How to Start a Flavor Company

Start a flavor company by following these 10 steps:

1. Plan your Flavor Company
2. Form your Flavor Company into a Legal Entity
3. Register your Flavor Company for Taxes
4. Open a Business Bank Account & Credit Card
5. Set up Accounting for your Flavor Company
6. Get the Necessary Permits & Licenses for your Flavor Company
7. Get Flavor Company Insurance
8. Define your Flavor Company Brand
9. Create your Flavor Company Website
10. Set up your Business Phone System

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.

Exploring your options? Check out other small business ideas.

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 will you name your business?
• What are the startup and ongoing costs?
• Who is your target market?
• How much can you charge customers?

Luckily we have done a lot of this research for you.

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.

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.

STEP 2: Form a legal entity

The most common business structure types are the sole proprietorship, partnership, limited liability company (LLC), and corporation.

Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your flavor company is sued.

You can form an LLC yourself and pay only the minimal state LLC costs or hire one of the Best LLC Services for a small, additional fee.

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!

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.

Open a business bank account

Besides being a requirement when applying for business loans, opening a business bank account:

• Separates your personal assets from your company's assets, which is necessary for personal asset protection.
• Makes accounting and tax filing easier.

Get a business credit card

Getting a business credit card helps you:

• Separate personal and business expenses by putting your business' expenses all in one place.
• Build your company's credit history, which can be useful to raise money 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.

Make LLC accounting easy with our LLC Expenses Cheat Sheet.

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.

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.

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.

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.