How to Get Funding for Your Food Truck Business
If you’ve ever considered opening your own restaurant but started thinking twice because of the inherent challenges such as looking for a big enough space and having to find and hire a lot of employees, then you’re not alone. Fortunately, a restaurant isn’t the only option you have to start selling your own kitchen concoctions. You can always open a food truck instead.
While there are some food trucks that are extensions of restaurants, a good number of them are owned and run by entrepreneurs who had a dream like yours. Planning to start a food truck begins similarly to a restaurant, where you’ll have to pinpoint what you’ll be offering, your brand identity, and so on. And just as with a restaurant, you need to figure out how you’re going to fund your venture. This is easier said than done, but you can make it a little easier for you by really taking a look at your options and figuring out which ones are best suited to your situation.
That said, here are a few choices for you to consider.
3 Tips on How to Get Funding for Your Food Truck Business
Rollover for Business Startups Plan
If you have a 401(k) or some other retirement plan you can’t touch yet because otherwise you’ll incur penalties? A rollover for business startups, or ROBS, is a perfectly legal way to access those retirement funds without getting hit with a penalty. To do so, however, you’ll need to set up a new C-corporation, and once it’s established, you can roll over the funds from your retirement plan into that ROBS. You can then use those funds to buy stock in your business, giving you some much-needed capital.
There are a few things to remember when you set up a ROBS plan, including having to be an employee of the new C-corporation, and any steps you need to take to comply with laws and regulations. The biggest upside to this option, as you can tell, is that you’re essentially using your own money, so there’s no need to worry about monthly payments and other fees. However, the downside is that you could lose your retirement funds if the food truck doesn’t do as well as you’d hoped.
Friends and Family
If you know someone who’s looking for opportunities to invest some extra money they have, at least consider pitching your business to them. Don’t forget to be professional, no matter how close you are. Don’t forget to have your business plan at hand when you present the idea. If they show interest, you can work out the details. Maybe they’re going to opt for equity financing, or giving you capital in exchange for part ownership of the business. Or perhaps they’ll just be loaning you the startup funds you need.
Regardless of what route you choose, remember to get everything in writing, and make sure both of you sign any and all agreements you make. If there are loans involved, don’t forget to uphold your end of the bargain and make your payments on time.
An advantage to this option is you may gain a business partner, which could make running the business easier than if you went the solo route. If you were planning to be the sole proprietor, then someone else being part owner of your food truck may seem like a downside. Another disadvantage is that you run the risk of crossing the line, somehow, because you personally know the lender, and that can put a strain on your relationship.
This is the most direct way of financing a food truck. If you have a considerable amount in your savings, you may want to consider tapping into it to fund the business. You won’t have to pitch your business idea to anyone, and you won’t have to keep track of any monthly payments besides what you pay your staff and any utility costs. From there, you can focus entirely on building your business as well as building a customer base.
Besides not having to make loan payments, another advantage to financing your food truck yourself is you have funds readily available. You can dip into your savings anytime you need to, and any profits you don’t reinvest into the food truck go right back into your savings account. As with the ROBS plan, though, you risk losing your savings if the food truck doesn’t do well.
All in all, a food truck can give you several benefits compared to a restaurant with a brick-and-mortar restaurant, including lower overhead costs, fewer staff requirements, and not having to rent, buy, or build a commercial building for the restaurant. You also don’t have to wait for customers to come to you, since you can drive your truck to a different spot each day to find what location works best for you.
Still, you need to work smart, and that means not letting your ideas get ahead of you. What use is coming up with a witty name for your food truck if it doesn’t get off the ground? That’s why, besides ensuring that you have a business plan and a financial plan, and that you carefully consider your options for acquiring funding.