Starting a food business from home is one of those business ventures that allows you to profit from what might have started as a hobby. However, starting a food business from home is not a piece of cake. You'll have to contend with challenges like balancing inventory and expiry dates, legal liabilities and an unstable supply chain easily influenced by anything from weather to degraded ingredients.
This guide will provide practical information on how to start and grow your home-based company, stay legally compliant and market your goods.
Is starting a food business from home profitable?
Yes, a home-based food business is profitable. The home-based food business belongs to the food industry, with a revenue of $996.40bn in 2023. The industry is projected to have a 3.4% CAGR from 2023- 2027.
There isn't enough numerical data on the profit a home-based food business owners make. Some earn a few hundred dollars a month, and others earn enough to call their home-based business a career. The amount of money you make from a home-based business depends on several factors, one of which is your product.
For instance, the Bureau of Labour Statistics reported that entrepreneurs who raise bees and sell honey could make as much as $71,000 per annum. While not a home-based food business, this shows how producing something from your premises can be profitable.
Also, it is essential to note that most states have a set limit of earnings a home business mustn't exceed to avoid being considered a commercial food manufacturer. States like California and Texas set their limit to $50,000.
A good marker of a profitable business is how it reacts to economic recession and inflation and if it comes out stronger or not. This is especially important now that the US economy is going through its fair share of inflation.
Find out more: Need funding? Check out our guide on small business grants.
Why should you start a food business from home?
Aside from being a profitable business venture in a promising industry, here are some other reasons to start a food business from home
Low overhead cost: a low startup cost is one of the most significant advantages of starting a cooking business at home. It affords you the opportunity to avoid the expenses that come with securing a retail space and setting up a commercial kitchen. This way, you won't have to pay for rent and utilities for two different locations. You might end up saving thousands of dollars at the initial investment stage.
Low-risk venture: with a home-based food business, you can experiment with various products at the onset of your business to discover what resonates with your consumer base. Your business would likely survive this experimental stage since your investment capital remains relatively low. Therefore, the risk quotient is minimal compared to that of a commercial food business.
Flexible working hours: running a home food business means you won't have to deal with the bureaucracy and red tape of working with a franchise. You can decide what product to sell, hours to work, and orders to fulfil. These days you can even organize your schedule and inventory by using software applications for home-cooked food.
No commute: shuffling from your home to a shared kitchen or a retail unit can quickly become tiring. Asides from the time and distance covered, you would rake up additional costs in the form of gas bills and vehicle maintenance. Running your food business from the comfort of your kitchen means you won't have to worry about all that.
Risks to consider when starting a food business from home
Like with every business, starting a home-based cooking company comes with its own set of challenges. Here are some things to look out for before you start a food business from home.
Home inspection: you might need to have licensed space in your home depending on the kind of home food business you run. A licensed space would attract some fees and necessitate regular visits from an inspector to ensure you adhere to local, state or federal regulations.
High marketing cost: since you don't have a retail unit in a commercial location, you may not have proximity to a readily available consumer base. Therefore, you'll have to go the extra mile to create awareness for your product. You'll incur additional costs in running advertisement campaigns or organizing tasting sections for your start-up.
Home distractions: if you're not disciplined enough, distractions from your children and family members could interfere with your focus and limit productivity.
No employment benefits: since you're your own boss, there's no upper management to bestow perks and rewards for your work.
Skills and personality traits
As an entrepreneur selling food from home, people expect a more personal touch and homey feeling from your food. Here are some skills that will help you connect more with your customers:
Communication skills: will help you cater to clients with unique dietary requests or restrictions that could potentially mess with your menu. The ability to consider what your clients want and incorporate them into your menu will help boost your value proposition. Most consumers want to feel like their meal was explicitly designed to suit their palates.
Creativity: yes, cooking is an art requiring creativity and ingenuity. People who indulge in delicious feasts from high-end restaurants do so for the exquisite taste they offer. So, the ability to dazzle your clients with your artistic brilliance can help keep them wanting more. Return clients translate to consistent business.
Adaptability and flexibility: some clients have specific periods they order food, while others are more unpredictable with cravings. A huge part of thriving in this business is the ability to work around your clients' orders. You'll also want to set aside time to purchase ingredients, budget your meals, prepare dishes and keep your workspace clean.
Start-up costs and funding opportunities
The start-up cost for a home-based food business is dependent on a couple of factors like the scope and size of the business you intend to run, your product, the number of hours you'll be investing per week, the location of your home and much more.
On average, it should cost about $3,000- $5000 to get your home cooking business running. This should cover expenses like food licenses, State business registration fees, ingredients, labels and packaging, business cards, website, kitchen tools, etc.
Funding opportunities
Due to the low overhead cost of this business, most entrepreneurs that venture into it tend to self-fund. However, if you're unable to do that, there are several funding opportunities you can benefit from for small businesses. You can secure loans from family and friends, banks, and SBA. You can read through our guide on small business loans to get more information on securing loans.
Also, if you're interested in securing funding through grants, you might want to go through our guide for small business grants tool.
How do you start a food business from home?
Here are a few steps to follow when starting a food business from home:
Create your business plan
Creating a business plan helps you get a clear picture of business goals and how you intend to achieve them. Also, it helps to have an effective business plan if you're trying to secure funding from investors. Here are some of the things to keep in my mind when preparing a business plan:
- Target market: Trying to target every consumer would make your job very difficult, especially in a market as big as the food service industry. So, zero in on your target market and try to provide value to them first.
- Unique selling point: research your market, study your competitor, and determine your value proposition. Your value proposition is why consumers would choose your business over the competition
- Sales and delivery: you need to determine where consumers would encounter your product. It could be online, markets and fairs. If you decide to go with an online sales platform, you'll have to work out a delivery method as well. You can make use of delivery platforms like GrabFood and ShopeeFood.
- Growth Plan: depending on your vision for the home-based food business, your business plan should include your plan to scale up and exactly how you intend to go about it.
What are the primary laws and regulations you need to know to start a food business from home?
The FDA regulates most food offered for sale in the US, except for home-cooked food. Since a private residence is not a facility, it doesn't need to be registered with the FDA. Laws for home-based food businesses in the US are regulated at the state, county or municipal level. Some States like Kentucky and New Jersey don't even allow home food businesses.
Therefore, you must check in with your local officials to ensure you've got the correct information on home-based food laws in your state. Rely on your county's health department for proper guidance and documentation needed to run your business from your home kitchen legally.
How do you set up a food business from home?
You start by registering your business. You need to create a unique business name and also decide on what business structure you'll be operating on. Many states require that the business name and entity be registered with the secretary of state's office. Each state determines what permits and licenses you'll need to operate legally. But here are some of the permits and licenses common to most states:
- Sales Privilege License
- Food Handler's License
- Health and safety permits.
- Zoning Laws and permits
You get the health and safety permit only after your kitchen passes the health and safety inspection. The state or county could fine you if caught running your food business from an uncertified kitchen. If you stay in a condo or a townhouse, you might want to take a look at the homeowner's association rules and regulations to be sure you're permitted to run a home-based food business.
Since you'll be getting regular visits from health and safety inspectors, you need to make sure you comply with food safety procedures and proper food storage. Educate yourself by taking courses on food hygiene and food allergens to understand how to prevent/handle cases of food poisoning and food allergies.
Also, it’s advisable to conduct a proper risk assessment and put things in place that can curtail unforeseen circumstances in your workspace—for example, having a fire extinguisher in case of fire or a first aid kit in case of minor injuries.
How to advertise your food business from home
Your marketing strategy is crucial to the growth of your business. Here are some tips on how to grow a food business through effective marketing.
Designing a logo and effective packaging are great signifiers of your brand and business. Therefore, it's vital that they are tied together cohesively to present a professional image of your business. You can use online platforms like Youfeed, BlueCart, and Casitron to sell your home-cooked food online.
Another great way to market your business is using social media platforms like TikTok and Instagram. Through them, you can upload delightful menu pictures, jump on trends and connect better with your target audience.
Finally, you can never go wrong with customer reviews, either online or by word of mouth. This has proven to be one of the most effective ways of creating awareness about small businesses. The icing on the cake is that it's the most cost-effective mode of advertising.
Find out more: Need more advice on this sector? Read our sector-specific articles.
Other Routes Into Business Ownership
Yes, there's a sense of accomplishment that comes with starting a business and watching it become successful. However, entrepreneurs can become business owners through other means, such as buying an existing catering business. Certain benefits come with buying a catering business for sale, including:
- Inheriting an existing customer base
- Might not have to train or hire new staff
- Access to already owned equipment and other inventory.
Buying into a business comes with its challenges as well, but educating yourself on the subject matter would help you navigate through the process better. You can find more information on how to buy an existing business in this guide.
You've identified a home-based food business as an opportunity to turn your passion into profit. Now go to your drawing board, whip up a business plan, get your business registered, come up with an effective marketing strategy and grow your business!
If you have any questions or need more clarification on what we've discussed so far, please contact us. We are more than happy to help.