It seems to always come down to money when you want to start a food business. But why?
Because money is a tough subject.
Every time financials come up, you’re bound for a super headache.It’s hard to know how much you need, where it’s going to come from, and how long you’ve got before you’re out of money. Finding start-up funds is not the same as making delicious food, so I’ll make this quick and painless for you.
Before I get too deep, I want to bring something up.
For some of you, money may be a touchy subject – especially if you’ve got to put a roof over your head and food on the table for your family. That requires a certain amount of cash and then you have to find a way to fund your business. But, starting a food business doesn’t mean millions of dollars to fit up a brand-new kitchen. It’s doable with a couple of thousand dollars – or even a couple hundred if you’re thrifty.
The best way to explain start-ups is to compare the three food companies I’ve started. This gives you a better idea of how to fund your own companies.
In My Own Experience
I’ve started three food companies – and all three were completely different financial strategies. Here’s how they all played out:
1st Company: Adams’ Cookie House
I was 15 when I started my first company selling chocolate chip cookies on Fridays in front of a hair salon in town. I got the money for my first few batches from my parents. I didn’t get an allowance, so there wasn’t too much money to my name.
2nd Company: Eddie’s Energy Bars
Two years later, I launched an energy bar company. This time, I had enough money from working retail during high school to start this company. It was self-funded for 3.5 years and I never took a loan.
3rd Company: Green Mountain Mustard
The money I earned from Eddie’s Energy Bars went into Green Mountain Mustard, so you could say this was self-funded as well.
As you can see, my three food business were self-funded. (What bank is going to loan a 17 year-old kid money these days?). That means food business don’t take too much to get up and running, right? Maybe. Here’s a quick breakdown of what you’ll need to get going:
What do you need to get started?
Honestly, not that much. Here’s a short (not all-inclusive) list:
Food Licenses ($100-$500) ← don’t skip these!
State Business Registration Fees ($100)
Opening a Bank Account ($50)
Product Liability Insurance ($500-$1,000/year)
Recipe Process Approval ($70-$100/recipe)
Labels and Packaging
Kitchen Tools & Equipment (misc)
Business cards ($50)
Sales sheets ($20)
How much money does a typical food business spend to start-up?
I priced a couple of things out above. For my three companies, I started with $50, $300, and $4,000. And believe me, was I cheap. I only did what I needed to do. As I grew I got insurance, process approvals and such. But to test if I had a product people loved, it didn’t cost too much.
If I had to throw a ball-park price for starting your food company, I’d go with $3,000 – $5,000. This assumes you pay a college student to help you design packaging and your website. It also assumes you have limited equipment needs.
Should you need to invest in your own kitchen, this number is going to be significantly higher.
Can you start for less money?
You don’t need all the bells and whistles. Hold off on the fancy packaging design until you get some cash – or do it yourself. I would absolutely get your licenses and fees in-line. That’s non-negotiable. Everything else is up to you: buy used equipment, get templated business cards, etc.
With a (very) rough idea of start-up costs, you’re probably wondering where the money is going to come from, right? Let’s take a look at several ways you could secure your start-up capital.
Where to Find Your Start-up Capital
While I don’t have the stats, I would bet this is how the majority of small food businesses are started. Using cash from your checking account (or shared account if you’re married) is easy and quick.
2. Bank Loan
Only do this if you need to purchase a large piece of equipment to get your production started. The bank will likely want you to have some skin in the game. Be prepared to put 20-30% of your cash down before the bank will even look at your application.
3. Credit Card
Have you read the stories about food business launching on three – five credit cards? Yep – it’s true. And it’s financially risky. Credit cards carry high interest rates and you may not be able to pay them off on time. If you can, avoid this funding source.
4. Friends and Family
Your food business could definitely get launched with a small loan from family and friends. They’re more likely to give you $5,000 than $50,000. A couple words of wisdom: write up a contract, pay your friend interest, and write a one-page business plan.
5. Use Kickstarter (or Another Crowd-Funding Source)
Kickstarter allows you publish your idea to the masses with a quick video. Then, friends can invest as little as a $1 in your fledgling venture. The catch? If you don’t reach your fundraising goal, you don’t get any of the money raised.
This is the personally-funded part. If you’ve got the money in your checking or savings account, this is the best way to get your food business started. Why? You don’t have to pay anyone back but yourself!
6. SBA Loan or Micro-Loan
The Small Business Administration is on your side. And so are the local economic groups by you. Look at the eligibility requirements before you apply to make sure you qualify. These loan programs may require a bit more planning, but it’ll be worth it when you start to run your business.
7. Business Plan Competition
Relatively new to the scene, business plan competitions are a great way to not only get exposure for your idea, but get some serious cash if you win. Many business plan competitions have at least $5,000 up for grabs. And if you don’t win, there may be someone in the audience interested in giving your company a shot.
Getting cash to start your business can be a challenging hurdle to jump. Hopefully with these seven ways, you’ll have plenty of options to get going. If you’re struggling, don’t give up. Once you get past the question of how you’re going to fund your company, it’ll be a huge weight lifted off your food business chest.
Pro Tip: Don’t waste your money until your business plan and product strategy are in place. Poorly spent business funds are a big reason business go out of business.