How to Start a Catering Business

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Quick Reference

In the catering industry, no two days are alike, but you’ll have the chance to make special events even more special for your clients as a business owner. If you love to cook or bake and thrive in a fast-paced atmosphere, opening your own catering business might be a great career move. You’ll get to share your cooking talents with others and help event managers and families enjoy conferences, weddings, and celebrations, knowing that the food is all taken care of and will be delicious.

Business Overview

Catering businesses provide an essential function to corporate events and conferences and concerts, festivals, and families hosting parties and weddings. Caterers provide events with specialized menus of food, bringing the prepared food to the site and letting the event organizers focus on other priorities during the big day. Many caterers also help to staff events, serving guests, and staffing buffet tables.

Each catering business offers a different menu, and some may specialize in elements like elaborate desserts or certain types of foods. These businesses each offer their own menu of options, though customers may have special requests and will often build their own menu for a certain event. Caterers need to offer a combination of great-tasting food and good value. While some caterers may specialize in smaller events, businesses that take on larger events face additional challenges in preparing, transporting, and serving large volumes of food, often for many hundreds or even thousands of people.

Catering businesses tend to be more profitable than restaurants as there is lower overhead to staffing and inventory.

Learn more about starting a restaurant.

Industry Summary

According to IBIS World, the catering industry thrived from 2015 to 2019. That growth was driven by increased household incomes as well as a thriving corporate industry. Increased demand from trade shows and conferences drove caterer profits. This growth is predicted to continue through 2024, though likely at a slower rate. As of 2019, the catering industry brought in $11 billion in revenue, with 68,689 businesses in operation. The industry employed 218,064 people.

Industry Trends

Trends within the catering industry are quickly evolving, but business owners need to keep up with these trends to keep their businesses appealing to customers. According to Social Tables, one of the major trends that caterers need to embrace is the increased demand for foods that are free of particular ingredients. With gluten allergies and sensitivities on the rise, caterers need to be able to offer gluten-free foods. Caterers should also offer foods that are free of other allergens, like nuts and dairy. Event caterers should also be able to provide lists of the ingredients of each dish and the calories per serving to help attendees make health-conscious choices.

With the increased focus on healthy eating, caterers will also need to provide alternatives to traditional meats. Plant-based meats are becoming more popular, and the use of peas, avocados, almonds, and other nutritious, healthy foods in place of beef is becoming more frequent in the catering industry. Sustainability is becoming more important to event planners and event attendees, so caterers will need to start thinking about making their own operations sustainable. Reducing single-use plastic materials and establishing a composting program are just a few modifications that can help a business appeal to eco-conscious clients.

There’s also an increased demand for personalization from caterers. Not only do clients want to be able to choose and personalize their menus, but they are also frequently looking for flexibility in terms of scheduling and when food is served during an event. Clients are asking for more continuous refreshment availability instead of offering refreshments during specific breaks, and caterers may need to explore ways to be flexible in their food preparation methods so that they can accommodate the evolving schedule of an event.

Who is the target market for your catering business?

Catering businesses may have a variety of different target markets. Some businesses may specialize in working with large-scale corporate event clients, while others may focus more on families and couples hosting family parties and weddings.

Skills, experience, and education useful in running a catering business

Starting a catering business doesn’t require a business degree, but certain skills and experiences can increase the business’s chances of success.

Cooking and baking experience. Experience with cooking and baking can make it easier for a catering business owner to prepare menus, create new recipes, and ensure that the business delivers a quality product.

Understanding of dietary restrictions and food allergies. Any caterer will need to be familiar with the food restrictions that come with different diets. Understanding common food allergies and safe food handling procedures can help ensure that all of the business’ foods are safe for people to eat.

Customer service skills. Customer service is a large element of running a catering business. Previous customer service experience and strong interpersonal skills are helpful.

Attention to detail. The small details are critical in this industry, and it’s found in everything from recipes to planning orders with the right menu and right amount of food.

Organization. The catering industry requires a high degree of organization. From maintaining inventory to planning out orders so that services go smoothly, an organized business owner can help make a catering business a success.

Management skills. Most catering businesses will need to hire help, so a business owner who has previously hired, trained, and managed staff will have an advantage.

Costs to Start a Catering Business

The cost to start a catering business will depend on the operation’s size and whether it’s run out of a home or out of a commercial kitchen. You can start a smaller business out of your home for as little as $10,000, while larger businesses can cost $50,000 or more to start.

Common startup costs for a catering business include:

  • Inventory
  • Event equipment and supplies such as utensils, linens, china, glassware, tables, chairs, etc.
  • Kitchen equipment such as pots, pans, etc.
  • Renovation costs
  • Van purchase or rental
  • Uniforms
  • Signage

Steps to Starting a Catering Business

Step 1: Write a Business Plan

After coming up with an idea, the next step in starting any business should be to write a business plan. Not only will a bank require you to have one, but multiple studies have shown that a business plan helps increase the odds of starting a successful business.

Related:
How to write a business plan
Free sample business plans

Step 2: Form a Business Entity

A business entity (sometimes referred to as a legal entity or business structure, refers to how a business is legally organized to operate. There are four primary business entities to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC).  Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.

Related: Comparison of Business Entities

Step 3: Name the Business

Finding the perfect name for a business can be challenging. Not only does the name have to resonate with your customers, but it also has to be available to use.

Related: Tips and ideas for naming a catering business

Step 4: Select your Location

Rent costs will depend on the size, location, and amenities of the property. It’s possible to start a small business out of a home kitchen, but a larger catering company will really need access to a commercial kitchen and adequate freezer and refrigerator storage. It’s best to shop around for an existing kitchen space that requires only minimal renovations to save money.

If you do work on your personal residence, be sure to check zoning and covenants in case you have a neighbor that doesn’t approve.

Related: Choosing a business location

Step 5: Apply for Business Licenses and Permits

A catering business will need to obtain certain business licenses and permits. These permits and licenses can vary based on the state and town where the business is located.

The business owner will also need to be compliant with food handling and safety laws and obtain a food service license, which is usually provided by the state’s Department of Health.  If alcohol is served, the owner will also need to obtain a liquor license as well. The kitchen will likely be subject to random health inspections from the state or local Health Department.

Some of the common local, state, and federal registrations most catering businesses need include a state sales tax permit, Employer Identification Number (EIN) from the IRS, and city Occupancy Permit.

Related: Common business licenses, permits, and registrations by state

Step 6: Find Financing

Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a catering business. Funding to start a catering business can be challenging as banks are typically going to want the borrower to have good credit and invest 15-25% of their money towards the total start-up costs.

Related: Finding the money to start a business

Step 7: Open a Business Bank Account

Keeping your business and personal finances in separate business bank and credit card accounts makes it easier to track the business’s income and expenses.

Step 8: Get your Marketing Plan in Place

Any catering business will need to regularly market its services, especially if its target market consists of families who may only occasionally have parties or events. Common marketing methods include creating a website, social media marketing using Facebook, Instagram, Pinterest, print advertising, and online advertising. Many caterers also focus on networking and establishing relationships with event venues and event planners, a strategy which can result in word of mouth referrals and recommendations. Marketing costs will depend on the type of activity performed.

Related: Low-cost ideas to market a new business

 Step 9: Get Business Insurance

Catering businesses need several types of insurance for full coverage:

  • General liability insurance protects the business if customers are ever injured while on the business’ property or as a result of the business’ services. This insurance can cover expenses like legal fees and medical bills.
  • Commercial property insurance protects the business if its supplies and inventory are ever lost or damaged by an event like a fire.
  • Commercial auto insurance covers the expenses, like legal fees and medical bills, that can result if a vehicle owned by the business is ever in an accident.
  • Worker’s compensation insurance helps cover expenses like lost wages and medical bills if an employee is ever hurt on the job.

An insurance policy’s cost depends on many different factors, like where the business is located, the value of its equipment, and the number of employees on staff. Because policies can vary so widely in cost, it’s best to request quotes from multiple companies. When comparing those quotes, don’t just compare the overall policy costs. Instead, look at how the quotes compare when it comes to other important factors like coverage limits and exclusions, and deductibles.

Step 10: Hire Employees

A catering business will need multiple staff, especially if it is expected to staff and serve at events. Indeed reports that executive catering chefs earn an average of $19.09 per hour, while servers earn an average of $11.75 per hour.

In addition to budgeting for employee salaries, a business’ budget also needs to include the other types of expenses that come with hiring employees. A catering business may need to be prepared to cover paid time off, payroll taxes, health insurance contributions, and worker’s compensation insurance.

There are several steps that are required for hiring an employee.

Related: Hiring your first employee

Step 11: Set up an Accounting System

Setting up an accounting system for your catering business is critical to the long-term success of your business.

Staying on top of taxes not only keeps the business out of trouble with the government, but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.

Related: Setting up accounting for your business

How much can you potentially make owning a catering business?

Catering business profits vary significantly. Smaller businesses may earn $40,000 or $50,000 in profit per year when starting out, but with strategic marketing and careful growth, that profit can increase, too. Large-scale catering businesses, or those that cater high-end events, can bring in significantly more. Other factors affecting a business’ income include its location, target market, and years in business.

Things to consider before starting a catering business

The catering industry is full of competition since caterers won’t just compete with other caterers and restaurants in the area that offer catering. Because there’s so much competition, it’s best to do thorough market research and look for a need in the community you plan to serve. A niche or specialty, such as offering eco-friendly and sustainable catering, can help a business to stand out against the competition.

Sales for catering businesses tend to peak around major holidays and regional events in addition to late spring to early fall for the wedding, corporate, and conference markets. Budgeting can be a challenge, especially during the first few years. Once sales trends are understood, lowering prices for non-peak times may help keep the cash coming in.

Since seasonality can vary with a catering business, it’s also important to have access to temporary staffing as there may be occasional needs to meet surges in demand.

When starting a catering business, you don’t have to move to a traditional catering model immediately. There are plenty of other ways to gradually scale up into renting a full kitchen and catering large events. Pop-up restaurants and food trucks are some lower-risk options that allow a catering business to gain experience and refine their menu and processes before tackling large-scale opportunities.

 

Resources:
International Caterers Association
National Association for Catering and Events
National Association of Catering Executives
The Association of Club Catering Professionals