It seems people are starting a food business almost every day. From jams and jellies, to prepared foods, and salad dressings – there’s tons out there.
But some of them don’t survive.
Some of them fail because they made critical mistakes in the very beginning. Here’s a list of five things you may want to watch out for if you’re thinking of starting a food business.
1. Not testing your concept on a smaller scale
I’ve been talking with many start-up food entrepreneurs who are adamant about going big right out the gate. Don’t. Test your concept. Start with friends and family, move to a farmer’s market, and then start getting your product in retailers around town. By starting small, you’re able to prove your concept through test-marketing and not waste your precious cash.
2. Producing without a license or permit
The health inspector is like the local sheriff when it comes to food production. And you don’t want to upset them! Why so important? Well, if you’re caught in violation, the health inspector can shut you down right then and there.
Make sure you call the health department to see if you need a license to produce food – especially if you’re thinking of producing food in your home. Licenses can cost anywhere from $50 – $500 and in some cases more. Make sure you budget for the cost, too.
3. Not knowing your product cost
Of any on this list, this is the most important. You have got to know how much it costs to produce your product. That means ingredients, packaging, and labor. (And even if you produce your product by yourself, there’s still a labor cost!). Your product cost drives your company’s profitability. If you’re not charging enough for your food product, you’re not going to be able to cover your operating costs. Want help? Get in touch with me (michael [at] gredio [dot] com) and I’ll lend a hand.
4. Running out of cash in the first few months
Cash is king in any business. You need to hang onto it like your company depends on it. Because it does. If you’re splurging on marketing you might not need or fancy labels, think about what that does to your product cost. Or, if you’re buying supplies left and right, have you thought about making them yourself? Oh, and not to mention cash for farmer’s markets and producing your product. Make sure you have enough to keep you going – even when it’s slow in the beginning.
5. Thinking you don’t need help
You want to build your food business to the point where it’s sustainable. You can put food on the table and a roof over your head. That would be awesome, right? The truth is you’re going to need help to get there.
Analyze your business. Identify what you don’t like to do. Then, find someone to do it for you. Yes, it costs money. But, what about avoiding burnout? You can’t possibly do everything for ever. For example, I have my parents help out with shows, scheduling, hotels, and other logistics. (That’s why my Mom’s job title is the Conductor of Controlled Chaos – it’s exactly what she does).
Bonus! 6. Not having product liability insurance
This is going to be a big start-up cost for you – several hundred of dollars (depending on the size of your operation, it could be in the thousands, too). This is necessary for many retailers and markets, so make sure you have it from the beginning. Don’t know the first thing about insurance? Here’s a post I wrote earlier this year on food product liability insurance.
Lots of people start food business. And lots of those businesses fail in the first five years. Make sure you have your jars in a raw and your labels on tight, because a food business can be a wild ride.
What would you add to this list? Let me know in the comments below.