Step 1: Assess your skills
If you’re reading this article, it’s likely that you have a food business idea in mind that you’d like to start. That’s great to hear! Having an interest in starting a business is the first step, but you should also assess your skills and assets before taking the leap.
Passion can get you a long way, but if you want to start a food business you’ll also need hard work and business skills. In spite of the fact that many first-time business owners don’t know everything off the bat, they know how to seek assistance when they run into something they don’t understand. It’s a lesson you should learn quickly.
How to start a small food business generally involves concrete steps such as choosing your business structure and finding funding, but there’s also the question of whether you’re willing and capable.
Think about your strengths, consider your support network, and brainstorm your resources before starting—better yet, research what resources you have access to.
Operating a food business means you’ll need to grapple with:
- Payroll
- Hiring and firing employees
- Buying from suppliers
- Marketing
- Creating a menu
- Real estate
- Purchasing equipment
- And so much more…
After that debate, let’s talk about the nitty-gritty, concrete details of starting a food business.
Step 2: Write a business plan
Having a business plan can be beneficial to your small food business in many ways. A business plan is a great way to get your thoughts and ideas down on paper, which can be useful to refer back to during the start-up and operation of your business. You can also use a business plan to obtain funding for your food business.
SCORE offers a variety of resources to assist you in writing a food business plan. A business plan can seem intimidating, but if you’re researching how to start a food business, you probably already have a lot of great ideas to include. While creating a business plan, you’ll need to follow a few steps.
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Set up a business budget
In addition to your business plan, your business budget is one of the most important elements of your business plan.
A business budget includes looking at all the costs you’ll need to cover to begin operation of your business, what funds you’ll need to operate your business once it’s up and running, and how you expect your business to make money in the long run.
A few examples of the costs you’ll incur and what you need to consider while starting a food business include:
- What type of food business you’re starting
- Cost of employees and management team
- Equipment
- Initial investment in food product
- Real estate
- Design for a physical space
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Study your competitors
Your business plan should include an assessment of your competitors. Food markets are highly competitive and saturated in many areas. In order to start your own small food business, it’s important to know who else is out there and what they’re doing.
Be sure to assess what your competitors do well and what they lack as you find your competitors. With your business, you can fill a hole where there is one.
It’s also a good time to look at prices and assess how much you’ll be able to make by doing business.
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Find a hole in the market
It is ideal to find a market gap when starting a food business. What customer desires aren’t being met by anyone else? Just because no one is doing it doesn’t mean customers want it-to make a profit, customers must want it and be willing to pay for it.
By identifying a gap in the market, you can decide what kind of food to sell and how to sell it. Among the options available for selling your food are:
- Meal delivery
- Baked goods sold to other food establishments
- In-home food business
- Food truck
- Wedding and special event catering
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Choose a concept
Choosing the type of food business you want is important when starting a food business. There are three main options: a brick-and-mortar restaurant, a food truck, and a home-based catering business.
Starting and operating a business with any of these options is a viable option. It is possible to start with one type of operation and eventually switch to another. It is possible to start a food truck or a home-based catering business with less capital than a brick-and-mortar restaurant, but both have complications.
Step 3: Set up your business
As soon as you’ve studied your market, identified where there’s a gap that needs to be filled, and created a business plan, you’re ready to start your food business.
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Choose a business entity
Choosing a business entity is the first step in setting up your food business. You can choose from a few different options, depending on your circumstances.
Sole proprietorships, LLCs, and co-ops are the most common business entities for small food businesses. Partnerships, S-corporations, and C-corporations are also options.
Sole proprietorship
Sole proprietorships are among the most straightforward business structures. In addition to being simple (and popular among food establishments), a sole proprietorship is also limited in its protection. As a result, if someone gets sick eating your food and wishes to sue you, instead of suing your business, they will have to sue you-and they can sue your personal assets.
LLC
LLCs are a step up from sole proprietorships. A limited liability company, or LLC, separates the business from its owner. LLCs limit a business owner’s personal liability. Additionally, LLCs offer tax efficiency and remain uncomplicated in terms of ownership structure, making them a great option for food business owners who want to be protected, but still have some flexibility when it comes to tax payments.
Cooperative
Cooperatives, also called co-ops, are business structures owned and operated by multiple people. Members or owners of the business own a portion of it. Co-ops are very common among food operations, particularly food production facilities, grocery stores, and farmers markets, and are among the most collaborative types of businesses available.
Business structures for food businesses can seem complicated and confusing at first. If, however, you start your business and decide that the structure you chose isn’t right, you can certainly change it. You can, however, consult with a business attorney if that sounds like a headache.
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Register your business
Registering for an EIN, or a federal employee identification number, from the IRS is recommended if your business employs others. An online application can be completed in minutes. It is highly recommended that you obtain an EIN for your business in order to get business loans, manage your taxes, and open a business bank account, among many other things.
Depending on where you operate, you’ll also need to register your business. In general, this information can be found on your state’s Secretary of State website, though the rules vary by state and even county.siness name search to ensure your desired name isn’t already taken by another business in your area.
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Register for all required licenses
When starting a food business, it’s vital that you have a valid license for preparing and selling food. Food businesses must obtain many different licenses and certifications.
It’s also important to note that what licenses you need will depend upon what type of food establishment your opening, whether or not you’ll be selling alcohol, and where you’re located. Different local jurisdictions can have slightly different requirements for food establishments.
Here are some types of licenses and certifications you might need for your food business:
- A food handling permit
- A Certificate of Occupancy or CO for your restaurant
- A liquor license or beer and wine license to sell alcohol
- A food license to make and sell food out of your home
- A resale license to be able to buy ingredients at wholesale
Whatever type of food business you’re starting, you’ll need permits and licenses. You can find out which licenses you need for your type of business from your local government office.
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Get insurance
Your business needs certain types of insurance if it employs workers and has a physical location that hosts customers. You might consider:
- General liability insurance
- Auto insurance for business vehicles
- Workers’ compensation
- Commercial property insurance
- Mobile food vendor insurance
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Separate your finances
Whatever business entity you choose, keep your personal finances separate from those of your business. It is much easier to figure out your taxes and expenses this way.
Starting a small food business requires opening a second bank account. In addition to using your personal bank, you can open a business checking account online with some newer banks.
In addition, you can get a business-only credit card if you wish. With a business credit card, you can build your business credit (assuming you use it responsibly and pay off your bills on time), which can eventually help you secure a business loan.
Step 4: Look for funding options
Getting started in a food business can be difficult without the funds you need to get started. Before a business becomes profitable, it can take months, even years, to invest in it.
In order to get started, many new food businesses seek funding from investors, seek loans, or ask for help from friends and family. The bank is one option for funding, but banks are typically hesitant to lend to first-time business owners. Alternative lenders are also available.
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Equipment loans
Buying a food truck or purchasing expensive equipment for your restaurant is a great use of an equipment loan. Equipment loans are simple: You receive a loan to purchase equipment and the equipment serves as collateral. In other words, you can have the equipment repossessed if you don’t pay back the loan.
Loans of this type are easier to obtain than loans of other types.
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Friends and family loans
If you’re starting a food business, who better to help you out than your friends and family? When saving up for your business, don’t be afraid to ask for help. Make sure you write down a loan agreement with your lender and stick to it.
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Line of credit
For someone starting a food business, a line of credit is a fantastic option. With a line of credit, you have access to a pool of funds. It is possible to borrow up to the limit of that fund anytime. Short-term cash-strapped businesses will find this to be a great option.
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SBA microloan
There is an SBA microloan available for food truck businesses or restaurants that need a little extra cash to get started. A SBA microloan is a loan up to $50,000 that is guaranteed by the Small Business Administration. SBA loan offers low interest rates and flexible repayment terms.
Step 5: Invest in product and tools
To start a food business, you need more than just cash and a business entity. You need equipment, food supplies, and a way to sell it all.
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Research suppliers
Supplier relationships are one of the most important relationships you form as a business owner. Suppliers provide your business with the food and products it needs to run.
Perhaps you can get cheap equipment and furnishings from a recently closed restaurant, or you can buy excess inventory they saved. Several foods can be sourced locally, and trade publications or professional organizations, like the National Restaurant Association, may be helpful.
Make sure you find trustworthy, reliable suppliers so that you can get your supplies on time and at the best price. Sustainable companies are becoming more attractive to customers, so where you source your food can also be an advantage.
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Point of sale system
A point of sale system, or POS, is the modern equivalent of a cash register. Orders are taken down by your waitstaff, charges are made, and payments are received.
Many restaurant POS systems are available on the market that offer enhanced user-friendliness, including:
- Clover POS
- Square for Restaurants
- TouchBistro POS
- Lightspeed Restaurant POS
- Toast POS
- Loyverse POS
Using Square, for example, is great for mobile companies since all you need is a compatible phone or tablet to do business. Some, like TouchBistro, are better suited for full-service restaurants that would benefit from tools for managing customers and floor plans. Your food business’s needs will determine what kind of POS system you need.
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Buy or rent necessary supplies
A lot of supplies are needed before your restaurant can open its doors to customers, so that your restaurant will be inviting to customers, serving up good food, and making money.
Here are some examples of supplies you might need in addition to your POS system:
- Kitchen appliances
- Cold storage
- Cookware
- Flatware and utensils
- Glassware
- Furnishing for the restaurant
- Cleaning supplies
In some cases, you can buy these in bulk, but if your food business is mobile, you may want to consider renting equipment – which might work out cheaper. If you run a catering business, for example, you might not need tons of flatware and utensils just yet. By renting on a case-by-case basis, you can save money and understand what a realistic order might be when you’re ready to purchase.
Step 6: Hire staff
Depending on what kind of food business you’re starting, you may or may not need help. Even the smallest establishment usually hires extra workers to increase production. It depends on your needs who you hire and how many people you hire. The floor of a large-scale restaurant will require more employees than that of a food truck, for example.
Among the staff you might need are delivery drivers, hosts, waiters, dishwashers, bartenders, and busboys. Incorporate hiring staff into your business plan, as additional costs, like workers’ compensation, may need to be incurred.
Step 7: Set your pricing
Setting your pricing is a crucial step in starting a food business. Making money from your food products is impossible without the right price.
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Do market research
Conducting market research is the first step in determining what you should charge for certain foods. Take a look at what your competitors are serving, how much they are charging, and what their portion sizes are.
It gives you a starting point for determining the right price for food, but it’s only a starting point. Although it gives you an idea, it doesn’t tell you whether the business is profitable.
Be aware of emerging food trends and what they indicate about consumer priorities. For example, wellness trends in food suggest your business might do well if you can tap into a health-conscious market and sell them on the health benefits of your products.
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Price out the cost of your product
Calculating the total cost of a dish isn’t easy, but it can be done. Be mindful of all the tiny ingredients in a dish, such as oil, seasonings, and garnishes. Be sure to study up on the formulas and measurements professional kitchens use to calculate these figures.
Then, with a little magic and math, you’ll be able to price your product accordingly, so that you make a small profit from it, even when including the cost of labor to make, serve, and clean up the dish.
Step 8: Create an online presence
A food business is all about food, and it is, but you also need to get customers to eat your food. Getting into the food industry is notoriously difficult. Within the first two years, 85% of consumer packaged goods products fail. In order to avoid that fate, you need to establish your online presence and nurture your consumer base.
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Social media
The taste of food is important, but many diners shop with their eyes as well. Social media is one of the fastest ways to establish an online presence for your food business.
A food business’s best friend is Instagram. Your customers will want to try your food if you post delicious-looking pictures. Ensure you interact with consumers and show them that you are a company they can rely on.
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Website
Even though not every food business has a website, it can help establish your credibility. It is possible to post information for customers on a website, such as menus, restaurant hours, and specials. A small food business website can be built in many ways, so it’s easier than ever to sell products online or add helpful features like reservation widgets.
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Online review sites
Review sites are a necessary evil for food business owners who own restaurants, catering businesses, and food trucks. A TripAdvisor survey found that 94% of India. diners consult online reviews before visiting a restaurant. That’s the majority of diners. If you own a food business, you can hate the sites as much as you want, but you must have a presence there. Give customers a free perk to encourage them to leave reviews.
Step 9: Serve up delicious foods
There’s no doubt that food is the biggest draw when you’re considering how to start a small food business. What you’ll cook, how it will taste to diners, and what seasonal changes you’ll make. Owning a food business is not just about the food – it’s also about operating and managing it. Ensure success by studying up.
Don’t forget to serve up delicious dishes just as much as you can!
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