The pandemic-induced lockdown led many people to find new hobbies to pass the time. Cooking, for one, became a popular option, as influencers indulged in bread-making, while those with a more entrepreneurial spirit turned their passion for food into an actual business.
A prime example of a home-based culinary venture is a catering business, which presents an ideal opportunity to capitalize on your cooking skills, build a flexible work schedule, and start with relatively small startup costs.
Business analytics firm Dun & Bradstreet reported that the U.S catering industry includes an estimated 12,000 catering establishments and more than $11 billion in combined yearly revenue. So, to succeed in such a competitive yet potentially lucrative industry, it’s important to know the essentials and intricacies of catering—especially as states begin to reopen and people may have an increasing desire to hold events.
Below are some tips to run a successful home-based catering company.
Starting Your Catering Business
There are many moving parts to be aware of when starting your home-based catering business, including legal and startup requirements.
In the food and beverage industry especially, the privilege of serving guests comes with the responsibility to maintain a sanitary environment, one that is bound by health and safety regulations.
Legal issues, of course, are not the only crucial element a successful catering business needs to be mindful of. You need money to get off the ground and a positive reputation to grow from there, so understanding startup costs and initial marketing efforts can help your business thrive. Here is a deeper dive into five significant areas of business success.
Catering is a business like any other, with its own substantial amount of legal requirements. However, food preparation and serving make it more susceptible to liability and error. Taking the best measures to ensure legality is necessary.
Review the local licensing and permits, which can be unique to each state and city. Contact your local secretary of state’s office to get expert advice on the documentation you need to properly insure your efforts. Some documents include:
- A food establishment permit
- A business license
- A health permit
Pay close attention to city, state, or municipality regulations. Some states, such as New York, do not allow food preparation from your home kitchen. That means your home-based business needs to operate in other approved facilities.
When developing your catering company, formalizing the structure of your business is critical. This structure determines tax and liability, which are two key elements to keep in mind when properly insuring yourself, your business, and customers.
A sole proprietorship is the first level in business identification from the IRS. While this type of business is easy to set up and maintain and can be the simplest of business structures, it also leaves you in danger of being personally responsible for debts and liabilities. For example, if someone were to sue your company, it would be you, not your business, who would have to face the consequences.
A limited liability corporation (LLC) is the second level of business identification and can be a safer bet than sole proprietorship for the individual entrepreneur. The LLC entity is separate from its members, so only the entity may be held liable if the company is sued or fails to pay its debts.
Starting a business means having the funds set aside to become operational. If you fail to consider initial costs and expenses, your catering business could quickly falter.
Startup costs range anywhere from tens of thousands to hundreds of thousands, depending on your needs. However, a home-based catering company affords you the option of lowering startup costs and the opportunity to scale your business as you book more jobs.
According to the Small Business Administration, you need to write a list of your various startup expenses and estimate the actual costs. Costs may include:
- Business setup fees (licensing, legal services)
- Inventory (food, supplies)
- Building and equipment rental (professional kitchen, subzero fridge, etc.)
- Event rentals (chafing dishes, linens, etc.)
A benefit of these startup costs is that you can keep them relatively low and don’t need significant runway funds. The income you receive per catered job is then reinvested into the business to cover expenses. This allows a new catering business the room it needs to get off the ground.
If you enjoy cooking but have never worked in the food industry, try catering small parties for family and friends first. You will build the skills and experience and gain direct feedback to be ready to take on bigger jobs at higher rates.
Marketing is one of the early stage startup costs that is essential to your home-based business. If you’re working from home, you are typically starting under the radar and will need effective marketing to spread the word.
The food service industry is often heavily reliant on reviews and word of mouth. Customers raving about a new restaurant can spark interest among their friends and family. The same is true of a great catering experience, so your focus should be on delivering memorable experiences. But how do you do that as a new business?
A way to break into the restaurant game is via pop-up experiences. A temporary location is a great way to test a menu concept, satisfy customers, and pursue investor relationships. Make sure the food is Instagram-worthy to begin building your online brand.
Social media, in fact, is a powerful way to promote your catering business with potential customers, as food is a well-loved and influential niche across platforms like Instagram, TikTok, Pinterest, and Facebook.
Create a simple yet consistent posting schedule with crisp images of your menu items. Further, encourage family and friends to share your content at the start. Even one viral post can spell success.
Finally, knowing the competitive landscape is key to going into business. Do your research and see what else is available to potential customers and at what price. It’s not hard, as the best-established brands will have websites. Do a deep dive into local competitors, and ask around to find the pros and cons of working with each.
A catering business may seem like a one-person job to book and execute various catered affairs. That may be true depending upon how intimate the gathering is and how small the menu is. However, hiring part-time staff for big or small events can elevate your catering business by providing exceptional service, timely delivery, and smoother preparation.
Hiring servers or food preparers gives you the wiggle room to perfect the dishes and interact with the guests. Doing everything by yourself means you are chained to the kitchen, which can be a turnoff to customers.
Catered events often happen on the weekends or evenings, which means you can usually find people looking for some extra working hours. Keep a list of those you network with or know are interested in side-income opportunities.
Weigh the costs of hiring a handful of employees per event. Will that allow you face time with customers? Do you have several intricate dishes that would be better served with help? If the answer is a resounding yes, then this becomes a worthwhile expenditure.
Running Your Catering Business
Running a successful catering business can mean becoming both a skilled chef and savvy entrepreneur. You’ll not only develop the skills to create food and impress customers with standout dishes, but also harness the ability to make decisions and act on opportunities or pitfalls to sustain your business.
Preparing for Pitfalls
You should always be prepared for a shortfall, as any experienced restaurateur or business owner will tell you. Hurdles may include a bad review, a runaway investor, or disorganized staff. Though these situations can be hard to swallow, you can overcome each of them with patience, expertise, and communication.
Do not be afraid to reach out for guidance if you feel overwhelmed and unaware. A legal consultant, longtime restaurateur, or business mentor can offer the experience you are missing to deal with the pitfalls.
On the other hand, be prepared for opportunities and the potential to scale past a home-based business. An expansion can come with catering success and your growing expertise. With the correct financials and support system in place, you can begin taking on bigger jobs and larger clients. Consider expansion as a way of breaking into new markets as well. Rate the pros, cons, and differences between working with a corporate client and with individuals.
The number of clients and the scale of projects you take on should determine the staff you need to execute successfully. Start with a small team of two or three individuals. When you feel that everyone is working at 110%, that signifies it’s the right time to make another hire. The more organized you are as a business owner and boss, the easier it is to manage your team.
The Bottom Line
As home-based catering potentially becomes a more viable industry, your cooking skill set and business acumen may be the unique spin to win out in a competitive landscape.
Starting a catering business means knowing the initial considerations, such as startup costs and legal permits, and being open to growing as a strong leader and business owner. For many, food is a necessity or joyful experience. For you, however, food is knowing your business from the inside out. Take these learnings to your home-based business and capitalize on a burgeoning food trend.