Starting a Home-Based Food Business

Things to consider before you start a home-based food business.

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Starting a home-based food business requires understanding a number of legal issues, many of which depend on the state where you live. For example, you must know which foods you are allowed to prepare in your home kitchen, choose a business structure, apply for required licenses and permits, learn about food safety, and obtain insurance. If your state allows you to hire employees to help with a home-based food business, you’ll need to know the rules about that, too.

This article will get you started. To learn more about running a home-based business, see Your Home Business.

Allowed Foods

More than thirty states have passed laws allowing aspiring food-business owners to make products for sale in their home kitchens. These laws are commonly called cottage food laws, though some states may use other names, such as New York’s “home food processors exemption.”

Unfortunately, if your state does not have a cottage food law or similar provisions, you are not permitted to have a home-based food business. Instead, you must obtain space in a commercial kitchen and become licensed as a commercial food manufacturer.

In states with cottage food laws, allowed foods are limited to those that are considered “non-potentially hazardous” -- usually that means products that can be safely kept at room temperature. Such items often include:

  • breads and other baked goods without cream, custard, or meat fillings
  • candies, such as peanut brittle or toffee
  • canned fruit jams and jellies
  • dry herb or spice mixtures
  • dry mixes for baked goods, dips, or soup
  • dehydrated fruits or vegetables
  • popcorn
  • vinegars, and
  • roasted coffees and teas.

State lists of allowed foods vary -- for instance, many states allow you to make pickles in your home kitchen while others do not. Some states say chocolate candy is okay, while others rule it out.

To find out whether your state has a cottage food law and, if so, what you are allowed to make, follow the link at the end of this article.

Choosing a Business Structure

Many home-based food businesses are very small; many states place limits on how much the business may earn each year. If your business is tiny, running it as a sole proprietorship may be the only economically viable option at first. Keep in mind, however, that as a sole proprietor, you will be personally responsible for every aspect of the business – from paying taxes to covering the risks of a lawsuit if your food products cause illness or injury to a customer. If you must operate as a sole proprietor, you should purchase liability insurance to protect your personal assets (see below).

If you can afford it, consider adopting a business structure that protects you from personal liability, such as a limited liability company or corporation. Even if you do all you can to comply with safety standards, any food business carries with it the chance that someone could be sickened or otherwise harmed by a product. Forming a corporation or LLC ensures that your food business, not you personally, would be responsible for any damage.

For more information, see Choose Your Business Structure.

Licenses and Permits

Licensing requirements for home-based food businesses vary widely from state to state. In some states, you will need to obtain a permit from the state or local health department and get a local business license as well. In others, health departments have no authority to regulate your business, but you must carefully follow the letter of the state’s cottage food law.

In addition to listing the foods you may and may not produce, your state’s cottage food law may regulate matters such as:

  • what permits you must obtain
  • whether your kitchen will be inspected
  • where you can sell your products -- for example, whether you may sell only directly to customers or whether you may sell wholesale or through the Internet
  • what safety rules you must follow
  • how to label your products
  • how much money you can earn, and
  • whether or not you can hire employees.

To find the rules in your state, follow the link at the end of this article.

Health and Safety

In many states, you must take a class on basic food safety and handling before starting a home-based food business. Wherever you live, you must follow the state’s rules about keeping your home kitchen clean and safe, from maintaining equipment and utensils in good working condition, using proper techniques for sanitation and hand washing, and keeping kids and pets out of the kitchen while you are working. You must also follow all state rules for properly packaging and labeling your products.

Insurance

There are unique risks associated with food businesses, from food-borne illnesses to foreign objects like glass or plastic in food. These are added to typical business hazards such as fire, theft, or an employee who slips and falls on the job. Don’t assume that your homeowners or renters insurance policy will cover your home business operations; it probably won’t. You must carefully evaluate your existing policies and then contact a qualified insurance agent to purchase the additional insurance you’ll need.

To find a good insurance agent, ask other food-business owners for recommendations. Look for an agent who has experience writing policies for food businesses and try to make sure all major risks are covered. General commercial liability insurance should cover everything from an employee who is burned by boiling water to a customer who gets sick from eating your food.

If you use a car or truck for deliveries or other business travel, be sure it is also properly insured.

Employees

Some states allow you to hire one or more employees to help you with your home-based food business. If you are allowed to hire an employee and you decide to do so, you should learn about basic employment law issues such as hiring rules, how to avoid discrimination, and how to handle money matters like taxes and workers compensation.

For more information, see Nolo’s Human Resources Law Center.

For More Information

To find out whether your state has a cottage food law and to learn more about it, visit the Cottage Food Law website.

To learn more about starting a business, see How to Choose What Business to Start.

July, 2013

by: , J.D.

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