Starting a Food Business
Starting a food business is no easy task. Before investing your time, money, and effort, you should investigate the world you will be entering as a small business owner. You will have to prepare for the challenges to come. Small businesses require careful planning, dedication, an understanding of financial issues, marketing knowledge and management skills to be successful. As a food business owner, the food you produce can have a direct effect on your customer’s health and safety. In fact, a food product that has been improperly processed could cause serious illness and even death. Therefore a business that makes and sells food must be knowledgeable of and comply with a number of complex regulations on the local, state, and federal level. You will also need to learn about food processing, packaging, and safe food-handling practices.
This might be the right time to step back and evaluate your characteristics as a successful food entrepreneur. You may want to consider:
Does my personality type fit with the job demands?
As a food entrepreneur, you will have to be self-motivated. You will have to develop projects, set up meetings, manage work issues, organize your time, etc. You will have to be able to work with others, give instruction, and make demands. Will you be able to make a tough decision concerning an employee? Will you be able to handle the long workdays with little reward during start-up?
Are you willing and able to develop a business and marketing plan?
The business and marketing plan is often the most overlooked part of a start-up food business. It is also essential for securing financial help and promoting your business. A business and marketing plan serves as the road map to where you would like your business to go. If you do not like the idea of thinking through and constructing a business and marketing plan, you may want to reconsider your entry into the food business.
How will you deal with money issues?
Are you going to use your own savings? Do you wish to get business loans or borrow from family?
Before you get started with your business, take the time to thoroughly investigate what it means to become a self-sufficient entrepreneur. The more unknowns you can take out of the equation, more likely you will be to succeed. Take the time, do the planning, seek help when you need it, and you should be on the path to a successful business venture.
If you are serious about starting a business, you should develop a business plan. Business plans act as a road map for where a business is headed. Crafting a business plan will help you, as the business owner, to consider each step involved in running a business and to better prepare for what is coming your way. Business plans have proven beneficial for any size enterprise. Entrepreneurs with a business plan have an advantage over those who do not, and are often more successful in the competitive world of specialty food.
A business plan is a document that establishes the key functional areas of a business, including operations, management, finance, and marketing. The goals of the business and the plans that have been decided upon to reach those goals are included in the plan. The business plan should be re-visited regularly to keep the business on track as well as allow the business to evolve in the right direction according to the business plan creators. It outlines a business’s strengths, weaknesses, opportunities, and threats.
There are two main reasons to have a business plan. One is to assist the entrepreneur in planning and developing a business. The other reason is to demonstrate the feasibility and potential profitability to potential investors, lenders, and other outside audiences. Potential funders often require a business plan and the business plan serves as the basis for loan proposals.
The key elements of successful business plans commonly include:
- A Cover Page
- Executive Summary
- Business Goals and Objectives
- Project Description
- The Industry, the Company, and its Products
- Market Research and Analysis
- Marketing Plan
- Operating Plan
- Management Team
- The Financial Plan
Be sure to include:
- Ingredients used and supplies
- A plan for storage of supplies, equipment, and finished products
- Workspace layout and production flow
- Product transportation plan
- A list of potential locations to sell your product (farmer’s market, grocery store, etc.)
There are a number of resources for you while you develop your business plans. Some places to start include:
Virginia Department of Business Assistance – Promotes economic growth by helping Virginia businesses prosper. Information for start-up businesses can be found at http://www.dba.virginia.gov/starting_business.shtml. The Virginia Business Information Center has a website designed to ask you a few questions and respond with relevant information for completing licenses, permits and registrations you need, plus suggest resources that can help. This resource can be found at http://bos.virginia.gov/
Virginia Small Business Development Centers – Provides professional business counseling, training and information resources to help grow and strengthen Virginia businesses. SBDC Counselors, at locations across Virginia, provide a certain number of free assistance to entrepreneurs, focusing on business and financial plan development. Their website can be found at www.virginiasbdc.org.
SCORE – Provides counseling to help start-up a new business, secure financing, or operate, manage, and/or expand existing business. This is a free service utilizing experienced entrepreneurs trained to work with you. More information can be found on their website www.score.org.
VT KnowledgeWorks – Provides confidential strategic planning and business development assistance focused on helping a business plan, launch, and grow. They can help with market analysis and business expansion plans at lower than market cost. This service is aimed for entrepreneurs who are beyond the start-up phase of their business. Their website is located at www.vtknowledgeworks.com.
Virginia Cooperative Extension – There is a VCE office in each county in Virginia. Your local extension office can connect you to resources that can help you with your business planning or technical needs, and may connect you with faculty members at Virginia Tech or Virginia State University. There are also a number of VCE publications available for download at www.ext.vt.edu.
Small Business Administration - Offers an on-line guide for writing a business plan at http://www.sba.gov/tools/sba-learning-center/training/how-write-business-plan.
For more detailed information on business planning and starting a small business, visit the publication “Question and Answer Guide for Starting and Growing your Small Business” available at http://pubs.ext.vt.edu/310/310-100/310-100_pdf.pdf.
Successful marketing of your food product requires an understanding of why your product is unique and why the public would wish to purchase your item. Small scale food processors often realize that their marketable advantage is the production of a high quality product. Your product may also appeal to consumers through uniqueness, savings (time, money, energy, etc.), attractive design or packaging, or unique processing. In all cases, success is dependent on the entrepreneur’s understanding of the market in which the product will thrive.
Marketing includes all of the decisions involved in your business. The entrepreneur should evaluate the appeal of their product, the target consumer audience, their competition, demand, pricing, and cost of manufacturing as well as indirect costs such as advertising, phones, postage, transportation, etc. It is important that your business meets the needs of the consumers as well as the business details.
Developing a marketing plan will help the entrepreneur target important business goals and strategies. A good marketing plan will help the entrepreneur understand where the product fits into the market. The marketing plan should include research of existing markets and competition. A part of the research should include testing the food product with consumers and gathering feedback. Part of the feedback should include consumer willingness to purchase the product and how much they would be willing to spend.
Another important aspect in the marketing plan is to decide where your food product should be marketed. This may include selling at farmer’s markets, festivals, or grocery stores. Selling at venues where you can meet the consumer face-to-face will create opportunities for the entrepreneur to gather immediate feedback from the consumer and be a good venue for testing out new products or ideas.
Promotion and advertising are also inclusive of a marketing plan. Planning promotion and advertising will assure that you expose your product to your target audience. For this, you must know your audience, what they enjoy doing, where they shop, etc. You should then decide what the best avenue would be in order to reach your audience. Do not waste time or money on advertising and promotion in areas that will not reach your audience.
The marketing plan should include a frequent review of the food community to identify emerging trends and values. The marketing plan should also be reviewed anytime a major change takes place, such as adding new products to your business, moving from your home kitchen to a co-packer, or expanding your distribution.
Where to Find Help with Your Marketing Plan
The Virginia Department of Agriculture and Consumer Services (VDACS) houses VDACS Marketing Development Services to assist the states varied agricultural community by enabling producers and processors to locate the best markets for their products both in Virginia and abroad. The Division of Marketing serves producers, commodity boards and associations, retailers, and buyers by providing marketing assistance.
The VDACS Marketing Services can also help you become certified with the Virginia’s Finest Program, a recognizable branding that will signal that your product is a top quality Virginia-produced and processed item.
Another great place for marketing resources is the Virginia Small Business Development Center Network. This network of offices throughout the Commonwealth can help new businesses with business counseling, training, and resources. While there are many offices throughout Virginia willing to help, they can also be found online at http://www.virginiasbdc.org/.
The Marketing Plan Should Include
- Research of the competition
- Research of existing markets
- Consumer feedback
- Where food will be marketed
- Promotion and advertising strategies
As a small business owner, you will have to make some choices about which legal form you would like to operate your business.
There are four basic legal forms:
- Sole Proprietorship
- Limited Liability Company
In order to understand the advantages and disadvantages of each business form, and which would work best for your situation, see the Question and Answer Guide for Starting and Growing Your Small Business available through Virginia Cooperative Extension at http://pubs.ext.vt.edu/310/310-100/310-100_pdf.pdf.
It is recommended to consult an attorney, accountant, or any other professional that is familiar with food businesses to help ensure you are in compliance with all local, state, and federal regulations required of your business. The publication listed above discusses many of the areas you need to be familiar with in order to be in compliance with local, state, and federal regulations. Topics that are covered in the publication include: Federal Employer ID Number, Licensing, Zoning, State Taxes, Virginia Employment Insurance, Workmen’s Comp Insurance, Labor Regulations, and Trademark Registration, to name a few.
A more complete Business Registration Guide is available at: http://www.scc.virginia.gov/clk/begin.aspx.
This guide, titled the Commonwealth of Virginia Business Registration Guide, is published by the Virginia State Corporation Commission, the Virginia Employment Commission, and the Virginia Department of Taxation. This guide gives not only advice on the registration process, but also provides many of the forms you will need to register.
Important: This section speaks only to registration and licensing of general businesses. More specific food-based registration requirements are discussed under "Registering your Food Business" found on the rules and regulations page.
As a food entrepreneur, you cannot afford to ignore insurance. As a food processor, you are in a business where products are ingested by consumers, and insurance becomes an integral piece of the business. A commercial policy is needed for any business, but you will want to speak to your insurance agent about other options available to you that might make sense for your business.
One policy that you will want to be sure to purchase is liability insurance. Liability insurance protects against financial losses due to allegations of bodily injury or property damage to others because of your activities. You may also purchase product liability insurance to provide protection against claims that your product caused injury to user. This insurance will be advantageous for a food entrepreneur to own in the case of foodborne illness or injury due to their product. Typical policies provide $1 million in coverage, and often $1 million in coverage is required to rent commercial kitchens or work in kitchen incubators. Kitchen incubators or co-packers may also require you to list them as additionally insured on your policy. You may be asked to provide a Certificate of Insurance to stores selling your products as evidence that you do have insurance.
In addition to liability insurance, you will want to speak with your insurance agent as your business evolves to be sure you are covered throughout all stages of growth. Examples of other policies you may want to purchase include property insurance, workers compensation, commercial auto insurance, business interruption insurance, disability income protection, etc.
It must be understood that running a food business can be a high-risk endeavor, and all food entrepreneurs should purchase a liability insurance policy. Even if you follow all food safety steps perfectly, you may still be held responsible for damages resulting from product mishandling that is out of your control. At very least, you need liability insurance. As your business progresses, you and your insurance agent should discuss insurance that would be advantageous for your business as it changes and grows.