements are met.

You should ensure that your truck has the latest equipment, such as:

• Ovens and refrigerators work properly
• With the right pressure, hot and cold water can be obtained
• First aid kits and fire extinguishers are available at board
• Proper food storage
• Professional installation of critical equipment

Some places require proof that the truck’s gas and electric equipment was installed by licensed professionals. Ask for documentation if you’re looking at a used truck.

Where can I buy a food truck?

There are many options available for buying a food truck. A seller can sell a used truck on eBay, Craigslist or through an online directory. A fully equipped truck can be purchased for as low as $50,000. However, it will require that you paint the outside and renovate the interior to suit your business.

Here are some good websites to locate used food trucks:

• Commercial Truck Trader
• Vending
• Road Stoves
• Miami Trailer & Equipment Company

An escrow service is recommended if you buy a truck online. An escrow service will hold your funds until the seller delivers the truck. They will release the funds only when the truck is accepted by you. eBay, for example, offers an integrated option to pay via Escrow.com in order to protect both buyers and sellers.

A manufacturer such as 800BuyCart can also sell a new food truck. Their standard trucks are priced at approximately $18,000. Ford, Nissan, Mercedes-Benz, and Mercedes-Benz are major car manufacturers. For pricing and other options, you will need to contact your local dealer. Prices for new cars from major manufacturers should start at $40,000 plus any equipment.

Construction of a Food Truck

If you have the funds, custom-built food trucks will set your food truck apart. Northwest Mobile Kitchens, Cruising Kitchens and Prestige Food Trucks are experts in building custom food trucks to your specifications. Custom food trucks can cost anywhere from $100,000 to $200,000. Everything is brand new and purpose-built. It doesn’t matter if the previous owners took care of the truck, or if the gas lines were installed by a professional.

Lease a Food Truck

You might consider leasing a food truck if you are only operating sporadically or have limited funds. Trucks are leased by brands like RoadStoves and Mobi Munch, both based in Los Angeles. Leasing is a good option if there are truck agencies in your area. Leases often include a lot of included services. RoadStoves customers get access to a commissary and truck parking as part of their truck lease. Food truck leases are often between $3,000 and $4,500 per month.

Leasing is not an option because the truck can’t be customized to meet your specific needs. Magnetic decals are a great way to personalize the truck with your logo or menu. You may have to stop your business until you find another truck.

7. Buy Equipment & Supplies

Now that you have your truck, permits, and menu in hand, it is time to set up wholesale accounts and finalize equipment requirements. You will still need additional tools, even if your truck has all the necessary equipment. Food truck equipment includes generators, condiment tables and registers. To avoid sales tax and bulk purchases, you will need to open accounts with food suppliers.

If you use your truck to cater event, you may want to purchase tables and chafing dishes.
(Image from Border Grill Truck and Catering)

Exterior and Truck Wraps

The truck wrap covers those bright trucks with nose to tail designs. Professionals should install a full truck wrap. It can last from three to five year. A truck wrap installation costs anywhere from $2,500 to $5,000, including design and installation. If you don’t have the funds, you can get smaller vinyl decals printed at your local sign shop and then install them yourself. You should not leave any area larger than 2 to 3 feet for the professionals.

Truck wraps can be purchased from a variety of companies including:

• Wrap Solutions
• Custom Vehicle Wraps
• Flash Forward Wraps

You can also paint your truck’s exterior. Although this is cheaper than vinyl wrap (ranging from $1,000 to $3,000), it should be done professionally. Painted decorations may not last as long and are less durable than vinyl wraps.

Your contact information and logo should be displayed on your truck’s exterior. Handwritten chalkboards or dry erase boards can be used to display food truck menus that are subject to change. A professionally printed, professionally designed menu is a good option if your menu changes little from day to day. A menu design can usually be requested from the person who designed your food truck logo. You can also use an app-based menu maker like the one provided by Canva.

Cooking and serving equipment

You may be able to cover most of your primary equipment requirements with your truck or commercial kitchen. You may have to buy additional cooking equipment if you require unique elements such as wood smoke, rotisseries or metal skewers. While commercial kitchens may have blenders, spatulas and tongs that you can use, the supplies available in a shared space are often limited. Cambro containers are a good option to transport your prepared food to your truck. Cambro also sells small equipment such as a food processor and baking sheets. Secure storage is a must in a commercial kitchen lease so that you don’t have the hassle of lugging your food processor from one place to another.

Catering will require you to have a few sturdy, collapsible tables as well as chafing dishes. This will allow you to keep your food warm outside. Most small equipment can be found at your local kitchen supply or restaurant. Sur La Table, a popular cooking brand, offers 10% off to professional chefs. These items can be found through Sysco or other mainline distributors. Table linens are the only type of equipment it is not worth investing in. These can be rented by you or your caterers to match the event’s color scheme.

POS Equipment

Consumers are increasingly relying on mobile wallet, credit and debit payments. Recent restudies have shown that 80% of consumers have used contactless payments in the last year. Up to 70% of millennials use smartphones for payment. Although it technically is possible to run a cash-only food truck you will be severely affected by inability to accept debit, credit and mobile wallet payments. A cloud-based mobile POS system is the best way to accept digital and card payments.

These tools have advanced significantly over the last few years, and are now more accessible to food truck owners. Many of our top-ranked food-truck POS systems are wireless and cellular-network-compatible, and many can be used for free. Square For Restaurants is our favorite food truck POS system. You can download the Apple App Store software and get started taking payments within a few hours.

However, POS systems can do more than just pay for payments. A good POS system for food trucks will help you track your inventory levels, alert you when stock is low, count inventory and track cash transactions (reducing the risk of employee theft). Modern POS systems can also be used to log customer information, manage social media accounts, monitor internet reviews, and more.

Setting up Vendor Accounts

Sysco is a mainline distributor. If your food truck is busy, you should open wholesale accounts. You will get a discount on food and beverages, and you can save time driving as many distributors will deliver directly into your commercial kitchen. Once your credit application has been approved, most vendors work on a net 30-system, which means that you have 30 days to pay the invoice. If you wish, you can still pay by check at delivery.

It may be more beneficial to open accounts with local wholesalers than national distributor chains. You should find one that supplies the majority of your food and beverages. The fewer suppliers you have, the less invoices you will need to process each month.

Tip: Create a single sheet that contains your credit application information to speed up vendor account creation. Your name, truck name, address, EIN and banking information should be included.