If you've gotten countless compliments on your cupcakes or find yourself with requests from friends to be their personal chef for special occasions, a home-based food business might be a great way to earn extra money while doing something you enjoy.
But even though frosting cakes or bottling your homemade barbecue sauce may seem fun, a home-based food business is still a business. As with any business, you need to plan and research before picking up your mixer or designing labels for your salad dressing.
Here are 10 things you should know before opening a home-based food business.
Since home-based food businesses often are built out of a hobby, many food entrepreneurs make the mistake of continuing to run their business in a casual way.
1. Learn your local laws.
Your first step is to determine the rules for a home-based food business in your area. Some states, such as California, have a law that allows home-based food businesses meeting certain criteria to operate without being certified as a commercial kitchen.
According to John Gerber, founder of law firm Upstart Legal, there can be additional local requirements to consider, including zoning, business licensing and permitting, and production and safety requirements for the specific product you sell.
“Failure to do this correctly will jeopardize the company’s ability to produce and sell product,” Gerber noted.
2. Know your market.
You could have the best cupcakes on the planet or the tastiest dry rub ever invented, but if there's not a market for your product, you won't generate enough revenue.
Chef Veronica Rains, author of Sell Your Organic Food Product, recommends doing focus groups, making small batches with inexpensive packaging, and selling your products to a few retail locations before fully investing in the business.
3. Conduct your business as a legal entity.
Since home-based food businesses often are built out of a hobby, many food entrepreneurs make the mistake of continuing to run their business in a casual way. Gerber recommends forming an LLC or corporation, as well as carrying insurance, keeping business accounts separate from personal accounts, and registering all products as trademarks in the company name.
“The legal entity, if properly managed, will keep the liabilities of the company separate from the assets of the individual owners,” Gerber notes.
4. Hire professionals.
While you may have designed a website for your homeowners' association or taken a college class in accounting, carefully consider hiring professionals for tasks that are outside of your main expertise. Although you could do these tasks, your time can often be better spent growing the business, and the result can be a smoother, faster-growing operation.
5. Put everything in writing.
To protect yourself and your company, aim to put all relationships and work-for-hire provisions in writing. This is also true for friends and family who help invest to get your business off the ground.
“If people other than the owner of the business are involved in creating or preparation of the product, the company needs to have them assign to the company any ownership rights they may have in their work,” Gerber says. These provisions should also be in place for vendors, such as website designers.
6. Have professional images.
Even if you bake your goods wearing your pajamas while your children do homework in the next room, you want to look like an established and polished company. Take the time to have a professional, well-designed website, social media presence, brochure, and business cards. Your product packaging should also clearly communicate your brand.
7. Make marketing a main priority.
Many food entrepreneurs assume that since many people love to eat, selling food products is easy. Steve Brodsky, owner of personal chef company 3 Star Chefs, says that's the biggest mistake he sees home-based food businesses make. It's vital to spread the word about your business.
“Put as much money as you can afford into marketing/PR/advertising right out of the gate,” Brodsky says.
8. Prioritize pricing.
Spend time researching comparable products and determining your costs before setting prices. When Myriah Zaytoun, a fashion designer and former food business owner, first started out she would price her products based on ingredient costs, but would not add her time as part of the price. She quickly realized that not all cooking jobs are created equal.
“You cannot make a profit if you charge $20 for a baking job that takes you four hours to complete, on top of the price of ingredients," she explained. "However, if you price things too high, you risk alienating your customer-base. I've learned to carefully weigh out all factors before pricing any baking job.”
Chris Henry, owner of personal chef service Fresh!, also cautions against pricing too low because that might set a precedent that's hard to break. You might get clients, but you probably won't make a reasonable profit, according to Henry.
9. Flex with ingredient fluctuations.
Prices for the items that you will use on a daily basis, such as flour, butter and eggs, are not static and will change based on the economy, availability, environmental factors, and more.
“When you price out your products, (leave) room for the prices to fluctuate so you can weather the increases and just revisit it on a semiannual basis,” says Kelly Delaney, owner of Cakes for Occasions.
10. Buy in bulk.
When Delaney was starting out, she aimed to save on expenses by only buying items for the upcoming week. She quickly realized that while the financial outlay was more up front, that she saved considerable money by planning ahead and buying common items in bulk.
“When you purchase ahead, in bulk, you save in the future,” Delaney says.
Tips to Start a Food Business from Home
If you don't start somewhere, you'll never start at all! Get your gears turning by thinking through these action items.
Which home-based food business is the most profitable?
This depends on several factors, including the type of food you produce, your target market, location, and marketing efforts. However, some popular home-based food businesses include:
Catering businesses
Meal delivery services
Food truck businesses
Online food businesses
How do you start a simple food business?
Choose your niche.
This will help you focus your marketing efforts and attract the right customers.
Create a business plan.
A business plan will help you map out the details of your business, including your goals, marketing strategy, and financial projections.
Get the necessary licenses and permits.
Depending on the type of food you're selling, you may need a license from your local health department. You'll also need to register your business with the IRS.
Find a location.
If you're selling packaged goods, you can sell online or at farmer's markets and specialty food stores. If you're offering catering or meal delivery services, you'll need to find a place to prepare and store your food.
Promote your business.
Create a website, advertise in local publications, and participate in food-related events.
A version of this article was originally published on October 24, 2012.
Photo: Getty Images
