In the last few years, we’ve witnessed huge changes in the awareness of home food production rules and regulations. People are getting smart about getting legal and taking the necessary steps to operate and grow their cake business in the open and in full compliance of the laws!
If you’re new to the dream of having a cake business at home, here are a few simple starting points:
Every community has regulatory requirements. Some are more restrictive than others when it comes to operating a cake business from home. While each state has websites to help you fill out permits, licenses and regulations these can be difficult to weed through. Information about your legal responsibility can be very confusing and you may receive conflicting information. Persistence is important when searching for the answers about home-based food production. Ultimately, you want to hear the requirements directly from your health inspector, as they typically have the final say in what you can and can not do. That said, citizens are working hard to pass and expand cottage food laws. Check out http://cottagefoods.org/laws/ a site dedicated to the latest changes to the home food business laws.
You may also want to contact your local SCORE office for one-on-one help on the other legal and business requirements of a food start-up. In our book, Start a Cake Business Today, we go in depth on the legal requirements, both for small home-based cake businesses and commercial cake shops.
Checklist for Starting a Small Businesses
• Employer’s Identification Number (EIN). Obtain an employer’s ID number with Form SS-4, if you have employees, are a partnership or are incorporated. Sole proprietorships can also obtain and use a TIN instead of the owner’s social security number on all business forms that ask for a “taxpayer identification number.” If a business is not a corporation this identification or Social Security number will be needed before a bank account can be opened.
• Obtain a federal license if required by federal law. Employers must obtain licenses, which are renewable every two years.
• Determine business status. Probably your business will be a sole proprietorship. However if you grow or have business partners you need to determine the legal form of your business. Are you incorporated, a limited liability company, or are you establishing a partnership?
• If needed, obtain a seller’s permit – also known as a Certificate of Authority or a Resale Certificate. Get a resale tax certification or state seller’s permit if the operation will involve purchasing items for resale. This exempts the business from paying sales tax on some of its purchases. Handy when you buy items in bulk! Keep excellent records though so the IRS doesn’t think you’re taking advantage of this.
• Obtain any required state licenses. Most states issue licenses to a business that will provide food services.
• Obtain occupational or health permits often required for food preparation.
• Complete food safety training course. This is a good idea even if not required by law in your jurisdiction.
• Acquire zoning approval, if necessary. Zoning ordinances regulate how property can be used. These ordinances are tools of both state and local governments to regulate the safety, structure and appearance of the community. Make sure that the zoning rules in your area allow the operation of your kind of business.
• Obtain a local business license. Many municipalities or states require a permit to conduct business. The fee is usually based on gross sales, but volume from most part-time ventures falls below the minimum tax level, so, at least initially, it won’t be costly.
• Register your business name if using a name other than your own or a variation of your name. Check with the county clerk locally, and the secretary of state nationwide to determine if a certain name is legally clear.
Know the Law
Check with your local Health Department for the requirements to have a legal health inspected food facility in your town. Each state and town has different requirements. Many states have cottage food laws that permit home baking businesses and only require you upgrade to a commercial license and space when you surpass pre-determined limits. Earlene Moore shares the fundamentals of what may be required based on her experience of getting legal in her small Texas community.
The risks of operating illegally are real and can result in fines, a visit from the IRS or penalties that prevent you from ever operating a food production business.