Wordless Wednesday

Starting a Small Food Business

*Disclaimer: this post is not meant to replace any information provided to you by your local or state health department; this is not legal advice, and some matters addressed are strictly opinion. Please do your research before starting any business!*

One of my first farmers' markets

As the owner of a small food company, I get asked a lot of questions about getting started in the industry, pricing products, laws and regulations - you name it, I've probably been asked! One of the most frequent questions I field is, "Do you make all these things in your home kitchen?" And many people are surprised at my answer, "No, it is illegal to sell food out of your home in the state of California." (This has changed as of January 1, 2012, but we'll get to that later.) Perhaps it is the food professional in me - the one who sat through food science classes in college, completed food handler training, had the concept of "wash, rinse, sanitize" pounded into my head... - but I was equally as surprised that people were so willing to purchase food from someone who was cooking out of their home, and had no idea it was illegal in the first place.

Don't get me wrong, I support the idea of a cottage food industry, but I also support the idea of having some sort of regulations to keep people safe and informed about their food sources. I think that California's law (AKA: California Homemade Food Act, AB 1616) has done a pretty good job of setting up guidelines, but I'm anxious to see how things really pan out. And to be honest, I'm a little frustrated by the fact that a cottage food business can sell their products wholesale to restaurants and other retailers, while I as a commercial food business (no matter how small) must pay roughly $400 per year and go through a rigorous (and nerve wracking) inspection to obtain a Packaged Food Registration (or wholesale license) from the state.

Exclusive of cottage food operations (they have their own set of rules), if you have decided you'd like to start a food business, there are a lot of things (read: expenses) that should be considered before taking the plunge. I have seen small food businesses fail simply because the owners "thought it would be fun" (and it can be!) but they haven't done their homework, haven't priced their products high enough to cover expenses, and haven't planned for rainy days.

Many of the expenses (overhead) associated with starting a food business (or any business, for that matter), are related to licensing, permits, equipment, marketing, and product development. Here is brief list of the expenses, fixed and variable, you'll encounter (and I'm sure I'll forget a few) when getting started:

• Fictitious Business Name Statement - $50, renew every 5 years (incorporating or filing documents to become an LLC will run even more, and there is an $800 annual fee to operate an LLC in the state of California, regardless of business income)
• Publish Fictitious Business Name Statement for 4 consecutive weeks - $100
• County health permit - $200+ depending on specialization within the industry, paid yearly
• Multiple Temporary Event Permit (if you plan to sell at farmers' markets or festivals) - $250+, paid yearly
• State license for wholesale - $400, paid yearly
• Business license - approximately $50 (varies depending on city), paid yearly
• Commissary kitchen rent - this will vary greatly, but plan to spend an average of $200/month depending on your business specialty and projected sales volume
• Business insurance - $500, paid yearly

Now, the aforementioned expenses can be simply considered as "the cost of doing business." On the flip side, there are quite a few other things to take into account. Will you need any special equipment to produce your product on a large scale? How will your product compete in a retail environment and how will you market it (branding, advertising, website, social media, etc)? What will it cost to package your product to meet government guidelines and consumer expectations? If you will be selling at farmers' markets or other temporary events, what type of things will you need to meet the promoter's booth requirements and comply with health code (ie: pop-up tent, tables, displays, hand and ware washing equipment)? Will you need employees? The list goes on. But one of the most important questions, and I believe it's one of the most often forgotten: What is your time worth?

What do this list of expenses and all these questions come back to? The sales price of your product. The ingredients in your jar of jam may cost you $0.50 (and remember, this is a variable cost - did the price of sugar go up this week?), but how much does the jar you put it in cost? Did you have to drive to the store to buy the jars, or were they shipped to you? How much is the label? What percentage of each sale does your merchant processing company keep when you swipe a credit card, or when you key it in for a phone order? Is your head spinning yet? Don't forget that last item on the list: the value of your time! I can go on and on with this, but I think Karen Gunton from the "build a little biz" blog says it better than I can in her post on pricing. It's a long post, but completely worth the read from top to bottom. Bookmark it, you'll want to come back to it!

All this aside, I truly believe that to run a successful food business, you must have a passion for what you do. I worked an event recently, and I had a break where there was no one at my table. As I watched the guests enjoy their evening, a gentleman came up to me and said, "I bet you wish we'd all just go home so you could pack up and get out of here!" By that time, between shopping, baking, kitchen clean-up, loading up my car, setting up at the event, and serving, I had been working and on my feet for about 10 hours. But, my response to him was, "No, not at all, I love feeding people!" Do I get tired, stressed, and frustrated from time to time? Of course. But without a passion for what I do, I could not do it day to day, and I certainly could not do it well. 

Do you run a small food business? Share your experiences!

-A.F.