The Top Five Questions About Starting a Home Based Food Business
Home Based Food Businesses Can Thrive If You Know The Secrets To Succeed
Suppose you’ve gotten countless compliments on your potluck specialty, been asked to make every kid’s birthday cake in the neighborhood, or everyone consistently votes to have dinner at your house. In that case, a home-based food business might be the vehicle to take your talent and passion to the next level.
While it is, by nature, a less start-up intensive business, a home-based or cottage food business still requires careful research and planning. While preparing your custom BBQ sauce for friends or catering an event on occasion can feel casual, running your food business out of your home involve the leveling up of your organization and operations.
Once you get your foundation in place, a home-based food business has many advantages and benefits. Check out more at The Perks Of a Home-Based Food Business.
Researching the laws and operating standards surrounding cottage food businesses can be time-consuming. So we’ve rounded up the top five questions commonly asked about home-based food businesses below so you can get to the fun part faster.
Do I need a business license or permit for a home-based food business?
Whether you need a business license for your cottage business depends on the requirements of your state. As you scale up, you’ll likely want one to formalize your operations. Most states require a business license or home-based business certificate, or both.
Here are just two examples of the differing requirements in California and South Carolina.
California
In California, you must also obtain the licenses and permits required of all businesses, such as a local business license as well as a food handlers permit.
You will need a permit from the county health department. A home-based food business can choose from two types of permits, depending on whether you want to sell products directly to customers or through other local businesses like shops or restaurants.
Class A permit. You can get a Class A permit in California if you want to sell only directly to customers within the state of California. For example, with a Class A permit, you can sell at farmers’ markets, festivals, from your home, or in other ways that allow individuals to purchase products directly from you. To get a Class A permit, you must complete a self-certification checklist, but there will be no physical inspection of your kitchen.
Class B permit. You need a Class B permit if you want to sell indirectly to customers – for example, through stores, restaurants, or other venues that will sell your products for you. In California, you may not sell indirectly outside of your own county unless the county where you want to sell has stated explicitly that they will allow indirect sales of cottage food products. To get a Class B permit, your kitchen must pass an annual physical inspection to get a Class B permit. (California Health and Safety Code § 113758 (2022).)
In addition, through the California Homemade Food Act, businesses ARE allowed to sell products online as long as they are picked up in person by the customer. Home-based food businesses ARE NOT allowed to ship food goods or cater.
South Carolina
Compared to California, South Carolina has a more flexible scenario for foodpreneurs. This state’s regulations do NOT require inspections, permits, licensing, registration, or a food handlers permit. However, a business license is recommended for taxation purposes.
Under South Carolina’s newly renovated 2022 Home Based Food Production Law, “home-based food production operations” can now sell items beyond shelf-stable baked goods and candy to include a wider variety or goods.
No retail food establishment permit is required as long as all production stays in the home space. Home-based food businesses are restricted to selling only to the end customer. New reform to the cottage food laws has opened up sales to restaurants and retail spaces, as well as farmer’s markets, roadside stands, events, and from home. (South Carolina Code § 44-1-143)
Additionally, you ARE allowed to ship and sell foods online in South Carolina as well as offer delivery and wholesale.
What information is needed to obtain a permit?
While this also differs from state to state and may or may not require an inspection, you will generally need to be prepared with these pieces of information. Even if not required, it is always better to be over-prepared for venue or retail-specific requirements.
ingredients and full recipes for all of your products
a complete list of sources for your ingredients
labels for each product
source information for your packaging
a floor plan of your kitchen work space
a list of your equipment, utensils, and food contact surfaces
a certificate showing you have completed a food handlers course
Do I need insurance?
Anyone turning their culinary passion into a profit-based model should ensure they are well protected against the risks associated with running a home food business. However, even though you are making food from your residence, this doesn’t mean that you are immune to the risks associated with working in the food industry.
Food Liability Insurance takes the prudent step to protect you from unforeseen accidents or events. Whether you run you are primarily selling at your local farmers’ market or sell your special recipe BBQ sauce out your back door, the cost of your food insurance policy is mainly driven by the size and scope of the food business you’re running. Food Liability Insurance typically costs between $300-$1300 annually, depending on differing variables from state to state.
Labelling requirements for cottage food businesses have reasonable exemptions through the FDA.
What kind of labeling do I need?
Thanks to the Small Business Nutritional Labeling Exemption, the FDA exempts “low-volume” products from needing to use barcodes or nutritional contents. To be considered exempt a home-based food business must:
Not have more than 100 employees
Sell fewer than 100,000 units annually
Have less than $50,000 in annual sales
File an exemption with the FDA annually
Online submissions for the exemption can be made here on an annual basis.
Keep in mind that each food app, venue, or retailer might have its own qualifications for labeling with higher standards.
Selling home baked goods to retailers is possible through Cottage Food Business Laws
What kinds of goods can I sell in my cottage food business?
Can you sell beef jerky, fermented foods, and hot food? The answer is a predictable one by now; it depends on the regulations of each state. Forrager has a great resource for all 50 states that cover the foods that are allowed, controlled, or strictly prohibited. Their directory also includes valuable information about where you can sell in each state, if and how you can deliver, and limitations for the cottage food industry.
For example, Colorado will allow the sale of some “potentially hazardous” foods, like fermented sauerkraut, while South Carolina allows only baked and confectionary goods. Baked goods are the sweet spot of the cottage food industry with every state allowing for the sale of some type of sweets.
However, while some states will allow the sale of artisan cookies, they may not allow banana bread due to moisture content and shelf stability. There are exceptions to these rules. Special permitting may satisfy separate home-based food laws. For example, in Ohio, you can apply for a special “Home Bakery License” that allows for potentially hazardous baked goods like cheesecake and dairy-based foods. Where there is a will, there is a way!
Here are several other resources to check your state’s cottage food allowances for different types of food.
Starting at home is a great way to build a proof of concept for the big market with less financial risk and time investment. Not that the cottage food business is an easy street, however, there is just an ease of entry into the foodpreneur market that doesn’t exist in brick-and-mortar situations.
Starting small will help build your audience and allow you to scale up organically as you find success. Check out our other articles in the Grow Your Food Business Series on where to start!
Grow Your Kitchen Series: Jumpstart Your Food Business
During this series on Save A Plate Inc, we will look inside the JumpStart Your Food Business course, which is a comprehensive approach to start, grow, and scale your food business.
The JumpStart Your Food Business course provides a curriculum you can tackle at home on your own timeline, which will demystify the process to launch your journey as a food entrepreneur.
Why Build Your Dream With JumpStart Your Food Business
SAPi believes that every food entrepreneur deserves a seat at the table, and a lack of resources or time should not stop a dream from becoming a reality.
The food and beverage business can feel financially intimidating, and resources to develop a sound business model can be costly. In addition, lack of resources and confidence to take the leap can exclude some of our most valuable contributors to the food ecosystem. Now first time business owners, young entrepreneurs, and those switching professions will all have a seat at the table.
This course is written by SAPi’s founder and food visionary, Dr. Brandon Gantt. It provides all the pieces you need to create a food business plan coupled with your unique vision and value proposition with a sound strategy to make it a sustainable reality.
Likewise, his experience with previous endeavors that required copious amounts of research and bootstrapping business plans together, Gantt decided that the way to grow our food community was to make resources to start your own food business accessible to everybody. This course to grow your kitchen is for the people that know a food hustle is often grown late at night while working multiple jobs to make a real dream happen.
How Does It Work
The JumpStart Your Food Business curriculum is built for people who:
Want to find all the guidance in one place.
Need a flexible learning plan.
Want real-world examples of concept success.
Are ready to make their food hustle into a thriving business model.
The curriculum is broken into 20 self-guided units that can be done at your own pace. The JumpStart Your Food Business course will take you from idea to opening day without leaving any stone unturned. In doing so, you’ll go into your new endeavor confident that your business has a solid foundation. In addition, your brand will have a solid identity and voice.
The JumpStart Your Food Business course includes modules to:
Take your idea into action.
Learn strategies for market research from consumer to competitor.
Develop your unique selling proposition.
Develop your product.
Create a legal framework and financial foundation.
Build your brand.
Create a marketing strategy.
SAPi connects people in a diverse locally minded ecosystem that encourages and supports food providers in building and growing their visions. Your success is our success. So let’s meet at the table and make your food business dreams into reality.
Nearly three years on from a covid fever dream, the food and beverage industry has awoken to a new reality where nothing is the same, but everything is possible. Covid led to a meteoric fall from grace for the traditional paths of food entrepreneurism. A new reality showed vulnerabilities in the brick-and-mortar model, which had ruled the mainstream, and Covid changed food startups forever.
Not only did in-house dining disappear in 2020, but gone with it were the traditional ways of marketing and the kinds of services people were looking for (goodbye fine dining, hello comfort food.)
This compelled food entrepreneurs to get creative, strip down to the basics, and protect their employees. There was no contingency plan for a worldwide pandemic that would take down what most considered an untouchable industry.
Ingenuity was required, stamina was not optional, and business owners had to squeeze optimism from their food waste to navigate a new edible landscape. Where once a restaurant was a given necessity of life, it was now a wide-open race to meet the consumer demand within a new set of lifestyle habits and government rules.
The Great Food & Beverage Pivot
You were out of the game if you couldn’t adapt or pivot fast enough to a new, unfamiliar consumer landscape in 2020. Fortune estimates that over 110,000 food and beverage establishments closed that year’s end due to the Covid choke, which saw every food service segment affected. This astonishing number amounted to nearly 17% of all United States restaurants temporarily or permanently closing before 2021.
Today, the restaurant and cottage food industries have adjusted and made great strides in weatherproofing their existing businesses and starting up new ones more innovatively. Doing so is prudent insurance for the future. Whether you are a Michelin Star fine dining restaurant or a celebrated neighborhood food truck, agility is the magic ingredient to longevity in a worldwide pandemic or just your average Wednesday.
Top Lessons The Food Industry Learned From Covid
There were a few key lessons learned and pivots made that kept existing businesses afloat after 2020 and gave new startups their baseline survival guide after that. Below we list what worked when both small startups and big commercial restaurant machines were on the ropes.
1. The Cloud Kitchen Solution
Cloud kitchens or ghost kitchens were not new pre-pandemic, but if you had one already established in 2020, you were patting yourself on the back.
A cloud kitchen is a centralized licensed commercial food kitchen where a business can run its model entirely or as an extension of a brick-and-mortar business. They are essentially a scaled-down version of food service using delivery, catering, or fast-moving consumer goods models to get their goods to the public without the burden of full rent, staff, and greater liability.
You were in a good spot if you had already adapted a cloud model in 2020. You had fewer or no employees to lay off, less overhead to worry about, and most of all, the magical pathway to consumers was already built-in: takeaway or delivery.
Some savvy startups are moving straight to this agile model to assume less risk, investing more on social media and takeaway packaging design than on fancy menus and table settings.
2. The Birth Of The Digital Kitchen
Before the pandemic, social media had deeply entrenched itself into human psyches with foodies filming every meal on Tik Tok, spouting armchair reviews of restaurants on Twitter, and tagging a favorite food truck check-in on Facebook. Statistics reveal that social network users spent 82 minutes a day on social media in 2020, a 7-minute jump from the previous year, an escalating use that translated to new marketing approaches for food businesses.
When the great “stay home” period morphed into the “you can go out, but it’s uncertain out there” period, social media became one of the only places where people could connect. In a closed-down nation, social media was open 24/7.
Some business models converted partially or entirely to cloud kitchens that required heavy tech backend, reliance on established APP partnerships, and in some cases, the creation of bespoke APPs to connect with customers in a newly automated way.
In addition, marketing efforts became an entirely digital game. What was the use of a giant billboard or beautiful storefront when no one was strolling the streets? Social media became the new storefront, and an able graphic designer and copywriter became vital employees.
Lastly, when reopenings were led with menuless tables and drive-through pick-up windows, QR codes became the scan everyone got used to making. A smartphone became mandatory for those hungry souls looking for normalcy. A few years in, QR codes have evolved past only offering a menu. They are now our voiceless spokespeople sending new customers to informational landing pages, promotions, and social media platforms.
3. Omnichannel Restaurants
An Omnichannel refers to various ways that goods can be moved via multiple distribution channels. In the food landscape, this refers to all the models businesses use to move consumables, including delivery, takeaway, and third-party apps. As a strategy was growing pre-pandemic, it became fully formed after that.
Businesses that were able to pivot to third-party platforms seamlessly, or better yet, create their own sleek interface, became the easy, think-free go-to for those stuck at home. Innovative companies got creative, offering to-go cocktails, meal kits, and family sets to appeal to customers.
Now removed from the worst of the pandemic lockdowns, consumers have developed a taste for this convenience. Many of the APPs and omnichannels formed during this period have remained to keep up with new consumer behavior, with new startups adopting multiple channels from the first day.
4. Food As Thy Medicine
One interesting development that could only be brought on by an abrupt unknown virus, was a shift to healthier eating. Covid became a huge food disruptor, with many people now able to cook from home and take more time to consider the healthfulness of their choices. Knowing nothing about a virus except that a robust immune system might help, led many Americans to drop the cheeseburger and reach for the salad.
Besides a shift in considering our natural defenses, people had a lot of time to think about personal wellness, which led many to become active and become their “best self.” In addition, healthy food saw burgeoning popularity that led business models to shift to accommodate their consumer’s new vision of themselves and goals for their health.
This trend has continued leading to the adoption of more vegan, vegetarian, and gluten-free options as consumer demand during the pandemic reinforced their importance.
5. Budget For Higher Wages
The pandemic brought to light an ugly corner of the F&B industry; undervalued and underpaid labor wages. Over two years into the pandemic and 83% of restaurants in 2022 still report having trouble with staffing.
A lack of staff has a roll-on effect that impacts service, quality, and ultimately a restaurant’s reputation and bottom line. Beyond pay, the newly leveraged worker asked for a more equitable workplace with respect at the core.
The pandemic led to a food industry labor revolution with existing businesses building in a budget for increased wages, increasing benefits, and adding equity access.
Startups entering the food and beverage industry are also building in these factors before opening day. They also prioritize a healthy and respectful work culture that will retain valued employees.
