A vibrant food truck community has emerged in RVA over the past decade. Seemingly every local event is anchored by a growing variety of independently owned mobile food operators. Why have food trucks become so popular amongst food service entrepreneurs? For starters, the typical cost of starting a food truck is dramatically lower than a brick-and-mortar restaurant. Furthermore, profit margins for mobile food units tend to be higher than brick & mortar establishments. Third, mobile food units can be used to test the viability of a concept before committing to brick & mortar.
According to Food Nation, a project of the U.S. Chamber of Commerce Foundation, there are more than 300 active food trucks operating across the U.S. Industry revenues are estimated to exceed $3 billion annually.
So how does Richmond measure up? According to Food Nation, RVA has not yet cracked the nation’s top 20 food truck cities, but for a sampling of the active food trucks serving RVA, click here.
So what does it take to start a mobile food business? This post provides a quick summary will cover the pros and cons of different types of mobile food strategies. In particular, it will summarize some of the key legal issues for mobile food operators: selecting and forming a business entity, trademark protection, permitting and commissary kitchen requirements.
Types of Mobile Food Units
The type of vehicle you use for food vending will determine (i) the relative amount of revenue a specific unit can expect to generate, (ii) the list of plausible parking or vending locations, (iii) the type of products you can offer, and (iv) the compliance requirements with which you will have to comply.
Critically important factors to keep in mind when considering the type of mobile food distribution strategy to start are your startup costs and operating budget, revenue goals, and operating processes.
Entity Selection and Formation
Choosing the proper type of business through which to conduct business entity is an issue for all entrepreneurs. Food service is a relatively risky business for obvious reasons. To maximize the legal protection of your personal assets from debts and liabilities arising from your food service business, it is essential to conduct business through a separate legal entity such as a corporation or limited liability company that offers limited liability protection to its owners. AVOID SOLE PROPRIETORSHIPS AND GENERAL PARTNERSHIPS AT ALL COSTS. Far and away the most popular choice of entity in today’s small business community is the LLC. Click here for more details about Virginia limited liability companies and a description of our LLC formation flat fee package.
One advantage of LLCs is the flexibility to choose your tax classification. This is a decision that should be made after consulting both your business attorney and accountant. A common tax-saving strategy for profitable small businesses is to form an LLC for legal purposes and elect to have the LLC classified for tax purposes as an “S” corporation. This is explained in more detail here.
Many food service businesses are started with multiple owners. If this is the case with your new business, you and your partners should take the time to put in place a written agreement (referred to as an Operating Agreement for Virginia LLCs) as early in the startup process as possible. The agreement should address a variety of basic issues such as ownership splits, contributions, governance/voting issues, buy-sell provisions, dispute or deadlock resolution mechanisms, and any other key business terms that the parties feel are important to preserve the sanctity of their business relationship and promote the success of their business.
Developing an appealing brand name and logo can be critical to success. When it comes to trademark law and infringement, many traps for the unwary or careless entrepreneur exist. Anyone starting a food service business should consider doing a full state and federal trademark search of their proposed name and logo. The last thing a business owner wants is to invest a substantial amount of money into a name or logo design and open for business only to find out the name has already been protected at the federal and/or state level(s). Given the local nature of most food truck businesses, it may not be possible to federally protect a local food truck business, but taking steps to protect your brand at the state level is advisable as it could deter a local competitor from trying to use the name and it could defeat or cancel a federal trademark filed down the road by someone else.
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, and inspections by local health departments are all required. One of the often overlooked requirements of mobile food units is a commissary kitchen. Most mobile food units do not have the capacity or ability to prepare food directly in 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).
Commissary kitchens are available in the area, however due to the popularity of food trucks, these establishments may have wait lists from time to time. Commissary kitchens typically will require some kind of contractual commitment (e.g., a month-to-month leasing arrangement or membership subscription) in order to use their premises. Ideally, a commissary kitchen will offer the following:
- 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
For assistance with your small business startup, transaction, and compliance needs, reach out to Eric Perkins at your convenience.