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Posts tagged ‘starting a part-time food business’

Aug 9

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Is Now Really A Good Time To Start A Business?

Ugh!  That’s really the only word to describe the financial markets yesterday.   With everyone predicting the end of the world as we know it, you have to wonder why anyone in their right mind would think of starting up a business right now.  With the entire global financial market on the verge of a nervous breakdown, is it really a good idea to start a business.  Truth of the matter is that now is actually a great time to start a small business – if you do it right.  

 Unemployed or Underemployed? Employ yourself! – Unemployment is hovering around 9.2% and that doesn’t even take into account those who are underemployed.  If you’re looking for a job right now, or looking for a job worthy of your skill set and background, you know that it’s brutal out there and every resume you send out seems to go into a giant black hole.

 While it may seem crazy to start a business in an environment like this, it may actually be better to put yourself to work rather than waiting for someone else to give you a job.  Use the skills you have and those business ideas you used to fantasize about while sitting in your office cube to good use and do something for yourself.   Not to mention that a small business – food or otherwise – can be a source of income and it shouldn’t necessarily prohibit you from looking for a job.   In fact, showing that you have the wherewithal, gumption, and mental fortitude to start a business while unemployed, regardless of its size, may actually help your resume float to the top of that next pile.

 One of the great unemployed-to-small food business success stories is that of King of Pops.   When the founder was downsized from AIG in the first part of the Great Recession he literally turned lemons into lemonade – or more correctly, into juicy delicious fruit ice pops known, inCentral America, as paletas.   What started as one cart and a way to bring a little extra cash into his pockets has turned into one of the most successful mobile food business operations in theSoutheastern United States.

 Employed but nervous about your next paycheck?  – If you’re worried that your company might be considering a round of layoffs of if it’s already been explained that there will be no pay increases in 2012, starting your own small business is a way to take control of your own financial situation and try to bring in additional money.  In this case, a part-time business like a farmers’ market booth or a small wedding cake business can be a way for you to work your regular 9-5 (who are we kidding – it’s more like 8-6 these days!) and start up something of your own on the side.   In addition to being a source of additional revenue, a part-time business can be expanded to become a full-time business if you’re one day callously handed a pink slip under the guise of “corporate cost cutting.”   As I always like to say, no one can ever fire me from my own business and when things are this uncertain that’s a very empowering feeling!

 Being Small Is Feasible and Powerful! – Unlike other business models, a small food business can be started with minimal money.  Startup costs obviously vary depending on what type of business you plan to start, but thinking small in these times can be a benefit.  You may have always dreamed about starting a bakery, rather than go into debt to finance that consider starting smaller with a baked goods booth at a festival or other event.  If you’ve always wanted to open up your own restaurant rather than trying to get a loan for hundreds of thousands of dollars, take a look at food trucks instead.  In both those cases you can start your dream food business on a shoestring budget, build a customer base, and, when the economy improves, use that as a springboard to grow your business into something bigger.  You may very well be the next Microsoft (which started during the recession of the 1970’s) of the food world and the skills you learn now about keeping a tight rein on the budget will be a huge benefit regardless of how big your business one day grows.  

This Is A Great Time to Hire Outsourced Help – No matter how big or small the business you’re planning is, there are some key fundamentals that you should have in place when you launch including, at a minimum, a well-designed logo, packaging (if that is needed for your business), and a website.  Of that 9.2% of people who are out of work, there are a multitude of unemployed graphic artists, web designers, and other skilled professionals who are anxious for work.  While I always advocate paying people fairly for the work that they do, anyone you hire to help with outsourced tasks may be willing to negotiate their rate based on what you want and how much you are willing to pay.

There Is Still A Large Focus On Buying Local – One of the best things to come out of the ‘last’ recession of 2008 (we are not technically in a new recession, which is two quarters of negative growth, but to many it may already feel like we’re in another or, in some cases, the first one never ended) was the focus on buying locally-made products and locally-sourced ingredients.  If you live in an area where “buy local” is an important factor in people’s buying decisions, this can help propel your small food business to success.  Historically in recessions, people crave basic comfort items which explains, in part, why pie became so popular during 2008-2010.  If you have an idea that harkens back to a simpler time and is made from locally-sourced ingredients you may just be sitting on the next big food trend idea!

Without a doubt, starting a business – be it big or small – is always a bit of a gamble and there is absolutely no guarantee that you will make money.  That is why developing a business plan  before you start is so important.  However, if opening your own small food business is something you’ve always dreamed of, this may actually be a great time to jump in and give entrepreneurship a try.

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Apr 13

Is Your Business A Business Or A Hobby In the Eyes of The IRS?

Not long after I was married my husband’s accountant, who was responsible for filing our personal taxes, asked me point-blank if my business was real or not.   Having just dedicated what felt like my life and soul to getting the business up and running I just about hit the roof when he asked that.  How could it not be real?  I was working like a madwoman frantically – albeit unsuccessfully in Year 1 – to turn a profit.  But real, of course it was real!

 As the accountant calmly informed me, the Internal Revenue Service (IRS) has a different definition of what constitutes ‘real’ then you or I may have.   No matter how hard you work, there are certain hurdles the IRS wants to see small startup businesses crossing so that they can be confident this is a business you’ve started with the intention of making money and not simply a hobby.   Why all the fuss?  For Partnerships and LLCs any profits the business makes flows through to the shareholders so the shareholders report that money on their personal taxes and pay the IRS accordingly.  Along those same lines though, any losses the business experiences also flows through to the shareholders which can be used to offset income earned elsewhere.   Understandably the IRS doesn’t want you to create a “business” that has no intention of ever making money simply as a way to increase your deductions.  Hobbies – regardless of how much money you put into them – should be done on your own dime according to the IRS.

 The most straight-forward way to prove to the IRS that your business is in fact focused on making money is by showing that the business has been profitable in at least three of the last five years including the most current year.  Straight-forward yes, but not always easy to accomplish especially if you’ve just started a business and don’t have five years of tax returns.

 In this case the IRS will look at how you conduct your business and whether it’s done in a businesslike manner.  This may sound highly subjective but by doing things like registering your business, keeping up-to-date accounting records of all your transactions, and by keeping separate bank accounts for the business you will go a long way in proving to the IRS that you are running the business with the goal of turning a profit.  You should also show measurable improvement year-over-year to show the IRS that you are working to get your business towards profitability even if that doesn’t happen in the first several years.  Showing a decrease in losses every year will illustrate that you are working towards profitability and help keep your tax return from drawing unwarranted suspicion.   

More information about the IRS definition of business vs. hobby can be found here but, as always, if you have questions about taxes you should consult a certified accountant.

Apr 1

Happy 5th Birthday

Five years ago the economy was going strong and it seemed like there was gold at the end of every rainbow.  It also seemed like every idea was a good one so with my business plan in hand I rented kitchen space and started my own small business.  Well we all know what’s happened to the economy since the heyday of 2006 so I’m proud to say that not only is my small business still alive and kicking – it’s actually thriving!

 Dun & Bradstreet, a leading source of business information, reports that only 37% of small businesses with less than 20 employees survive the first four years.   And for food specifically, only 20% of restaurants survive the first two years.  Those odds aren’t good so even through my business is small, I’m proud that it’s made it this far.

 Honestly, I think one of the reasons the business has survived the recession is because I kept is small.  I had the opportunity about 2.5 years ago to start hiring on a lot more staff and I seriously considered it.  But that intangible ‘gut’ feeling told me it wasn’t the right decision just yet.  Not more than three months later the stock market crashed and the economy began its downward spiral.   There is power in being small – you can more easily cut pieces of the budget and you can more easily change strategy if you’re finding that the new business environment warrants it.  It’s been a pretty good five years thus far – here’s hoping for an even better next five!

And one great way to celebrate a birthday is with the release of Starting A Part-time Food Business for Nook.  Perfect for those of you who prefer e-books but aren’t fans of the Kindle model.   Enjoy!

Mar 31

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New Laws May Allow for Home-based Food Businesses

Times they are a changing!  Until recently if you wanted to start a food business you had no choice but to rent or build out a commercial kitchen before you could get started – neither of which is cheap.  Some states though have passed laws that may make it possible for you to start your small food business in the comfort of your own kitchen.  

Loosely known as Cottage Food Laws, there is a movement across the U.S. to allow home-based food businesses to be licensed and sell their products to the public.   On it’s face value this is wonderful news to anyone who has ever wanted to start a small food business but hasn’t wanted to commit to the cost of renting commercial kitchen space.   Currently, the following states have passed Cottage Food Bills: Arkansas, Iowa, Kentucky, Maine, Massachusettes, Michigan, New Hampshire, New Mexico, North Carolina, Ohio, Oregon, Pennsylvania, Tennessee, Utah, Vermont, Virginia, Wyoming.  Alabama and Indiana also allow bakers to make products in their own kitchens for sale exclusively at farmers’ markets. 

While each state differs somewhat, in most cases production of food at home is limited to non-potentially hazardous products which may include, depending on the state, baked goods that don’t require specific storage temperatures, pickled products, jams, jellies, and other items such as granola, and candy.   Before you get too excited though be sure to read the fine print for your state.  Some states require that your home kitchen be licensed by a health department official while others let you operate out of your kitchen without any oversight.  Some won’t allow kids or pets in the same facility as your home kitchen which is not too feasible if you have kids or pets in your home (and plan on keeping them!).  Some limit where you can sell your products and others put limits on how much revenue your business can bring in during a year which, after you take out your costs, may not make it profitable for you.

A handful of other states, Arizona, Florida, Illinois, New Jersey, South Dakota, and Washington, have similar laws pending in their legislature right now.  Advocates argue that allowing small food producers to utilize their own kitchens will create jobs and businesses, promote locally-produced goods, and help the economy grow.  On the flip side, some argue that home based kitchens have a higher likelihood for passing along food borne diseases if they aren’t kept to the same high standards as commercial kitchens and bakeries (though it’s often noted that Iowa, which instituted cottage food laws back in 2005, has had only one instance in food poisoning from a home-based kitchen since the law was enacted).

All in all, while these cottage food laws don’t take out all the obsticles to starting a food business, it does provide entrepreneurs with some new options.  This is certainly a great option to anyone just starting out who wants to test the market without committing to renting commercial kitchen space – assuming of course that you live in one of the above states!

Mar 16

Starting A Part-time Food Business Now Available In e-Book Format

With all this talk about marketing I’d be remiss if I didn’t add that my book, Starting A Part-time Food Business, is not only available in traditional book format but now also as an e-book via Kindle for $8.99.   Even if you don’t have a Kindle you can easily download the free Kindle apps to enable Kindle on your Mac, PC, iPad, iPhone, Blackberry, Android, or Windows Phone 7.  You can even start reading on one device and switch over to another device and Kindle’s WhisperNet technology will automatically redirect you to the last page you were on.  For someone like me who is a visual learner, the ability to transfer amongst devices is great news as it means I can start reading the book on smaller screened devices and then transfer over to a larger screen to view the book’s worksheets all on one screen. 

 Both the book and e-book formats are available from Amazon.com.

Mar 3

The Impact of Food Prices on Small Food Businesses

Yesterday I mentioned that one of the great things about small food businesses are that they’re relatively cheap to start, especially when compared to other food businesses like restaurants or processed food mega-brands.  Now for the bad news.   Word on the street (and by street, I mean the Internet) is that food prices are expected to rise significantly in 2011.  What type of increase are we talking about?  In February the US Department of Agriculture modified their original food cost prediction from an increase of 2-3%, which was already almost double what the US experienced in 2010, to a 4% increase.

Now comes the kicker - that prediction is based on prices of processed foods.   Small food businesses that make products from raw ingredients are in for an even steeper increase.   Diary products are expected to increase in price more than 5%, fruits and veggies are already climbing in price, and eggs are up a whooping 11% over last year.

So the question now is what are small businesses supposed to do?  Many of the big mega-brands actually hedge their commodity prices so that their prices can be kept stable for the most part.  But for us small guys that’s not an option.  If you have any new products coming out this year it might make sense to build a little extra cushion into your product cost analysis so that if/when your food prices go up, it won’t be as painful to your profit margin. 

As for existing products, the decision that has to be made is whether to raise prices or not.  Some of the big guys are already planning to do that.  Infact Domino’s just announced that they anticipate a slight raise in prices to offset the higher commodity costs and the company’s stock plummeted 6.3% (as of close of business yesterday it was still down 4.7%).  The unknown for us small businesses is whether a slight increase in prices will push customers away – especially since we’re still teetering on the tailend of the Great Recession.  

At the end of the day it’s a very interesting time to be a small food entrepreneur and it definitely makes sense to keep a very close eye on raw ingredient costs to make sure that your profit margin isn’t widdled down too far.

Mar 2

The Financials of Starting a Small Food Business

I woke up this morning thinking about money and wanted to add to the post I wrote yesterday.  Mega-brands that line supermarket shelves take millions – if not billions – to design and design, produce, and market.   Restaurants take thousands – if not millions – to start and keep running.   Small food businesses though – they can take what you give them.   Depending on what you want to achieve and how you plan to market and distribute your product, it is possible to get a small food business up and running for under $10,000 and, for some, even under $5,000.   And I’m  including all your business licenses, health food inspections, and commercial kitchen rent in that equation.

Don’t get me wrong, starting and running a small food business is no get-rich-quick scheme.  You can’t take that $5,000 and turn it into $500,000 overnight.   But you can take that $5,000 and with a little planning and careful controls on spending, use it to build a profitable food business that you love and are passionate about.

Mar 1

Small Food Entrepreneur

Someone asked me in passing the other day what I was.  It’s always a bit of an odd question because I wonder if I’m supposed to answer with a physical description like “female” or “human.”  But the reality of it is that they wanted to know what I did for a living so I told them I was a small food entrepreneur.  And they looked at me blankly.

While the words Small Food Entrepreneur or Small Food Business may conjur up images of tiny portions and miniscule edibles, in my mind a small food entrepreneur is someone who runs a food business that focuses more of quality over quantity.  The goal of a small food entrepreneur is not to outsource their production to a manufacturing facility and see their product on every grocery store shelf across the nation, but rather to build a brand that uses ‘real’ ingredients and is, at least in parts, handmade.   A small food business may consist of simply the owner making all the product themselves or there may be several employees working together.  A small food business may just be a retail website or a farmers market booth or it could be a bakery that has several locations around the city.   At the end of the day though, the small food entrepreneur is someone who believes that they can build and run a successful food business without preservatives, mass manufacturing techniques, and unpronouncable ingredients.  

Best of all, there seems to be no better time to start a small food business.  The growing focus on quality ingredients and eating local makes it easier for small food businesses to compete with the mega-brands.  While mega-brands can pump out millions upon millions of treat snacks with Chemical Colorant #C53, you bring to the table something they can’t.  Small food businesses provide honest food made with honest ingredients and that’s something more and more people want these days.

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