How to Start a Cake or Baking Business from Home
This article is intended for a U.S. based audience.
It does not replace your own research, and it is not intended as legal advice.
With the explosion of cottage food laws in the U.S. over the past 5 years, in many states it is very easy to start a cake business from your home. Research your local law by googling <yourstate> <cottage food law> or contacting your local state Department of Health or Department of Agriculture for their regulations. The site CottageFoods.org has easy to find information also. Cottage food laws give food entrepreneurs a way to enter the market from home without the previously required substantial investment of tens of thousands of dollars in a commercial kitchen. It is important to note that all cottage food laws were not created equal. Many have restrictions on where you can sell, what you can sell, and how much you can sell, so it is important to research the law in your state before you begin selling, and know the requirements and your responsibilities.
After you've verified that you can legally work from home, decide what you will sell. Double and triple check that your product is allowed for sale from home under your state's laws. Most cottage food laws do not allow the sales of potentially hazardous food - in other words, food that requires refrigeration. This knocks out perennial favorites like cheesecake, tiramisu, tres leches, and tamales. Begin your business on solid legal footing with a product that is allowed by law.
Develop a business plan. Everyone always wants to skip this part and get straight to the baking, but it is really and truly important. How much does your product cost you to make, and how much will you sell it for? Where will you sell? How will you market yourself? Is there demand for your product in your area? How much competition will you have? How do the competition’s products compare to yours in price and quality? How long will it take to turn a profit? Your business plan will tell you whether or not your business is even viable. It's worth it to make a plan, rather than bang your head against a wall for months wondering why your business isn't working.
Set your prices correctly from the beginning. It's easier to start at the right level than to start low and then expect your customers to be understanding when you start raising your prices. Would you rather make ten cakes for $20.00 or one cake for $200.00? Work smarter, not harder. Use
CakeBoss to learn your costs and understand how to set fair prices.
Read our list of the Top Cake Business Mistakes. No, really, go read it right now. You are the boss of your business. It is possible to give customers exceptional service while still sticking to your business policies. Don't blow around like a leaf in the wind. You're the captain of this ship. By the same token, don't let your business run you. Sometimes a home business can be overwhelming, because you're always at work. Set aside phone-answering hours, and don't be afraid to let your phone go to voicemail, or your email go unanswered, until tomorrow. You will burn out quickly if you're working every waking moment.
Your state's cottage food law may require you to complete a food handler's or food manager's course. Food safety is critical to your business - if you make someone sick, your business may never recover. Food safety isn't hard, but it requires diligence in the kitchen. We recommend keeping your kids and animals out of the kitchen during prep time, even if this is not a requirement in your state.
Taxes and Other Legal Issues
Check with your state Controller to see if your product is subject to sales tax, and if you need to obtain a permit and charge sales tax on your goods. Paying back taxes with fines and fees is no fun. Start out on the right foot.
Pick a business name and register it as a DBA with your county. This ensures that no one else in your county can use your business name, and that you are not using anyone else's business name. Optional - you may also wish to conduct a national search to verify that this name is not in use by others, or trademarked by someone else. Trademarks can be tricky, and sometimes the best thing to do is to contact an attorney that specializes in these matters.
Speak with a tax or legal professional about how to structure your business, whether it be a Sole Proprietorship, LLC, or some other entity. In general, setting up a business structure helps protect you personally from the business's liabilities. Liability insurance for home baking businesses can also be obtained, usually around $500 per year. Contact your home insurance agent to see if they have a policy for you.
Marketing and Networking
Set up a web site and Facebook page for marketing. Quite a lot of marketing on Facebook can be achieved for free or at least very inexpensively. The importance of a professional looking web site, properly optimized with the right key words, cannot be overstated. None of this, however, replaces good word of mouth. One successful cake at an event has the potential to launch your business.
Order inexpensive startup business cards from a site like Vistaprint or Zazzle. Never be without a card!
Network, network, network. Join your local cake club and meet other colleagues in your area. You never know when you might have an emergency and need someone to take over your workload for a period of time. Cake clubs are also great for learning new techniques and furthering your craft.
Start selling! Good luck with your new business!