May 10, 2017

How Do You Start A Food Business With Little To No Capital?

financing small businessThe good – and the bad – news about starting a food business is that it doesn’t necessarily take a significant amount of cash to get up and running. Depending on what you want to produce and what your goals for the business are, it is possible to get started for as little as a few hundred dollars.

If you are operating in a state that has Cottage Food Laws in place that allow you to produce certain food items for sale from your home kitchen, the only things you’ll need to spend money on to get started are your health and business permits and your initial ingredients and packaging. Even if you want to produce a product that falls outside the Cottage Food Law, or if you’re not in a state that permits home-based food businesses, renting a commercial kitchen doesn’t have to be cost prohibitive thanks to the number of kitchen incubators and shared kitchen spaces that can be found throughout the US and Canada.

The benefits of starting a food business with little capital invested means it gives you the opportunity to test whether this business idea of yours will gain traction in the marketplace without a huge financial commitment.   The downside, of course, is that the fact that starting up a food business can be done fairly inexpensively means that you do face significant competition from other small food companies. As such, in order to differentiate yourself from your competitors, you need to spend time developing a marketing strategy and being willing to put money, time, and effort into executing that strategy in order to make your company stand apart.

While a food business can certainly be started with little investment, growing your business beyond your local region, if that’s your goal, oftentimes comes at a cost. Ramping up production takes money to effect; supporting your product through marketing in various locations and in different channels isn’t inexpensive; and dealing with the administrative side of your growing business may require additional employees to keep everything running smoothly.

At some point or another, be it from when you start or as you look to grow, your business may face financial struggles. When/if that happens, there are numerous options available to you to consider:

  • Self-funding from your personal savings;
  • Friends and family investment in terms of a loan or in exchange for equity;
  • Crowdfunding through various online portals like Kickstarter or Kiva;
  • Small business loans available through your local community development office;
  • Business loans made through banks and/or credit unions. This may include Small Business Administration-backed loans;
  • Personal loans made through banks and/or credit unions based on your personal credit worthiness;
  • Angel investors.

It should be noted that all of the above financing tools come with different regulatory requirements. You can find more information about many of these options by doing a search on this site but you should always consult with a Certified Public Accountant to ensure you understand how any investment will impact your and your business’ tax liability.

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