Amid the pandemic, some out-of-work people have started food businesses in their homes, using handwritten flyers and Instagram accounts to advertise their wares.
These underground businesses can supplement income in uncertain times, but they’re often operating in a legally gray area, and that could lead to fines from local health departments. Going legit can also help you scale your food business from underground sales to farmer’s markets, online marketplaces or local stores.
While every state treats home-based food businesses a bit differently, here’s what you’ll need to look into to take the next steps with your food business.
Check State and Local Laws
When I opened my small-batch confectionary in Massachusetts, I needed to have my apartment kitchen certified as a Retail Residential Kitchen. The application process was time-consuming: I had to read the entire federal food code, become ServSafe certified in food handling, describe the items I planned to make and how they’d be processed and packaged, and have my kitchen inspected (I sweated this one, but I passed).
Massachusetts law only allows for home production of foods that don’t require hot or cold holding. Baked goods, jams and bread are fine, but pizza doesn’t pass. Cut tomatoes aren’t allowed, so a home-based salsa business is a no-go.
Massachusetts tends to be a bit draconian in its laws; had I started my home-based cooking business in New York, where I live now, I wouldn’t have had to get my kitchen certified or inspected. (New York only inspects if complaints are made.)
New York offers an expansive list of approved and banned foods that’s worth examining closely for its inconsistencies. While you can repackage dried pasta, you can’t make or dry your own pasta. While cakes and cookies are OK, custom cakes and cookies for weddings or special events are prohibited.
Cottage laws in Texas are even looser. Texans can make baked goods, jams, pickles, coffee and tea with no license required and no need to observe the Texas Food Establishment Rules, and the state’s Health Department can’t inspect home kitchens.
Some areas, like King County, Washington, don’t allow any sales of home-prepared foods. If you face those restrictions, look for a community kitchen space to rent, such as a commissary or church kitchen.
State and local laws not only determine what you’re allowed to sell but what, if any, business licenses or permits you’ll need before you can legally sell home-prepared foods. States, including Texas and Massachusetts, require food safety training, such as ServSafe. New York requires a Home Processing License (which is free and takes about two weeks to receive). My Massachusetts residential kitchen permit allowed me to sell direct to consumers; to sell to stores would’ve required a wholesalers’ license.
Several bakers shared their best advice about how to start businesses selling baked goods from home.
In addition to state laws, check local zoning regulations. You might not be able to have a home-based food business without a separate permit due to local zoning restrictions on home-based businesses. Or you might be allowed to operate a business so long as sales aren’t made onsite, with customers picking up from your home.
This is the most exhausting step, but it’s critical that you do it first, so you don’t invest time and resources in dreaming up a side gig you can’t actually run where you live.
Protect Yourself With Business Insurance
Home food business insurance may or may not be required in your state, but it’s the smartest thing you can do to protect yourself from liabilities like allergic reactions or food contamination. While ideally, nothing will ever go wrong, food spoils even in professional kitchens and you need to protect yourself.
Without insurance, you’d be on the hook for a hospital bill to cover an allergic reaction, which could damage your credit and empty your bank account pretty quickly. Liability insurance prevents a claimant from going after your personal assets in the event of an incident, and it’s pretty cheap: I paid $195 a year for a $2 million policy.
Before buying separate insurance for your food business, make sure you understand whether any other insurance you currently purchase (such as renter’s insurance or homeowner’s insurance) will cover your home-based food business. You may be able to extend coverage through a rider and you’ll often get a discount by bundling insurance through your current provider.
Invest in Supplies
Most states require you to package, portion and label food for sale. That means a food scale (mine needed to pass inspection), labels, a printer and ink. Packaging might include bags, boxes, tins or jars, depending on your inventory.
A local craft supply store is fine for times when you run out of packaging with a backlog of orders, but retail pricing eats into your margin significantly. Look for wholesalers to pare down your costs.
Vending at markets means special market supplies: a table and chairs, market tent (with weights so it doesn’t blow away), sign or banner, cash box (and change), Square or another equivalent, display items and decor to showcase your wares.
Yes, it’s more than you might think when you’re scrolling for Instagram inspo. How I did it on the cheap: thrift stores.
Build a Sales Strategy
Between social media, online marketplaces, and local outlets, there are more places to sell than you can probably handle as a new food entrepreneur. To avoid overwhelm, figure out where your business fits best.
I started my confectionary pop-up style, gifting friends with goodies while I worked out my recipes. Once I was licensed, I put up an Etsy shop to test the market. My products were a hit for the wedding demographic and the holiday season. I expanded to local farmer’s markets, but the price point never worked for me. I’d spend half a day manning a booth where I’d sell out of an item one week, then sell none at the following market. I always had leftover inventory, which had a limited shelf life. With Etsy, it took seconds to renew a listing and I made the product to order.
Think Etsy is the right platform for you? Check out our step-by-step guide to making money on Etsy.
Food businesses are flexible, and there’s no one right path to profitability. With a better idea of what it takes to turn a home-based cooking business legit, you can earn more and worry less, while making changes along the way just like you would to a recipe you’ve made your own.
Lindsey Danis is a contributor to The Penny Hoarder.
This was originally published on The Penny Hoarder, a personal finance website that empowers millions of readers nationwide to make smart decisions with their money through actionable and inspirational advice, and resources about how to make, save and manage money.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.