If friends and family always rave about your homemade chocolate chip cookies, laksa curry noodles, or giardiniera, you might want to start a home food business. Home food businesses combine the convenience and low overhead of a stay-at-home business, the thrill of working for yourself, and the fun of utilizing your passion for food.
But all of these benefits come at a cost. Notably, home food businesses can be subject to much more regulation than other home businesses due to their potential public health risks. The FDA and your local health board don’t care if you’re running an accounting or transcription company out of your garage, but they get much more concerned when perishables like eggs and milk are involved.
In this article, we’ll review some tips and tricks to get your home food business off the ground.
Have an Idea
There are numerous different food items to produce, each with their own benefits and challenges. Baked goods are a popular item for home cooks due to their crowd-pleasing appeal and relatively stable shelf life without refrigeration. Jarred and canned goods are another popular option due to their shelf life, though improperly jarred or canned foods can still pose a major health risk. On the other end of the spectrum, you may want to create a meal service and deliver hot food directly to your neighbors.
This leads to another key question: how will you distribute your food? Is your business a delivery, pick-up, or mail-order service? If customers are coming to your home, you may run into more issues with local authorities, your Homeowners’ Association, or your neighbors.
Do Market Research
Most small businesses are completely capable of doing basic market research themselves. At this stage, you should ask whether there’s a demand for your product. What alternatives do consumers have to your product, and how will you stand out?
Do Product Testing
After answering questions about your product and competition, you can refine your product concept further. Experiment with some recipes and organize taste tests and focus groups.
If you can’t physically gather your focus group participants, you can still conduct a virtual focus group, as pros have done for years. Take advantage of videoconferencing software. If the focus group is testing your food product, distribute samples to each participant beforehand.
Write a Business Plan
We’ve written an easy, step-by-step guide to creating a business plan that will take you from answering a few simple questions to structuring your formal document. Be sure to read the whole thing, but the basic sections of your final business plan will be:
- Executive Summary
- Business Overview (what physical resources you currently have)
- Market Analysis/Industry Analysis
- Competitive Analysis (what demand you’re filling)
- Sales and Marketing Plan
- Operations and Management Plan (human resources)
- Financial Plan (capital)
Research Local Food and Safety Laws
Food businesses are unique among home businesses for how much they’re regulated. Laws vary greatly by state, but generally speaking, small businesses that are not conducting interstate or internet sales have less regulation. Food businesses producing foods that do not require refrigeration are less likely to face restrictions. Some non-perishable foods, like low-acidity canned goods, still have additional restrictions due to increased risk when eaten. Small producers are often exempt from food-product nutrition labeling laws.
Check with the FDA and your local health department to see if your business would be required to register as a food facility. And check with your state authorities to find out your local cottage laws. All states allow home food businesses to some degree—except New Jersey, where they’re banned outright.
Register Your Business
As the Small Business Administration (SBA) states, you might not be required to register your small business with the government. “But remember,” they write, “if you don’t register your business, you could miss out on personal liability protection, legal benefits, and tax benefits.”
An Employer Identification Number (EIN) is a company or sole proprietor’s federal tax ID, and claiming one for your business is effectively how you register with the federal government. You “need it to pay federal taxes, hire employees, open a bank account, and apply for business licenses and permits,” according to the SBA.
The need to register and license businesses with state and local governments varies depending on your location.
Choose a Legal Structure for Your Business
Taking your food business a step further, you can now consider different legal structures. There are several common legal setups for small businesses in the US. If you are the sole person involved in your new business, you will likely want to establish either a sole proprietorship or a limited liability company (LLC).
- A sole proprietorship is the most basic and least complicated legal form of a small business. It means a person is conducting business as an individual and the business will be taxed accordingly. Under this form, a person is personally liable for the business.
- An LLC provides some of the protection of incorporation by separating the liability of the individual person and the business. In addition, the owner can still avoid being taxed as a corporation. LLCs are more administratively complex and must maintain separate personal and business finances.
Get a Business Bank Account
Even if you are a sole proprietor, there are many good reasons to open a business bank account. It allows you to track expenses more precisely, can help in an audit, and lends a sense of professionalism to your company.
Create Your Home Workspace
When setting up a home business, we usually recommend creating a workspace as separate and distinct from your personal space as possible. However, this might not be an option with your kitchen: you likely only have one kitchen, and it will inevitably have to serve both your business and personal needs.
Instead, try to make that workspace as organized as possible. Professional chefs embrace the concept of “mise en place”: the idea that everything in the kitchen has its proper place. If ingredients and equipment are clearly labeled and easy to find, your work will go faster and your kitchen will stay more organized.
Also, consider any specialized equipment you need for your food business. Keep in mind that equipment financing can help you prepare a workspace for a new business.
Market Your Business
You won’t be able to sell your delicious treats if nobody knows about them. Search engine optimization (SEO) is the most important marketing tool for many new businesses since many consumers begin the search for goods on a search engine. Figure out what keywords you want to target, and ensure those keywords are featured prominently in your website’s headlines and copy. In addition, buy ads based on targeted searches.
Photography is important for all business marketing, but it seems to be a necessity for food businesses. Many chefs these days have achieved celebrity based largely on their Instagram accounts. Invest in professional headshots and photos of your food.
Take advantage of new food-delivery apps like WoodSpoon. The app is like Uber for home food businesses, matching customers with home cooks in their area.
Many home business cooks have mentioned the difficulty of pricing. Chris Henry, owner of personal chef service Fresh!, tells American Express that pricing too low “could set a precedent that is hard to break.” But chef Myriah Zaytoun points out that high prices could alienate your customer base.
When establishing pricing, remember to factor in labor and the fluctuating cost of ingredients. Remember that it is easier to slash your prices than increase them.
With a little preparation, practice, and luck, your food business can take off. Who knows? Maybe you’ll be the next Pepperidge Farm.