The Top Five Questions About Starting a Home Based Food Business
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.
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.
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.
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.
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.
Final Advice: Just Start
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!