How To Start & Fund A Catering Business: The Step-By-Step Guide
Does serving delicious food to a crowd of party goers sound like a dream? Do you want to take your love of desserts to weddings and other special events? If so, becoming a professional caterer could be the right career path for you.
In this article, we’re going to explore what it takes to start and fund your own catering business. We’ll start by discussing how to create a business plan and why a plan is a necessity for a successful business. Then, we’ll delve into the expenses you’ll encounter and how you can cover those costs. We’ll also talk about choosing your business structure, building your web presence, and advertising methods that can bring in new customers.
Ready to go? Let’s get started on your path to entrepreneurship!
Table of Contents
- Step 1: Pick Your Niche
- Step 2: Create Your Business Plan
- Step 3: Create Your Menu
- Step 4: Source Your Ingredients
- Step 5: Find A Food Prep Space
- Step 6: Calculate Startup Costs
- Step 7: Register Your Business
- Step 8: Get Permits & Licenses
- Step 9: Get Business Insurance
- Step 10: Seek Business Funding
- Step 11: Choose The Right Software
- Step 12: Hire Employees
- Step 13: Create A Web Presence
- Step 14: Advertise Your Business
- Starting A Catering Business: Final Thoughts
Step 1: Pick Your Niche
While it may be tempting to try to cater for every event in your area, you’re going to stretch yourself thin … and likely set yourself up for failure. Instead of trying to offer services to everyone, pick a niche.
There are a wide variety of catering niches to consider, including:
- Corporate Events
- Adult Parties
- School Events
- Children’s Parties
- Sports Events
You may already have an idea in mind. For example, maybe it’s always been your dream to be a wedding caterer.
Be sure to consider the type of food you like to make. If you prefer to make salads, sandwiches, and other lighter fare, consider catering for business or school functions, luncheons, and other daytime events. If you prefer to serve fancier entrees, consider catering for weddings and special events.
Another step to take before selecting your niche is to do some market research in your local area. Where are there gaps in catering availability? What niche is overcrowded with the competition? You may find that there a large number of wedding caterers already in your area. Unless you can bring something new to the table (being the only caterer to serve Southern-style barbecue, for example), you might want to consider filling a different customer need.
Step 2: Create Your Business Plan
Your business plan should not only include details about your business in the present — your management team and your mission statement, for example– but it should also serve as an outline for how your business will hit future targets.
Your business plan acts as a blueprint, outlining how your company will become successful and profitable. For that reason, your business plan won’t look exactly like the plan of another business — even one within the same industry. However, even though details may vary, there are a few common sections that can be found in all business plans. Those include:
- Executive Summary: Describes the content of the business plan
- Overview: Includes background of the business, legal structure, and other key details
- Industry Analysis: Overview of the industry, including the size, nature, and any current trends
- Competitive Analysis: Overview of your competition
- Marketing: An outline of your marketing strategy and how you’ll reach customers
- Operations Plan: Description of the operations of your business
- Management: Bios and skills of your management team
- Financials: An overview of current and future revenues
Your business plan not only helps you hit your goals, but it’s also critical when it’s time to obtain financing. Banks, nonprofit lenders, and even some alternative lenders may require a business plan as part of a loan application.
Step 3: Create Your Menu
Once you have a niche in mind, you’ll be able to narrow down your menu choices.
You want to consider your target demographics and what type of food you’re experienced at making. You also want to offer a variety of options while keeping your menu at a manageable size. Having a menu with too many items or items that contain ingredients that are difficult to source could cause unnecessary stress for you and your clients.
It’s also important to remember those with dietary restrictions. Consider adding a few options to your menu that are vegetarian, vegan, gluten-free, or dairy-free to help expand your customer base.
Performing a test run or two can help you further improve your menu. Once you have your menu in place, test it out on a few friends and family members. Get their honest feedback on where you excel, as well as where you fall flat. Tweak recipes as needed, change techniques to become more efficient, and be honest with yourself about what works and what doesn’t. Then, alter your menu accordingly.
Step 4: Source Your Ingredients
After you create your menu, you’ll have a better idea of the ingredients needed to prepare your food. When you first get your business off the ground, you may be able to get the ingredients you need by purchasing from a wholesale club in your area. However, as your business grows larger and you have more events to cater, you’ll want to purchase your ingredients from other sources.
You can get fresh produce from local farmers. Start building these relationships by visiting your local farmers’ market. You can also build relationships with restaurant suppliers and food service vendors to purchase bulk ingredients at reduced prices.
Step 5: Find A Food Prep Space
In many states, you will be unable to use a residential kitchen to prepare your food. If you plan to cater from home, you must contact the health department in your area to find out more about the regulations of home-based catering businesses, including inspection and permit requirements.
In most cases, you’ll need to rent space for your kitchen. There are two ways to go about this.
The first is renting your own commercial space. This is the more expensive option but is a necessity if you plan to cater full time.
If you only plan to cater events occasionally or on weekends, you may be able to rent a commercial kitchen for a few hours on the days when you need it. This is a more affordable option since you won’t have to invest in equipment, but it’s not ideal for full-time caterers.
Step 6: Calculate Startup Costs
Before starting your business, sit down and make a list of your total expenses. Expenses could include a number of things such as:
- Rent for a commercial space
- Industrial equipment
- Serving equipment
- Transportation vehicles
- Insurance and registration costs
You can tailor the list to your own business. For example, if you don’t serve fried food, you won’t have to invest in deep fryers. If you specialize in only desserts, you may have pastry tools, cake displays and stands, and bakeware sets on your list.
Once you’ve made your list, start shopping around to get an idea of costs. Check out prices online or visit local commercial kitchen equipment and supply stores. Once you have an idea of how much funding you need, it’s a smart idea to add about 30% to those costs to prepare for the unexpected. For example, if you’ve priced everything at $100,000, apply for a loan of $130,000 to make sure all of your bases are covered.
Step 7: Register Your Business
Before you begin catering to clients, you need to register your business with federal, state, and local agencies.
First, you need to think of a business name. Brainstorm ideas to find a name that’s catchy and is a reflection of your brand. When you’ve come up with a great name, check your Secretary of State’s website to ensure that this name is not already being used by another business.
Next, you will need to select your business structure. This is an important step because your business structure determines how your business is taxed and your personal liability for debts incurred by the business. Types of business structures you might want to consider include:
- Sole Proprietorship
- General Partnership
- Limited Partnership
- Limited Liability Partnership
- Limited Liability Company
The type of business structure you choose for your catering business will vary based on the number of owners and your plans for the future. Consult with an accountant or attorney to learn more about your options and which is best for you.
After you choose your business structure, you will need to register with the state where you will operate. You can register through your state’s Secretary of State website. Application and fee requirements vary by state. If you plan to offer services in more than one state, you will need to register with each state.
Another important step in registering your business is obtaining an Employer Identification Number (EIN) from the IRS. This is a necessary step if your business will have employees now or in the future.
Step 8: Get Permits & Licenses
After registering your business, it’s time to apply for the permits that you need to legally operate your business. It’s necessary to do this early in the game, as it may take weeks or even months to receive your required permits.
State and local laws surrounding permit and license requirements vary. Some of the permits and licenses you may need to legally operate your business include:
- Business licenses
- Health permits
- Food-handling licenses
- Liquor licenses
You can contact the local health department, the state Alcoholic Beverage Control board, and other state and local agencies to learn more about the licenses required in your area, how to apply, and any applicable fees.
When working with food, you also face inspections from your local health department. The temperature of prepared and stored food, waste disposal, and the safety and condition of your cooking equipment are just a few of the things that will be inspected periodically.
Step 9: Get Business Insurance
Protecting your catering business is important, and there’s no better way to protect yourself and your business than with business insurance. As a caterer, there are multiple insurance options to consider, including:
- General liability insurance
- Errors and omission (E&O) insurance
- Property insurance
- Worker’s compensation insurance
- Liquor liability insurance
Insurance requirements vary by state. Talk to your local insurance agent to find out more about the laws in your state and to create a personalized insurance policy for your new catering business.
Step 10: Seek Business Funding
We’ve already reviewed many of the costs you’ll encounter when opening your own catering business. Now, it’s time to determine how to pay for those costs. Whether you have money in the bank or your bank account is looking a little slim, there are financing options available for you. You could consider options such as:
- Use your personal savings
- Ask for help from friends or family
- Use business or personal credit cards
- Get a personal loan that can be used for startup business purposes
- Tap into your retirement accounts
- Use crowdfunding to get community assistance
- Get equipment or vendor financing
- Get a line of credit
Learn more about startup financing in our guide to smart ways to finance a startup or new business.
Step 11: Choose The Right Software
From keeping track of events to accepting credit cards, the right software can help you do it all. As a caterer, there are several types of software you should consider investing in to keep operations running efficiently.
This software allows you to perform functions such as tracking expenses, sending invoices to clients, managing payroll, and keeping up with inventory. With accounting software, you can keep up with your financials and run reports, which is especially helpful when you’re seeking financing from a bank or traditional lender.
Accounting software also makes it easier for your business when tax time rolls around.
New to accounting? Download our free eBook, The Beginner’s Guide to Accounting.
There are specific software programs designed to help caterers manage all aspects of their businesses. Features include invoicing, billing, employee scheduling, event bookings, and other tools to keep your catering business on track.
Payment Processing Software
Not all of your clients will have cash, especially when they’re paying off large bills for their catering expenses. To make payments easier for your clients, invest in payment processing software.
Payment processing software acts as the communicator between your bank and your customer’s bank, allowing you to accept debit cards, credit cards, and other methods of payment. Most payment processing software comes with monthly subscription fees, and some companies even offer free hardware that makes it easier than ever to accept multiple forms of payment.
Step 12: Hire Employees
When you first start your business, you may be a one-man operation until you start bringing in revenue. However, you will eventually need to hire employees if you want to grow and scale. If you’re like many caterers, you may opt to hire an employee or two right from the start.
Employees that you may hire for your business — either now or in the future — include:
- Chef: Your chef will be in charge of preparing the food. For large events, consider hiring sou chefs for additional assistance.
- Servers: Bring food and drinks to guests
- Bartenders: Serve alcoholic beverages to guests
- Busboys: Responsible for clearing off tables
- Host/Hostess: Help guests find their seats
- Event Planner: Meets with the client to discuss details about the event
- Supervisor: Ensures that other staff members are doing their jobs efficiently
Until your business grows and brings in revenue, you may opt to hire just a few staff members, such as a chef and a server. As your business gains more customers and becomes profitable, you can add additional employees to your staff.
Do your research to get an idea of the average pay range in your area for each position. It’s also important to remember that other expenses come with hiring staff, including workman’s compensation insurance, training costs, and benefits.
To find employees for your business, ask friends, family members, and colleagues for referrals. You may also post a job advertisement on online job boards. You can even contact local temporary agencies to find the help you need.
Step 13: Create A Web Presence
Your plans for a catering business are coming together, so now it’s time to start thinking about how you’re going to bring in clients. There’s no better place to start than the internet.
Just think about it. If you’re looking for a local company to work with, where is one of the first places you look? The internet, of course.
Jump start your web presence with these steps:
Launch Your Social Media Profiles
Social media is a great way to reach new customers, and best of all, setting up your profiles is free! Create business pages on Facebook, Twitter, Instagram, and/or Pinterest. Make sure to include critical details such as your contact information, service areas, and types of events catered. You can build up your profiles to include information such as menus, pricing lists, and photos of your food and past events.
An added bonus on social media is that you can communicate with potential customers through comments or direct messaging.
Build Your Website
In addition to your social media profiles, you also need to build a website. This doesn’t have to be overly complicated. In fact, there are lots of website builders that make it easy to choose a template, customize your font and colors, and drag and drop images, text boxes, and tools — no design experience required.
Make sure that the design of your website reflects your branding. You also want to include important details, including the name of your business and contact details. You can also add additional features and information, including a live chat option, photo galleries, and reviews and testimonials.
Step 14: Advertise Your Business
Boosting your web presence is a great start to advertising your business, but make sure that you don’t stop there. There are many ways you can advertise your business — both online and off. Some possibilities include:
- Distribute fliers
- Run ads online
- Run ads in the newspaper
- Attend wedding shows
- Get featured on wedding and event websites
Starting A Catering Business: Final Thoughts
Starting your own catering business is exciting but venturing out on your own can also be a little scary, especially if you lack business experience. However, you can be on track to owning and operating a successful catering business with careful planning, preparation, and strategic borrowing. Good luck!