Start a flavor company by following these 10 steps:
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 guide to starting your flavor company. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
Check out our How to Start a Business page.
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 much can you charge customers?
- 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 flavor company?
Since your company will be responsible for developing, producing, and packaging the products you create, startup costs will include the following:
- Leasing a location - When searching for the ideal location, you must consider both your current situation as well as short and long-term goals. You will need a space that you can grow into, but that isn’t so big that you break the bank before making it through your first year.
- Ingredients - Your first meeting with a new client will lay the foundation for this relationship. Based on previous conversations, you should have all ingredients you believe may help achieve the desired flavor.
- Workforce - While many successful businesses get their start with a skeleton crew, this is not the case when launching a flavor company. A leader understands that they cannot do it all. They should have a clear understanding of what their strengths and weaknesses are and be eager to hire a team that appropriately fills in the gaps.
- Equipment - Some flavor companies outsource part of the process, hiring another company to complete large-scale production and/or packaging. Whether you decide to outsource part of the labor or complete all responsibilities in-house, your initial investment should include all necessary equipment.
The owner of Sweet Leaf Tea developed his company’s flavor in his home kitchen. His initial investment was just $25,000. While it may be possible for you to minimize expenses, cutting corners is not recommended. Remember, potential clients are looking to you to turn their dreams into a reality. They expect a certain level of professionalism and may decide to take their vision elsewhere if they are not impressed with your establishment.
What are the ongoing expenses for a flavor company?
Your ongoing expenses will be similar to startup costs. You will incur overhead expenses such as rent, utilities, cable, and telephone. All equipment should be placed on a preventative maintenance plan to reduce downtime, and any necessary repairs should be completed promptly. You will need to maintain a website and regularly invest in a targeted marketing strategy.
Since industry standards and regulations are regularly updated, it is also recommended that you and your team invest in continuing education and travel for conferences and trade shows whenever possible. Your most important ongoing investment, however, is in your team. In addition to the standard payroll expenses, be sure to reinvest part of your earnings back into the team that is helping ensure your vision becomes a reality.
Who is the target market?
Potential target markets include small, mid-sized, and large food service companies, restaurant chefs, and prepared food companies. To minimize upfront costs, you may want to consider spending the first year or two targeting small to mid-sized companies and outsourcing everything but the flavor creation. This would give you and your team an opportunity to get to know the ins and outs of this sector of food service and network within the industry.
How does a flavor company make money?
A flavor company makes money off the development, production, packaging, and distribution of its client’s unique flavor concept. The client owns all rights; the flavor company is just there to turn an individual’s dream into a reality.
How much can you charge customers?
Since no two jobs are alike, a one-size-fits-all approach to pricing would not prove beneficial to you or your customers. One product may earn you $20,000 to professionally formulate, while another may only be $5,000. Industry leaders encourage new business owners to carefully consider all overhead costs associated with a project when determining fees.
How much profit can a flavor company make?
If you are hired for one $20,000 project and two $30,000 projects per month, net revenue generated equals close to $1 million annually.
How can you make your business more profitable?
If you are looking to boost organizational profits, you may want to closely analyze which business model stands to generate more income in the long run - limiting yourself to just flavor creation or including additional services such as branding and labeling. It would also be a shame if you and your talented flavor team didn’t create and market your own brand of goodies.
What will you name your business?
Choosing the right name is very important. Read our detailed guide on how to name your business. 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 or corporation protects you from being held personally liable if your flavor company is sued.
Form Your LLC
Read our Guide to Form Your Own LLC
Recommended: You will need to elect a registered agent for your LLC. LLC formation packages usually include a free year of registered agent services. You can choose to hire a registered agent or act as your own.
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?.
Small Business Taxes
Depending on which business structure you choose, you might have different options for how your business will be taxed. For example, some LLCs could benefit from being taxed as an S corporation (S corp).
You can learn more about small business taxes in these guides:
There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.
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.
Additionally, learning how to build business credit can help you get credit cards and other financing in your business's name (instead of yours), better interest rates, higher lines of credit, and more.
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.
Recommended: Read our Best Banks for Small Business review to find the best national bank, credit union, business-loan friendly banks, one with many brick-and-mortar locations, and more.
Open net-30 accounts
When it comes to establishing your business credit, net-30 vendors are considered the way to go. The term "net-30," which is popular among vendors, refers to a business credit arrangement where the company pays the vendor within 30 days of receiving goods or services.
Net-30 credit terms are often used for businesses that need to obtain inventory quickly but do not have the cash on hand.
Besides establishing business relationships with vendors, net-30 credit accounts get reported to the major business credit bureaus (Dun & Bradstreet, Experian Business, and Equifax Business Credit). This is how businesses build business credit so they can qualify for credit cards and other lines of credit.
Recommended: Read our guide on the best net-30 vendors so you can start building business credit now, so you never have to worry about cash flow in the future. Keep in mind that poor cash flow is the #1 reason businesses fail!
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.
STEP 7: Get business insurance
Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.
There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.
Learn more about General Liability Insurance.
Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.
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.
If you aren't feeling confident about designing your small business logo, then check out our Design Guides for Beginners, we'll give you helpful tips and advice for creating the best unique logo for your business.
How to promote & market a flavor company
While modern marketing tools such as social media and SEO may prove beneficial, you will realize greater success networking and pounding the pavement. If you are interested in working with an organization, stop by and introduce yourself. Bring some tasty treats that you have created so they get a feel for your true talent. For networking on a national level, consider attending trade shows and conferences. Make it a point to meet as many folks as possible and work to foster those relationships once the trade show is over and everyone has gone home.
How to keep customers coming back
Consistency and quality are key. While this is true with any business, it is particularly the case in the food industry. Make it your goal to always use the finest ingredients and deliver quality products every time.
Still unsure about what kind of business you want to start? Check out the latest Small Business Trends to help inspire you.
STEP 9: Create your business website
After defining your brand and creating your logo the next step is to create a website for your business.
While creating a website is an essential step, some may fear that it’s out of their reach because they don’t have any website-building experience. While this may have been a reasonable fear back in 2015, web technology has seen huge advancements in the past few years that makes the lives of small business owners much simpler.
Here are the main reasons why you shouldn’t delay building your website:
- All legitimate businesses have websites - full stop. The size or industry of your business does not matter when it comes to getting your business online.
- Social media accounts like Facebook pages or LinkedIn business profiles are not a replacement for a business website that you own.
- Website builder tools like the GoDaddy Website Builder have made creating a basic website extremely simple. You don’t need to hire a web developer or designer to create a website that you can be proud of.
Using our website building guides, the process will be simple and painless and shouldn’t take you any longer than 2-3 hours to complete.
STEP 10: Set up your business phone system
Getting a phone set up for your business is one of the best ways to help keep your personal life and business life separate and private. That’s not the only benefit; it also helps you make your business more automated, gives your business legitimacy, and makes it easier for potential customers to find and contact you.
There are many services available to entrepreneurs who want to set up a business phone system. We’ve reviewed the top companies and rated them based on price, features, and ease of use.
Recommended: Find the best phone system for your business; check out our review of the Best Business Phone Systems 2021.
Start A Flavor Company In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
Is this Business Right For You?
Are food and flavor your love language? Have you always felt a deep passion for extracting and mixing flavors to ensure a memorable dining experience? Do you possess strong business acumen and a vision for turning your passion into a profitable business venture? If so, launching a flavor company could be the ideal answer to all your desires.
Want to know if you are cut out to be an entrepreneur?
Take our Entrepreneurship Quiz to find out!
What happens during a typical day at a flavor company?
It all starts with an idea. A client comes to you with a flavor concept, application needs, flavor profile, and desired texture and consistency. After the initial meeting, your team will get to work sourcing ingredients and developing the client’s unique flavor. It often takes several follow-up meetings to ensure the final result is a flavor match that will satisfy the consumer’s needs.
Once this has been achieved, the client will come back for a final meeting, where the product’s look, smell, and taste are completed. The next stage is small-batch production. The client’s full vision, from flavor all the way to packaging, is produced and shipped to their facility for testing. If all goes well, final approval is made and larger production and distribution can begin.
What are some skills and experiences that will help you build a successful flavor company?
Operating a business venture of this magnitude requires careful management of many moving parts. You must be equal parts experimental and methodical. You must possess a vision for both your organization and those that you are working for. A strong business background, leadership qualities, and the ability to hire and delegate responsibilities will also prove essential to your enterprise’s success.
What is the growth potential for a flavor company?
The food flavors market is poised for a compound annual growth rate (CAGR) of 5%, reaching an estimated $19.72 billion by 2026. Business owners striving for long-term growth and success need only possess drive and determination and surround themselves with an innovative team to reach or exceed both short and long-term goals.
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Take the Next Step
Find a business mentor
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.
Learn from other business owners
Want to learn more about starting a business from entrepreneurs themselves? Visit Startup Savant’s startup founder series to gain entrepreneurial insights, lessons, and advice from founders themselves.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
What are some insider tips for jump starting a flavor company?
Your flavor company is considered part of the food industry. This means that you must strictly adhere to the FDA and USDA guidelines throughout flavor development and production. Industry leaders also recommend remaining abreast of new and emerging trends. You and your team should know how to work with natural, organic, and non-GMO ingredients, as well as dairy alternatives.
How and when to build a team
The size of your team will be defined by the amount of work you have and what work you plan to do in-house. If you plan to see the process through from development to packaging, you will need to hire a team that possesses both the drive and determination to help turn your business dreams into a reality.