How to Start a Hot Sauce Business

Start a hot sauce business by following these 10 steps:

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

We have put together this simple guide to starting your hot sauce business. 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 important and challenging. If you don’t already have a name in mind, visit our How to Name a Business guide or get help brainstorming a name with our Hot Sauce Business Name Generator

If you operate a sole proprietorship, you might want to operate under a business name other than your own name. Visit our DBA guide to learn more.

When registering a business name, we recommend researching your business name by checking:

• Your state's business records
• Federal and state trademark records
• Social media platforms
• Web domain availability.

It's very important to secure your domain name before someone else does.

What are the costs involved in opening a hot sauce business?

A hot sauce business can be started for relatively little. Business owners need a place to make and bottle their sauce.

They can keep this expense low, however, by using their own kitchen or finding a commercial kitchen that doesn’t cost much to rent. (Owners should check with their health department to find out what the requirements for preparing sauces at home are.)

Other startup expenses include packaging and ingredient costs. These are generally low, but business owners should keep them in mind when designing their sauces. Custom packaging usually isn’t an option for owners who have limited funds. When selecting ingredients to use in a recipe, owners need to remember that fresh ingredients may taste great but can be expensive. (Also, they may not be available year-round.)

What are the ongoing expenses for a hot sauce business?

The ongoing expenses for a hot sauce business include the cost of a commercial kitchen, ingredients, and supplies.

Once a business grows, it may choose to have bottles prepared by a co-packer. This costs more than bottling yourself. Most businesses only make this transition once their volume supports co-packing, though.

Who is the target market?

A hot sauce business’ ideal customer is someone who likes hot sauces and has some discretionary income. Such a customer might be interested in trying a new hot sauce, and they’ll have enough money to pay for a premium sauce.

How does a hot sauce business make money?

A hot sauce business makes money by selling bottled hot sauce. Bottles may be sold individually to customers or wholesale to retailers. Some businesses also offer larger bottles for food service businesses.

How much can you charge customers?

Many hot sauces sell for around $5 per bottle. Some specialty ones command higher prices. They usually remain less than $10 per bottle, though.

How much profit can a hot sauce business make?

Some hot sauces businesses are extremely profitable. Businesses that get their sauce into national retailers can bring in six- and seven-figure revenues each year.

How can you make your business more profitable?

A hot sauce business can increase its revenue by offering other types of sauces and products. Many businesses also make barbecue sauces. Some sell t-shirts, hats, and other company branded items. The hot sauce niche has an almost cultish following, so these types of products can sell fairly well.

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 hot sauce business 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.

Federal Business Licensing Requirements

There are federal regulations regarding what can and cannot be added to, sold as, and processed with food. Attached is a resource from the Food and Drug Administration detailing the process of starting a food business: How to Start a Food Business

State & Local Business Licensing Requirements

Certain state permits and licenses may be needed to operate a hot sauce business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.

Certificate of Occupancy

A hot sauce business is generally run out of a 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 hot sauce business.
• 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 hot sauce business will be in compliance and able to obtain a CO.

Food Regulations

When selling food, you will need licensing from a local health department; all establishments serving food are required to pass a health inspection. Tips for faring well on a health inspection

Liability Waivers

To avoid liability and potential lawsuits, hot sauce businesses with extremely hot sauces such as the “Flashbang” sauce at Pepper Palace should have their clients sign waivers.

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?

Anyone who has a great hot sauce recipe may like running a hot sauce business. People who have good recipes usually are passionate about hot sauce, and a recipe that family and friends rave over might have commercial appeal.

What happens during a typical day at a hot sauce business?

A hot sauce business owner spends a lot of time making and bottling their hot sauce. When not producing or shipping hot sauce, they may clean, order ingredients and supplies, pay bills, and look for new customers.

What are some skills and experiences that will help you build a successful hot sauce business?

Starting a hot sauce business requires having a good hot sauce recipe.

Business owners usually work themselves into this business. Most have a recipe they make for family and friends that’s popular. They then refine this recipe until it’s perfect.

Business owners who don’t already have a recipe can learn to make hot sauce. CourseHorse offers a class on the subject, Hot Sauce Done Right.

Business owners may be able to find all the information they need online and in books, though. Several sites have good tutorials on making hot sauces:

• The Chopping Block
• The Hot Pepper Forum
• Brooklyn Brainery

A couple of books on making hot sauce are The Hot Sauce Cookbook and Hot Sauce.

Attending the New York City Hot Sauce Expo or Specialty Food Association’s Fancy Food Show can also provide insights and inspiration. These shows are great places to learn about industry trends.

What is the growth potential for a hot sauce business?

A hot sauce business can be a local, one- or two-person operation. Or, it can grow to become a national or international company. Way Hot Sauce Company in Haslett, Michigan is an example of a regional hot sauce business. Pepper Palace is a larger hot sauce company with outlets throughout the country.