Why start a catering business?
For people who enjoy cooking, baking and developing recipes, running a catering business can be a satisfying and lucrative career. Some of the benefits of starting your own catering business include:
Opportunities to scale
You can start a catering business on a small scale preparing meals for others out of your home kitchen and slowly develop your business to take on larger clients as you start generating cash flow and attracting customers. Once you have your recipes and business model prepared, you can easily take on more clients or hire employees to increase production capacity in the kitchen.
Low financial risk
While restaurants have high investment costs in preparing and maintaining the physical restaurant location, catering businesses can rent out space in commercial kitchens on a case-by-case basis depending on the events they have scheduled. By scheduling catering services in advance of the event, you plan for the costs knowing that you have a reliable payment coming in, making it a low-risk business especially in the early stages.
As the owner of a catering business, you can decide the cuisine to serve and what events you want to specialize in. Some catering businesses expand to other kinds of entertainment to offer a full-service experience for a range of clients while others specialize in preparing a specific style of food for certain occasions. You have the creative freedom to customize menus and collaborate with clients to create specialty meals or offer a set menu of staple dishes that represent your brand.
Costs of creating a catering business
Regardless of their size, catering businesses have basic startup costs that you will need to invest in to successfully launch your business. Average startup costs for launching a registered catering business range from $10,000 to $50,000, but this number depends on your business niche, location and scale. The main startup costs of building a catering business include:
To deliver food to your customers, you will need a location where you can prepare and package orders. If you cook out of your home kitchen, you may be able to file part of your rent or mortgage payment as a business expense. As your business starts to grow, you may need to buy or rent an outside location with more room for equipment to keep up with demand.
You can rent a commercial kitchen on your own or co-rent with other culinary businesses and pay a lower rent in addition to an hourly rate for use of the space. This can cost anywhere from hundreds of dollars a month to several thousand dollars.
Licenses and permits
As a provider of food and beverages, you will need to hold your catering business to local health and safety standards. All of the permits, licenses and registration fees usually add up to about a thousand dollars or more. Types of licenses you will need to secure are:
- Business licenses: Before you can start operating as a business, you will need to register your catering company as a business entity. This includes a one-time filing fee and a yearly upkeep fee. The cost of your business license varies depending on your state and the type of business entity, with LLC filing fees ranging from less than $50 to more than $500.
- Health and safety permits: Permits from the health department are essential for proving that you are operating your business safely. Many states base the cost of a health permit on the volume of food sales the restaurant makes in a year. You’ll also need a permit from the fire department to ensure that your location is up to code.
- Liquor licenses: If you want to serve liquor, you will also need to get a liquor license.
- Food and beverage handlers licenses: You and any employees will need to take a food handlers’ course to learn the laws about safely handling food. If your catering business sells alcoholic drinks, employees usually need a separate certification from the state alcohol commission.
- Catering licenses: Some states require catering businesses to apply for an additional catering license and meet specific standards depending on whether they are being run out of a home or a commercial kitchen space.
Like any business, your catering company should have general liability insurance and property insurance to protect you from possible legal challenges. If you have a catering van or other vehicle that you use to transport food to clients, you will need commercial auto insurance as well.
Equipment is one of the most significant startup costs of a catering business. When you start, you can choose to cut costs by buying used equipment or even renting big-ticket items that you can’t afford to invest in yet. There are two main categories of equipment expenses: preparation costs and serving costs. Some types of kitchen equipment you may need to prepare the food are:
- Walk-in freezers
- Deep fryers
- Commercial mixers
- Pans, pots and cutting boards
- Kitchen utensils and hand tools
- Containers for food
- Ice machine
You’ll also need to purchase serving supplies in advance to professionally serve food to clients on-site. Serving startup costs can include:
- Heat lamps
- Serving dishes
- Beverage dispensers
- Tablecloths and napkins
- Cake stands and dessert trays
Altogether, equipment costs for your catering business outright can go into the hundreds of thousands of dollars for a full kitchen with comprehensive equipment. If you’re working on a small scale, however, you may be able to fill your equipment needs on a much lower budget.
Whether you’re working by yourself or oversee a team of chefs and servers, you need to be able to pay the people who work for your company. Budget to give yourself a fair salary once your business is cashflow positive and plan for labor costs at the skill level you need. In the startup phase, your labor costs can include the price of onboarding, paying consultants for advice and developing the HR and payroll system you plan to use. They also include the cost of training your staff and seeking certifications to learn particular skills.
One of the benefits of running a catering business is that you can sometimes wait until you have customers to order food. However, as your business grows you will want to have staple items on-hand to allow you to take on last-minute customers and reliably fill orders. Additionally, you will need to spend money on ingredients while you test and refine your menu. The amount you spend on food in the startup phase depends on how many menu tests you carry out and what kind of dishes you serve.
Some entrepreneurs market their catering business exclusively through word-of-mouth, but having a small advertising budget can make a big impact on your business’s ability to connect with potential customers. Basic advertising costs like printing up brochures, business cards, branded plasticware or taking out radio and web ads can cost under a hundred dollars up to a few thousand depending on the marketing channels you want to use.
Deciding on a niche
As you develop your business, start thinking about what niche you want to serve. The specific services you want to offer and the local market can inform the type of niche you choose for your business. Research your competition and look for gaps in the market where you could differentiate your catering business and attract a specific audience. You’ll want to choose a niche that has the potential to be popular but is also not already over-saturated in your area. Examples of niches within the catering industry include:
- Bar and bat mitzvahs
- Box lunches
- Cocktail parties
- Children’s entertainment
You can also specialize further by choosing a particular style of food such as fine dining, vegan meals, brunch foods or traditional cuisine. The style of food you serve can also impact the services you offer to customers. For example, a catering company that specializes in barbeque might serve their food in banquet-style trays, while a full-service fine dining catering business might have servers pass around hors d’oeuvres on trays then serve individual plates to guests.
Building a menu
Once you decide on a niche you can start brainstorming ideas for your menu. When you are first starting out, consider keeping your menu simple and streamlined with a few popular items then adding in new dishes and seeing how they sell with customers. As your business grows, you can create event-specific menus and tiered meal plans for specific occasions to branch out to other niches.
Consider common dietary restrictions when developing your menu and add options to suit them to appeal to a wider customer base while still being consistent with your catering theme. A catering company that specializes in artisan pizzas could open up a much larger market by simply adding an option for gluten-free crust to their existing menu.
After crafting your initial recipes, try out your menu on a test audience and ask for feedback. Adjust your recipes by slightly changing quantities of ingredients or sourcing them from different suppliers. Another important part of the testing process is timing the cooking process from start to finish and determining if you have the time and labor resources to offer each dish.
Hiring employees for your catering business
To start earning serious income from your catering business, you may need to transition from being your only employee to running a full staff. Read up on employment laws in your area to understand your legal obligations and tax responsibilities as an employer before you begin the hiring process. The key considerations when hiring employees for your catering business are:
Types of employees to hire
Like all entrepreneurs, people who own their own catering business start off fulfilling multiple roles until they have the capital to outsource certain responsibilities to contractors and employees. Examples of roles to consider hiring for your catering business include:
- Chefs: Hiring a head chef can help you refine your menu and continue creating new, interesting specials even as you have to focus more on the business side of catering.
- Cooks: While chefs have the training to lead a team and craft recipes, cooks can efficiently work as a team to prepare meals on schedule.
- Administrators: Once you have a steady stream of customers, administrators and customer service specialists can help handle customer inquiries, coordinate event schedules and manage paperwork.
- Accountants: Keeping track of your finances can get more complicated as your sales volume increases. Hire an accountant or a bookkeeper to record transactions and produce budget reports that you can use to make financial choices.
- Servers: Offering meal service as part of your catering package can make your company more appealing to high-end clients. Having reliable, professional servers is essential for building a reputation as a full-service caterer.
- Designers: Consider working with a freelance designer to create promotional materials, brochure designs, logos and other parts of your company branding.
- Delivery drivers: As you take on more clients, you may not be able to attend every event. Hire delivery drivers to transport the food and set up food stations for your customers.
Creating a job posting
When creating a job posting for your catering business, be clear about the hours that you want them to work and the type of role each candidate would hold at your business. Make a list of skills that you’re looking for and any requirements. If they need to already be food handler certified, specify that information under the qualifications section of the job description.
Job boards and word-of-mouth both great ways to find employees for a new business. Look through your professional and personal network to find dedicated partners who want to see your business succeed. If you’re hiring for a critical role in your business’s development, such as a head chef, you may consider contacting a headhunter to help you find someone with the right level of experience. When vetting candidates, look for previous customer service or food service experience to build a strong staff that can help you overcome the pain points of growing a small business.
Catering businesses rely on positive reviews from existing customers to attract new business, so pay extra attention to each candidate’s interpersonal skills during the interview. Filling catering orders can be extremely fast-paced and requires consistency, attention to detail and the ability to work under pressure. Ask candidates questions about their experience using each of these skills. If you’re hiring a team of employees, consider how their personalities could work together to avoid conflicts in your core team. Be clear with potential employees about the uniforms or dress code you expect.
Setting prices and building a business model
Before you assign prices to each menu option, do thorough research on how much you need to make to break even. Record all of your one-time and recurring costs then use that information to set the minimum amount you need to charge to be profitable. Beyond that, you can decide how high of a profit margin makes sense for the services you offer. Market research can help you find a balance between how much customers are willing to pay and how much you need to earn to pay yourself and your employees.
Many catering businesses use a tiered business model where customers can order pre-set packages for a certain amount. Others create custom plans for each client to settle on a fair price per person. In addition to the basic cost of bulk meals and standard service, catering companies charge fees such as:
- Delivery fee
- Clean-up fee
- Bartending fee
Related: Planning for Business Success
Best ways to market your catering company
Having friends and family share positive reviews is a good way to start marketing your business and increasing brand awareness, but using targeted advertising techniques can help you speed up growth and generate significant community interest. Here are several methods you can use to market your catering company:
- Running ads online
- Offering free catering to a community group
- Posting photos of your food and menu to social media pages
- Updating your online search listing
- Handing out flyers and brochures at event centers
- Providing discount promotions for return customers