So, You Want to Start Your Own Food Truck Business

(Image credit: (C) 2018 Thomas M Barwick INC ((C) 2018 Thomas M Barwick INC (Photographer) - [None])

For anyone looking into starting a food truck business, today’s story will be of interest.

Prior to the coronavirus, mobile food trucks were everywhere: at sporting events, concerts, parks or just parked right outside our offices. They have an interesting history, as “The Food Truck Lawyer,” Nashville, Tenn.-based Rachel Schaffer Lawson observes in a post on her firm’s site:

“In 2008, the first ‘modern’ food truck was started in Los 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.” And most have succeeded, she says.

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“While the coronavirus has dealt a severe blow to restaurants in general, still, food trucks have managed to thrive in many places around the country so, for anyone considering getting into the business, this could be an excellent time,” Lawson says. “It is due, in part, to the fact that food service business is considered as essential and food trucks are well-suited for curb service.”

First Off: Is the Name You Want to Use Available?

Lawson makes it immediately clear that, “For anyone who wants to be an entrepreneur, there are four important legal considerations which make starting a food truck business just as complicated — if not more so in some ways — as opening a brick and mortar restaurant, starting with the name you want to use.

“I can tell you nightmare stories of folks who purchased a food truck, thought of a catchy name, had it painted on the truck, and splashed it all over social media only to receive a cease and desist letter from an owner who had trademarked the very same name.

“So, before just picking a name, you need to determine if it is it available or if someone else already has it protected. It is imperative to properly search the name as people are filing for both federal and state trademarks and getting them.

“The hospitality area is very crowded — it is critical to be sure the name is free and available, or you could wind up being sued. The United States Patent and Trademark Office (USPTO) has a free searchable database, which I strongly urge using.”

Lawson recommends being aware of creating possible confusion, even if the name you want isn’t the exact name already taken. For example: Adding an “s” or “z” at the end of a name will not save it from a likelihood of confusion analysis. So, if you manufacture computers and you want to name your company Apples, the “s” at the end is not going to save it from infringing on Apple’s trademark.

Select the Proper Business Entity

Every type of business has some degree of risk, but as Lawson notes, “In food service, the risk tends to be higher due to the public consuming the end product. Therefore, it is not advisable to start a food service business as an unincorporated partnership or sole proprietorship as this leaves the owners subject to personal liability.

“Your better options are a limited liability company (LLC) or a corporation, and the decision as to which is best reached after consultation with your attorney and accountant.”

Operating Agreements/Contracts with Partners and/or Chefs are Essential

As many food service businesses are started with multiple owners, “It is critical that the owners take the time to have an agreement in place among themselves before making a single sale,” she observes.

“You must address how profit and losses will be split, ownership percentages, and what to do in the event of a conflict. What are you going to do if one of the owners dies or becomes severely incapacitated? These are just some of the issues that must be addressed before getting into business,” Lawson underscores.

To Succeed, Small-Business Owners Need to Put Their Own Finances First

Who hasn’t heard of a successful restaurant that went south because of a disagreement with the chef? To Lawson, “The owners of a successful food truck will try to anticipate, ‘What if,’ and ‘Can I reduce that possibility by having a fair employment contract with our head chef?”

She also points out the reality that like any business today, “If you are hiring employees, then a handbook is essential."

Also — and this is something that is surprising for many new food truck owners — you will need a contract with what is known as a commissary kitchen. This is your food truck’s home base when not out serving the public. A commissary offers parking, hookups for electricity, water, propane refills, and wastewater disposal.

Many commissaries also offer additional services, like kitchen space to make and prepare food and cold storage space.

Permitting Required

“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 and use tax, and inspections by local health departments are all required.”

Lawson concludes on a note of caution:

“While profitable, it is recommended that anyone looking to start a mobile food business perform a considerable amount of diligent research about cost before jumping into this business.”

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Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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After attending Loyola University School of Law, H. Dennis Beaver joined California's Kern County District Attorney's Office, where he established a Consumer Fraud section. He is in the general practice of law and writes a syndicated newspaper column, You and the Law. Through his column, he offers readers in need of down-to-earth advice his help free of charge. "I know it sounds corny, but I just love to be able to use my education and experience to help, simply to help. When a reader contacts me, it is a gift."