How to start a small catering business at home
Have your friends ever asked you to make some cakes or a few trays of nibbles for one of their parties? Or maybe you just love food, and more importantly get satisfaction out of preparing food.
Does that sound like you? Then, starting a small catering business at home could be a good way to supplement your income, or, depending on how passionately you pursue it, become an exciting new career altogether.
If you think catering might be for you here are some points you need to consider.
Is there really a market?
There’s no going around it, a lot of food businesses fail, so before you even begin setting up you should figure out if there is a market available for your service.
If there is one, how crowded is it? There’s a big difference between your friends paying you £20 to make some cupcakes for them and getting the continuous stream of customers needed to make a business work.
You should start by doing some market research. Nisbets has a more extensive guide on this on their website, but a good place to start is looking for other catering business ads in your area, pay particular attention to things like:
- What services do they offer?
- How much do they charge?
- What market are they targeting? (this can be events, businesses, special dietary needs or preferences)
- How long have they been trading?
- How do they advertise? (did you find out about them through word of mouth, or on facebook, a printed advert on a noticeboard)
Do you have the right skills and equipment?
Once you’ve done your market research you should think realistically about your own expertise and connections:
- Do you have any potential customers already. Remember, it’s both easier and harder to sell to friends.
- Is there a gap in the market that you can fill (maybe you are gluten free yourself and there aren’t any catering businesses that have an extensive GF offer)
Once you’ve found a gap in the market, think about how well suited you are to fill it. Alliance online, a specialist catering and hospitality website, recommends you follow your experience. If there are businesses in your area that are looking for caterers and there are no local ones, but at the same time you’ve never catered for a business, you won’t know what the expectations of these customers are. Delighting your first customers is key to getting good word of mouth so go with your strengths.
Alternatively think about the culinary skills and equipment you have. If you’ll need to buy a lot of new equipment to get started you’ll be taking on more risk and it will be longer until you make a return on your investment.
Setting yourself up as a business
Once you know that you can make catering work as a business, you need to become a business yourself. The first decision to make is if you want to run your business as a sole trader or as a limited company.
Catering as a sole trader
The easiest way to get started is by becoming a sole trader. If you go this route you need to tell HMRC that you are self-employed and fill in a self-assessment tax form each year.
As a sole trader you get to keep all the profits from your business after you pay income tax and national insurance. You will only need to pay income tax on profits over your personal allowance.
The major disadvantage of being a sole trader is that your personal assets are not separate from your business assets, so if anything goes wrong you are personally liable as well.
Catering as a limited company
Setting up a limited company is a bit more work. You will need to register with Companies House and file business accounts with both HMRC and Companies House each year. Depending on the complexity of your business you might need an accountant to do this for you which will add to the costs.
The main advantage of a limited company is that it is a separate legal entity, so your personal assets are protected. Your business will pay corporation tax on profits, but there are three ways to go about paying yourself:
- you can pay yourself a salary, in that case you’ll pay taxes though the PAYE system (you will also have to pay employer’s National Insurance contributions as a business but there are ways of claiming this back)
- you can take out dividends, however, unlike a salary, dividends are not a business expense so you will have to pay corporation tax before taking out dividends
- a combination of both
If you’re unsure, you should talk to an accountant about what the best way to pay yourself is if you’re running a limited company.
Registering as a food business
When starting a food business the Food Standards Authority requires you to register with your local authority at least 28 days before you start trading. This registration cannot be refused, and once you are registered, authority agents will make arrangements to visit your home to do a food safety inspection.
When serving food, high standards of food handling, preparation, storage and serving need to be demonstrated. You do not need to have a food hygiene certification, but one can be beneficial as your business grows. The Chartered Institute for Environmental Health offers courses in food safety training when you are ready.
As part of the inspection you will be given your food hygiene rating. This is a score out of 5, and every business should be able to achieve the top rating. If you do not, the officer conducting the inspection will provide actionable advice on what you need to improve. Your rating will be published on the FSA website and you’ll be able to use it in any marketing materials.
You will also need to provide allergen information and follow allergen labelling laws. There are 14 allergens that you must track and which you must be aware of during food preparation. This rule applies to all components of the delivered product including garnishes and decoration. Also be aware that some ingredients that you use might have hidden allergens so always read labels carefully.
Finally, you must keep records on all suppliers that provide you with ingredients or finished food products as well as records on the businesses you cater for to ensure traceability in case there are issues in the supply chain (like missing allergens, food contamination or more serious issues).
To find out more about the FSA requirements about running a food business from home have a look at this getting started guide they have published on their website.
Non-food safety and other considerations
There are a few other considerations to keep in mind before starting your business:
- If you currently have a mortgage, check the terms as you might need to let your lender know if you’re starting a business at home
- Check your home insurance as you will likely not be covered for any damage that is the result of running a food business at home. You might need to get property insurance that is designed for businesses instead
- Consider getting specialist catering insurance – this can cover public and employer’s liability, but also additional risks such as contents, business interruption or vehicle insurance (if you deliver your own orders)
- As a business, you’re required to have the correct fire-fighting equipment at all times, this is particularly important for catering businesses as the risk of fire is higher. Check the government website to find out what equipment you need.
How to start a small catering business at home: Conclusion
Starting a small catering business at home can be rewarding both personally and financially, but like any business venture it must be entered into carefully. Here is a checklist of tasks you should complete before you take your first order:
- I’ve researched the market in my area and there is a gap that I have the skills to fill
- I’ve decided if I’m going to trade as a limited company or a sole trader
- I’ve read the FSA guidelines on food preparation, I am confident I can meet them and I have registered with my local authority
- I’ve checked with my bank and insurance company if I can run my business from home
I wish you good luck and great reviews.
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