How to Start a Catering Business
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.
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.
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.
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.
Checklist for Starting a Catering Business
If you’re thinking of starting a catering business, there are a few things you need to do first. Check out this handy checklist to make sure you have everything covered. From getting the right licenses and insurance, to choosing the right equipment and menu, we’ve got you covered.
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.
The catering industry is full of competition since caterers won’t just compete with other caterers, but also 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.
Related: How to write a business plan
Step 2: Form a Business Entity
A business entity 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.
When deciding on which business entity is best for a Catering business, it normally comes down to the sole proprietorship and Limited Liability Company.
A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay. The corporation can be a good choice because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities, and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.
That leaves the sole proprietorship and LLC.
The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.
Related: 3 steps to forming your LLC
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular LLC formation services include:
IncFile - $0 plus state fees & free registered agent for 1 year!
IncAuthority - $0 plus state fees & free registered agent the first year!
ZenBusiness - $49 plus state fees & free registered agent for 1 year!
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.
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. Not only will food safety need to be maintained in the kitchen, but there may also be regulations for the transportation methods to get food to events. 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.
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.
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. Additionally, caterers can market to wedding and event planners.
Catering a successful event is a fantastic form of advertising, as the guests become familiar with a company’s services. Many caterers also focus on networking and establishing relationships with event venues and event planners, a strategy that can result in word-of-mouth referrals and recommendations.
Step 9: Get Business Insurance
Catering businesses need to consider several types of insurance. Some of the most common ones include:
– Liquor liability covers expenses for legal costs, settlements, and liability for claims that may arise from serving alcohol.
– 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.
– Commercial property insurance protects the business if its supplies and inventory are ever lost or damaged by an event like a fire.
– General liability insurance protects the business if a customer is injured by the products (i.e., food) or services provided. This insurance can cover expenses like legal fees and medical bills.
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
Especially starting out, staffing for a catering business can be difficult due to low wages, hard work, and availability since events are often held on nights and weekends. Until the business can have consistent sales, it may be difficult to afford full-time staff that you can train appropriately. According to Bizfluent, the labor costs for a catering business should be around 16%-17%
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.
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.
The thought of accounting can be intimidating for a lot of new entrepreneurs. There are a number of ways of handling bookkeeping, from DIY to hiring a bookkeeper. These include:
- Pen and paper - Low expense, but difficult to track.
- Spreadsheet - Low expense, but easy to make errors.
- Accounting software - Medium expense, but owner typically inputs expenses. Some great accounting software programs include Freshbooks or Wave Accounting.
- Hire a bookkeeper - Higher expense, though very affordable at $100-$200 per month in most cases. A dedicated bookkeeper will probably save money because, in addition to handling all of the bookkeeping (so you can focus on the business), they also provide personalized tax advice and ensure the business is in compliance.
Find bookkeepers in your local area or use a service like 800Accountant.
How much does it cost 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.
While to cost to start a catering business may seem out of reach, 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 the menu and processes before tackling large-scale opportunities.
Common startup costs for a catering business include:
– Event equipment and supplies such as food carriers, food carts, utensils, linens, china, glassware, tables, chairs, etc.
– Kitchen equipment such as ovens, stoves, refrigerators, dishwashers, pots, pans, etc.
– Renovation costs
– Van purchase or rental
How profitable is 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.
Consider that according to Wedding Wire that the average couple spends $1,800-$7,000 on catering. Just a handful of weddings per year can bring in some serious income.
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.
Another factor in the profitability of a catering business is controlling food costs. While managing food costs for a catering business is much easier than a restaurant as the number of customers is known ahead of time, food costs are often the most costly expense. Similar to a restaurant, Restaurant365 recommends keeping food costs between 28% and 32%.
Are there grants to start a catering business?
It’s extremely rare to find a grant to start a catering business. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.
Legitimate federal grants can be found at Grants.gov and you can check on your state’s economic development office to see if they have any grants available.
What is the NAICS code for a Catering business?
The NAICS code for a Catering business is 722320.
The NAICS Code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.