How to Start a Home-Based Food Business
If you're a particularly passionate canner and preserve maker, this article can help you get started with a home-based food business. If you've ever thought about selling your preserves, this articles details what you need to know. Below is a quick start guide for starting a home-based cottage food business
Do Home-Based Cottage Food Businesses Need a Business License?
Someone asked me the following question after seeing my article about the California Homemade Food Act:
"I'm a beginner in this small business world. I'm baker whose focusing on cookies. I'm selling to family and friends. If this business grows, would i need both the county permission and a small business license or does one cancel out the other?"
That answer is you probably need both a home-based business certificate and a business license.
A home-based business certificate or license assures the public and local health department that you know what you're doing and that you're making foods that are allowed (usually as "non-potentially hazardous") under the cottage food, or homemade food, law.
A business license is the city or county's way of collecting tax on revenue-generating local businesses and also a way to make sure you are following whatever the local laws are around small businesses.
For example, home-based businesses in more urban areas usually have laws related to whether you will be allowed to:
- Have people coming to your house for your products or services
- Have signage in front of your home. Imagine you're living in a suburban subdivision and everyone has a sign outside. That's not something you see every day.
The takeaway is to learn the ins and outs of running a small business. Even though you are casually making food at home for sale, it's important to know about licensing, taxes and best practices for running a small business before announcing you're in business.
Can I Sell My Foods to Local Stores Without Nutrition Labels and Barcodes?
Another home baker wrote to me:
"This past holiday, I had an offer to put my cookie boxes in a local grocery store. However, since I'm not licensed or have a nutrition label/UPC barcode its not something I could do."
The answer is you probably can sell your cookies to the local market without having a nutrition label, thanks to the Small Business Nutrition Labeling Exemption. Small, independent markets often will not require a barcode.
Directly from the collective mouth of the FDA:
"The Federal Food, Drug, and Cosmetic Act requires packaged foods and dietary supplements to bear nutrition labeling unless they qualify for an exemption (A complete description of the requirements). One exemption, for low-volume products, applies if the person claiming the exemption employs fewer than an average of 100 full-time equivalent employees and fewer than 100,000 units of that product are sold in the United States in a 12-month period."
The takeaway is that most anyone making food products at home or on a small scale very likely will apply for the Small Business Nutrition Labeling Exemption at least in your first year of doing business.
That's enough time for you to know if you want to invest more and grow the business, n which case you then should invest in the nutrition labels and barcodes.
Can California Cottage Food Operators Take Orders Online and Ship the Food?
A home-based candy maker sent in the following questions about taking online orders and shipping:
"[Someone] told me he thinks the laws forbidding shipping may have relaxed since the law first came into effect. Do you know if this is true? How can I find out? I make a candy that is perfectly safe to ship, but I'm unable to sell online or ship it. If the law has changed I would love to know."
The answer is that the California Homemade Food Act does permit food businesses to sell online as long as the buyer picks up the products from you.
Everyone selling under cottage food laws follows the same rules. A small consolation, but it's worth remembering you're all in the same boat, and all enjoy the same benefits of testing and generating revenue with a home-based food business.
As far as the "how can I find out?" question, all states provide contact information for the local public health departments that oversee cottage food operations.
I called in and got the answer that in California, home-based businesses are not allowed to ship food in state or out of state. According to the spokesperson, the cottage food law was intended to support local home-based food businesses serving local eaters, not be a platform for selling food beyond the local area.
However, it is possible some counties will tell you that you are allowed to ship. It's up to you to ask them if they are able to override the state law or not. I'm relaying what the state told me.
The takeaway is that most states with cottage food laws make it easy to find the department that oversees the cottage / homemade food laws as a whole. If you want answers, it usually takes a little searching.
How Much Is Insurance for Home-Based Cottage Food Businesses?
Someone wrote and said: "I've been told that insurance runs about $250 per year for home-based food businesses."
That amount sounds like it might cover some aspects of the business.
Insurance brokers have quoted amounts ranging from $250 to $1,000 or more. As with all insurance, the more expensive it is, the better your coverage. Take a look at a company called FLIP which specializes in liability insurance for small food companies.
The takeaway is that f you're serious about maximizing sales through a home-based business you should talk to an insurance broker with food industry experience. As you might guess, they will be more than willing to write up a quote for you.
How Can I Start a Food Business When I Don't Have All the Answers?
Someone sent me the following challenge with getting her food business off the ground:
"Until I can figure out the best plan for producing the cookies, I can't do anything. My biggest concern is having it become something I hate doing because I don't have the right plan to make it happen."
Previous to the above statement was the following, "I have been selling cookies for years to friends, friend's friends and neighbors and my coworkers."
That's something. That's a big something. So the answer is you're already doing something without all the answers.
The takeaway is that you need to just start testing the waters. Even if you start at home, as long as you don't invest too much (e.g., haven't spent thousands on equipment or build demand through an expensive food tradeshow), you will have proven your concept.
If people love your foods, you'll have built a bigger fan base. This could lead to custom orders during which time you will have had time to think about what you really want to go with the business.
Thousands of people have started food businesses on a small scale over the centuries. When you say you can't do anything, there's another reason you don't want to start. Can I help you break through?
Can I Start a Bone Broth, Yogurt or Beef Jerky Business at Home?
Each state lists the foods you're allowed to make under their cottage food laws. The fastest way to get your answer is to check your state for cottage food laws and then look up allowed foods.
Many states do not allow making foods at home that require refrigeration, to minimize the chance of possible contamination or customer illness.
Then again there are visionary states like Ohio. For a $10 fee, Ohio residents can get a home bakery license which allows production and sale of potentially hazardous foods like cheesecakes and dairy-based foods.
The takeaway is that foods subject to spoilage, bacteria, and illness are pretty well controlled by state health departments or the USDA. For that reason, rarely, if ever, are these foods included on cottage food law "allowed foods" lists. However, you should check what your state allows, you may be delighted to find they have a separate home-based food business law.
Read about various ice cream recalls due to listeria for some good evidence as to why such foods are usually produced under very controlled conditions.