You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple step guide to starting your catering business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
STEP 1: Plan your Business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How long it will take you to break even?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a catering business?
The greatest part of your investment will be your kitchen. While many caterers start out working out of their home, those with any success quickly outgrow that space. Since outfitting a commercial kitchen can cost anywhere from $30,000 to $120,000, you’ll want to rent or purchase a space that is already equipped with what you need to get started. Many cities now have another great option for those just starting out - you can rent out workspace in a commercial kitchen on an as-needed basis. Fees are usually paid on an hourly basis, with initial fees averaging $75.
Once you’ve found your workspace, you’ll need to invest in a few additional items. Depending upon the type of catering you do, it might not be necessary to purchase everything on the list. To cut down on up-front costs, many caterers lease some equipment and even rent the items they’ll only need on an occasional basis. Leased equipment averages between $100-$400/month and some companies will offer free leasing for some items, with the agreement you purchase their products.
Table settings - includes flatware, glasses, and linens. If your business only requires these items on an occasional basis, consider renting from a local company. Not only will they deliver the items, they’ll arrange pick-up and clean-up after the event. Rental costs vary, depending upon the number of guests you’ll be serving.
Serving and buffet equipment - you’ll need a wide variety of sizes and shapes to accommodate the varying needs of your clients.
Cambros - to save on time, much of your food will be prepared prior to arriving at the event. Cambros keep the food warm and safe during travel. Each cambro will set you back approximately $200.
Van - catering equipment takes up a lot of space. To ensure everything arrives intact, you’ll need reliable transportation that’s large enough to transport everything for the event. A used van will run you between $7,000 - $15,000, while a brand new one can run as high as $75,000.
Catering software - these programs will assist you with planning, sales, event booking, and marketing. Some even have the capability of generating quotes, letters, and invoices. If you purchase the software outright, cost is $1,200 - $3,500. Hosted software will set you back $70-$135/month.
Your initial investment should also include launching a website, marketing materials, and an insurance policy, recommended by your attorney or agent.
What are the ongoing expenses for a catering business?
Fortunately, each event is scheduled well in advance, which eliminates any food waste. When the event comes up, you purchase enough to feed everyone and send the rest home with the client.
Your primary ongoing costs will include:
- Staffing and payroll taxes - Servers earn an average of $125/event, plus tips. Chefs work on a salaried or hourly basis.
- Rent/lease - for both your building and any leased equipment
- Energy costs
- Insurance - for both the business and your transportation
Who is the target market?
If your business plan limits you to working public events such as football games and festivals, the food you serve will be informal, as will your clientele. If you choose to take the more formal route, you’ll want to appeal to customers who are hosting events for large groups of people. Clients will range from individuals to small and large businesses, all with one thing in common - the desire for you to serve their guests quality food and refreshments.
How does a catering business make money?
The needs of your clients will vary from event to event. Your catering business will generate revenue based on the number of meals and other services provided during each event.
How much can you charge customers?
Your prices will vary, depending upon the needs of the client. How many people will you be serving? What food is being served? Will you be supplying linens, flatware, dinnerware, etc.? Will servers be required? Will your company be in charge of providing alcoholic beverages? Once you have all the answers, you’ll be able to determine your cost per person, and how much you’ll need to charge to ensure a profit.
How much profit can a catering business make?
While this varies depending upon a number of factors, a majority of catering businesses start out with a profit of $20,000-$40,000 annually. After 2-3 years in the business, most report a minimum of $100,000.
How can you make your business more profitable?
For many, catering is a seasonal business. With the right strategy in place, however, it doesn't have to be. The following are a few strategies other catering entrepreneurs have implemented to ensure a more profitable business:
- Concentrate on larger events
- Have someone on staff who specializes in cake making
- Run a food truck
- Educate others, while giving your business exposure, by sharing your knowledge of food and nutrition in a blog
- Host online and in-person cooking classes
- Offer your customers access to your food at all times by having a bodega, where they can stop by and pick up some of their favorite items
- Include bar service as one of the services you offer
What will you name your business?
Choosing the right name is very important. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your catering business is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
For most small businesses forming an LLC is a great option, but if you still want to weigh all your options check our our article, What Structure Should I Choose for My Business?
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
State & Local Business Licensing Requirements
Catering businesses must be licensed as Food Service Establishments. These licenses can be obtained from the local health department. All establishments serving food are required to pass a health inspection. Tips for faring well on a health inspection can be found here.
If your catering business intends to sell alcohol, you will need a liquor license in order to lawfully sell alcohol. The states follows a list of laws.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
In addition, certain local licensing or regulatory requirements may apply. For more information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Catering businesses should consider requiring clients to sign a service agreement before starting a new project. This agreement should clarify client expectations and minimize risk of legal disputes by setting out payment terms and conditions, service level expectations, and intellectual property ownership. Here is an example service agreement.
Recommended: Rocket Lawyer makes it easy to create a professional service agreement for your catering business when you sign up for their premium membership. For $39.95 per month, members receive access to hundreds of legal agreements and on call attorneys to get complimentary legal advice.
Labor safety requirements
It is important to comply with all Occupational Safety and Health Administration requirements.
Catering businesses need to post safety signage, make the work environment as safe as possible, and report any work-related injuries.
Certificate of Occupancy
A catering business is generally run out of a large storefront. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
If you plan to lease a location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a restaurant.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
If you plan to purchase or build a location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business’ location to ensure your restaurant will be in compliance and able to obtain a CO.
STEP 7: Get Business Insurance
Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
How to promote & market a catering business
Few successful businesses today lack a website. While it doesn’t have to be complex, invest in a website and be sure it includes pertinent information such as: contact information, menu examples, and photos of past events. Share this information on social media to build a greater online presence. Who Caters is also a great resource for caterers worldwide.
Additionally, consider joining your local chamber of commerce and participate in local events to gain more exposure. If you live in a larger city, see if they hold a fundraising events like Jacksonville’s FOODFIGHT. You’ll be surrounded by the best in the business, gain media exposure for your business, and help raise money for a worthy cause.
Recommended: Get started with local advertising for your business with a $300 credit from Yelp.
How to keep customers coming back
If you consistently offer quality food, you’ll develop a loyal following. Every event you cater exposes you to tens to hundreds of potential customers. Make sure your staff is professional, friendly, and knowledgeable and word will spread like wildfire.
STEP 9: Establish your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Start A Catering Business In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
If you’re a self-starter who is passionate about cooking and entertaining, owning your own catering business might be the ideal career for you. Due to the nature of the industry, you’ll need to live, eat, and breathe catering for the first few years, but the rewards far outweigh the risks.
What happens during a typical day at a catering business?
You’re probably envisioning yourself in the kitchen all day, every day. But there’s so much that goes into running a catering business.
Most days will include the following activities:
- Answer email and phone inquiries from potential customers
- Meet with potential clients to discuss details
- Meet with new customers to discuss the menu for their event, offer taste-testing, and finalize details
- Place food orders for upcoming events and accept deliveries
- Coordinate with party planners, venue management, and all other individuals involved in a specific event
- Coordinate with suppliers regarding china, glassware, utensils, tables, and chairs
- Prepare and deliver food
- Set up linens, china, etc
- Set up food displays (if served buffet style) and/or serve food to guests
- Manage staff who are working the event, so everyone understands their role
- Clean up during and after event
- Follow up with clients to ensure satisfaction and receive feedback
One of the many advantages to running a catering business, is that no two days are alike. Aside from the standard administrative tasks that come with running a business, your tasks will vary as much as the customers who hire you.
What are some skills and experiences that will help you build a successful catering business?
On the surface, running a successful catering business sounds fairly simple - you cook food and deliver it to your client. Things are never as simple as they sound. Food brings people together and your client is counting on you to help make that happen on their special day. Thus, it’s imperative that you are detail-oriented and on time. In many cases, you’ll be preparing meals in an unfamiliar kitchen, so organization and adaptability is critical to your success. No matter how organized and prepared you are, mistakes happen. The test is how quickly you respond to these snafus and what you learn from each mistake.
In the catering business, you’ll also be required to interact with people. From your staff, to the clients and their guests, you’ll need to maintain an air of professionalism at all times. When meeting with a potential customer, it’s important that you read between the lines, really gaining an understanding of what their needs are and how you will deliver. If something they require isn’t doable or won’t reflect well on your business, be upfront. Both the business and the client will suffer, otherwise.
Working in the service industry is not for everyone. If you have culinary knowledge, but have never worked in the industry, consider spending a year or two gaining some hands-on experience. You’ll gain a deeper understanding of how to run a kitchen, learn tricks and shortcuts, and get used to working long hours on your feet. Additionally, The International Caterers Association and National Association for Catering & Events offer members a number of resources that will assist you in getting started in building a successful business from the ground up.
What is the growth potential for a catering business?
Over the last 5 years, the catering industry has realized massive growth, bringing in over $32 billion in 2015 alone. More than half of that income was drawn from restaurants who realize the needs of their customers expand beyond the four walls of their restaurant. Depending upon your long-term goals and the strength of your service, your catering business has the potential to expand to include multiple locations, a restaurant/storefront, and/or a franchising opportunity for others.
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One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
What are some insider tips for jump starting a catering business?
Before opening your own business, work in the industry for a year or two. Start at the bottom and work in every station. What you learn will prove invaluable in ensuring your business’ events run smoothly. It will also be important to find team members to help take care of tasks that you don't have time for, or that aren't your strong suit, such as billing clients or marketing your business.
How and when to build a team
Unless you’re catering informal food and events, where the client picks the food up from you, this is not a business you want to try to do alone. Keep in mind, the more events you cater, the more successful your business will be. If you have three events in one day, is it feasible for you to deliver quality food on time for all three? Once you have your recipes fine-tuned, consider hiring at least one other chef. Consistency is key in this line of work, so work closely with them to ensure they understand exactly how each recipe should be prepared.
If you plan on taking the more formal route, you’ll need a team from the very beginning. Their job is to set up, serve food, and be there for whatever the guests need. They should look and act professionally at all times and should remain in the background, ready to jump into action when necessary. Keep in mind that your staff will need to work long hours and be on their feet the entire time. Ideally, your team will consist individuals who are dedicated to ensuring each party guest has a wonderful experience.