No two days are alike in the catering industry, but as a business owner, you’ll have the chance to make special events even more special for your clients. If you love to cook or bake and thrive in a fast-paced atmosphere, opening your own catering business might be a great opportunity.
Turning this dream into reality involves more than just culinary expertise. It requires careful planning, an understanding of the market, and a strategic approach to operations. This guide is here to help, by walking through the journey of launching a successful catering business.
Catering businesses provide an essential function to corporate meetings, conferences, 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 offer their own menu of options, though customers may have special requests and will often build their own menu for a certain event. 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 for staffing and inventory.
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The catering industry consists of about 91,000 companies that are expected to generate around $12.2 billion in annual sales in 2023.1 The industry is highly competitive and fragmented – the top 5 companies account for less than 10% of total sales.
Barriers to entry in catering are relatively low, and startup costs can be minimal if you initially operate a small catering company from your home rather than a commercial kitchen.
Weddings and corporate events are the lifeblood of the catering industry and where caterers should focus their attention. The percentage of sales from wedding catering varies by location, but according to the National Association for Catering and Events (NACE), on average, weddings account for about 50% of the catering industry’s revenue, while corporate events account for about a third.2
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. A few of these include:
Sustainable catering: Catering services are becoming more environmentally conscious, offering more plant-based, organic, and seasonal menus. They are also using biodegradable or reusable packaging and utensils, and donating or composting any leftover food.3
Personalization and customization: Catering services are becoming more tailored to individual preferences, dietary needs, and event themes4
Healthy and wellness-oriented food: There is a growing demand for healthy food and beverages, with customers becoming more aware of the nutritional value, quality, and safety of what they eat and drink.5
Steps To Start A Catering Business
Step 1: Conduct Market Research
The first step of starting a catering business is taking a look at the market to see if there’s room for your business. This process involves looking closely at the people in your area, what existing caterers are doing, and talking to potential customers. By doing this, you can find out what’s missing in the market and how your catering business can meet those needs.
The first step is to get to know the people in your area. What’s their age group, income level, and lifestyle? For instance, an area with many corporate offices might need catering for business events. Or, if there’s a lively social scene, there might be a demand for social event catering. This knowledge helps you design services that fit specific tastes and needs.
Next, look at the catering businesses around you. How many are there, and what do they offer? Visit their websites to understand their menus, pricing, and service offerings. Utilize online directories, wedding industry resources, and social media platforms to identify major players in your area. Reading customer reviews will also provide valuable insights into what customers appreciate or find lacking in existing catering services. This information will help you identify areas to differentiate your business and avoid common pitfalls.
Now, it’s time to talk to the people who might hire you. This includes venue managers, wedding planners, and event professionals. Ask about what they need in a caterer, what’s hard to find, and where there’s room for improvement. These conversations can give you a clear idea of what people want and need in your area and maybe even help you find your first few clients.
Finding the Gaps
Through this research, you’ll start to see where there’s a need that no one is meeting. Maybe people want catering with locally sourced ingredients, but no one’s offering that. Your new business could stand out by focusing on local, fresh food. This is about finding your unique selling point – something that makes your catering business different and needed.
Step 2: Write a Business Plan
After conducting market research for your catering business, the next step is crafting a business plan. A few reasons why the business plan is important includes:
Operational planning: One element of a business plan is operational planning, outlining the day-to-day aspects of running a catering operation. This typically includes:
- Staffing: Detailing the number and type of staff required, including chefs, servers, and administrative personnel.
- Equipment: Outlining the necessary cooking and serving equipment, as well as any transportation needs for mobile catering.
- Location: Deciding whether to operate from a home kitchen, rent a commercial kitchen, or set up a dedicated catering facility.
- Menu development: Planning the types of menus you will offer, considering factors like customer preferences, event types, and dietary requirements.
By addressing these elements, a business plan ensures that you have a clear understanding of how to manage and operate your catering business effectively.
Financial projections: A business plan outlines the financial projections and budget for the catering business, helping to determine the required startup capital, ongoing expenses, and potential revenue streams. It involves:
- Researching costs: Here, you will analyze potential expenses, including food costs, labor, insurance, licenses, and investment in assets like a commercial kitchen or delivery vehicles.
- Realistic financial projections: Estimating revenue based on market analysis and pricing strategies.
Attracting financing: For those seeking external funding, a business plan is typically asked for and demonstrates:
- Your understanding of the catering market.
- The uniqueness and competitiveness of your business proposition.
- The thought and research you’ve put into the venture.
- Your preparedness to manage and grow the business successfully.
Related: How to write a business plan
Step 3: Source Funding
From securing a location to purchasing equipment, hiring staff, and stocking up on ingredients, there are several upfront costs to start a catering business. Here are some common sources of funding to consider:
Personal investment: The first source of funding is the owner’s personal savings. Examining personal savings can help determine if the funds are available to finance the business. While using personal savings might not cover all startup costs, it can significantly reduce the amount you need to borrow from outside sources.
Traditional lenders: Banks and credit unions are traditional sources of funding. They typically require borrowers to invest at least 15% of their personal funds towards the total cost of the project, have a good credit score, and have sufficient collateral. If a bank considers a loan too risky, they may use an SBA (Small Business Administration) loan guarantee to reduce the lender’s risk.
Equipment financing: Kitchen equipment can be expensive, but there are financing options available where the equipment itself serves as collateral. This means that if you default on the loan, the lender can take the equipment back. Equipment financing is often easier to obtain than unsecured loans, as the lender has a clear way to recoup their investment if things go wrong.
Friends and family: Another source of funding could be friends and family, especially if they believe in your business idea and want to support you. Put all agreements in writing to prevent misunderstandings and clarify the terms of the loan, such as repayment schedule and any interest.
Microloans: If the funding needs are low or credit isn’t available through a traditional lender, microloans can be a suitable option. These are small loans typically offered by non-profit organizations and community-oriented lenders. Some microloan programs also provide business training in addition to funding, helping new entrepreneurs learn valuable skills for running their businesses.
Step 4: Register the Business
Starting a catering business involves several legal steps to get properly registered. Each state and locality has specific requirements, but here’s a general overview:
Choosing a business structure: The structure you choose impacts taxes, liability, and paperwork. There are four main types of business structures:
- Sole proprietorship:
- Simplest and most common structure, especially for small, single-owner businesses.
- Advantages: Easy startup, minimal paperwork, and lower costs.
- Disadvantages: The owner is personally liable for all business debts and obligations.
- General partnership:
- Similar to a sole proprietorship but with two or more owners.
- Each partner shares in the profits, losses, and management of the business.
- Personal liability is still a factor.
- A more complex structure that is often used by larger businesses.
- Provides liability protection as the corporation is a separate legal entity.
- Can be more costly to set up and maintain, with more regulatory requirements.
- Limited Liability Company (LLC):
- Combines the simplicity of a sole proprietorship or partnership with the liability protection of a corporation.
- Owners have limited personal liability for business debts.
- Offers flexibility in taxation and management.
While there isn’t a one-size-fits-all answer for which structure is most common for catering businesses, many small to medium-sized catering businesses opt for an LLC due to its balance of liability protection and operational flexibility.
Related: Comparison of business structures
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Business name registration: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state during the formation process.
During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.
Obtain licenses and permits: Catering businesses typically require several licenses, such as a food service license, health department permits, and possibly a liquor license if you plan to serve alcohol. Check with your local city or county government and health department to determine what’s required.
In addition, there will likely be a variety of general registrations, such as a local business license, seller’s permit, and Employer Identification Number (EIN).
Comply with food safety regulations: Ensure your business meets all food safety standards. This often involves having your kitchen and facilities inspected by local health departments and completing food handler training.
Step 5: Find a Place to Cook
Once you’ve taken care of the initial steps in starting your catering business, it’s time to find a suitable location where you can cook, store your food, and prep for events.
The first step is to identify what you need in a kitchen. Consider the size and type of events you plan to cater. Do you need a large prep area? How much storage space is required for ingredients and equipment? Are there specific appliances or setups essential for your menu? Answering these questions will help you understand the space and facilities you require.
A few options for kitchen spaces include:
- Home kitchen: Local regulations may permit the use of a home kitchen for a catering business. In most cases, there are limits to how much can be made, but get the details from your local health department.
- Shared commercial kitchens: A shared-use, or commissary kitchen, is a commercially licensed space that culinary professionals can rent for their operations. These kitchens are equipped with commercial-grade equipment and comply with health and safety regulations, making them an ideal choice for new catering businesses.
Renting a shared kitchen can be cost-effective, especially when starting out. The costs typically range from $15 to $45 per hour6, and some shared kitchens offer additional services like storage, cleaning, and maintenance.
- Renting restaurant kitchens: Some restaurants rent out their kitchens during off-hours. This can be a win-win situation; you get access to a fully equipped kitchen without the high overhead costs, and the restaurant earns extra income.
- Building your own kitchen: If you have the resources, setting up your own kitchen gives you complete control over the space and equipment. This option requires more investment but is ideal for larger or more established catering businesses.
Regardless of where you plan to set up operations, make sure it has all the necessary equipment. Make a list of the equipment you’ll need, including cooking appliances, refrigeration, prep tables, and storage solutions.
Step 6: Create a Menu & Set Up Accounts with Suppliers
Once you’ve laid the foundation for your catering service, it’s time to focus on the next step, which is creating a menu and sourcing suppliers.
The menu is one of the essential components of any catering business. It should be appealing to potential customers, reflective of your culinary expertise, and realistic to your capabilities. When designing the menu, keep in mind the type of events you want to cater to, your target audience, popular trends, and your specialty dishes. Your pricing strategy should be based on the cost of ingredients, equipment, and labor while still maintaining profitability.
To make those items on the menu, you will need suppliers for your ingredients, equipment, and other resources. Build a good working relationship with your suppliers, as they can become valuable partners, and the better suppliers will help calculate the cost of your recipes so you price dishes appropriately.
Step 7: Hire Staff
As a catering business owner looking to hire employees, it is important to understand your responsibilities as a new employer. As an employer, you will need to manage a wide range of responsibilities, from ensuring your employees’ well-being to complying with various legal requirements.
Legal Requirements for Hiring:
- Obtaining an EIN: Before hiring employees, you will need to obtain an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). This unique identifier is used for tax purposes and is necessary for reporting employment taxes.
- Employment eligibility: It is crucial to verify the employment eligibility of all new employees by completing Form I-9. This form ensures that individuals hired are legally authorized to work in the United States.
- State hiring requirements: Each state has different requirements when it comes to hiring employees, and it is important to understand and comply with your state’s specific regulations regarding minimum wage, overtime pay, required benefits, and other obligations.
- Worker’s compensation: Worker’s compensation insurance is required by most states. It provides coverage for employees who suffer work-related injuries or illnesses.
- Labor laws: Familiarize yourself with labor laws that govern various aspects of the employer-employee relationship, such as minimum wage laws, fair labor standards, anti-discrimination laws, and laws related to working hours, breaks, and time off.
Step 8: Prepare to Open!
As you approach the final stages of setting up your catering business, there are several important steps to complete. Each business will have unique needs, but these are some common areas you should address:
Business insurance: Obtain business insurance to protect your catering business from potential liabilities. This might include general liability insurance, property insurance, and commercial auto insurance if you have vehicles for catering deliveries.
Transportation: Don’t forget about transportation for catering events – a reliable vehicle is a must for delivering your culinary creations to clients.
Opening a business bank account: Create a separate bank account for your business to keep personal and business expenses distinct.
Accepting credit cards: Set up a system for accepting credit card payments. This is essential for customer convenience and can be achieved through merchant service providers or payment processing systems like Square or Stripe.
Creating a marketing strategy: Develop a marketing strategy that will allow you to get the word out about your catering services. This includes establishing a brand identity with a logo and website, creating marketing materials such as business cards and brochures, making use of social media, and partnering with related businesses.
Joining industry associations: Consider joining industry associations such as the National Association of Catering & Events (NACE) or the International Caterers Association (ICA) for networking opportunities, professional development, and staying informed about industry trends.
Common Questions When Starting A Catering Business
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.
Please note that the figures provided are general estimates, and costs may vary based on location and specific business needs.
Location: $0 to $6,000 One of the first costs you’ll encounter is securing a location for your catering business. This could be a commercial kitchen or a home-based setup, depending on your business model. The cost for a commercial kitchen space can range from $3,000 to $6,000 for initial deposits.
Kitchen equipment: $5,000 to $15,000 Commercial ovens, stoves, mixers, prep tables, steam tables, utensils, thermometers, and food storage containers. You can save by buying used equipment.
Transportation: $10,000 to $30,000 If purchasing a used vehicle for catering events, the cost can range from $10,000 to $30,000.
Licenses & permits: $2,000 to $5,000 Costs vary by location but could include health department permits, food handler certifications, and state and local business licenses.
Initial food inventory: $1,000 to $3,000 Necessary ingredients, beverages, and packaging before first events. Varies based on cuisine and menus.
Catering business insurance: $1,000 to $3,000 General liability & liquor liability policies protecting against customer illness and injury lawsuits. Premiums based on past experience.
Marketing: $1,000 to $5,000 Initial marketing costs may include the creation of a logo, website development, and printing of marketing materials.
Miscellaneous expenses: $500 to $2,000 Miscellaneous start-up costs such as uniforms, office supplies, phone, and utility deposits can add another $500 to $2,000.
While not included in the estimates above, it’s important to have a backup plan in the form of three to six months of operating expenses saved as a buffer. This helps cover any unforeseen circumstances or slow periods during initial business operations.
How profitable is a catering business?
To estimate the potential profitability of a catering business that handles both weddings and regular events, let’s consider the business doing 20 weddings and 100 regular events annually.
– Weddings: Total revenue from weddings is $100,000 (25 weddings * $4,000 per wedding).
– Regular events: Total revenue from regular events is $150,000 (100 events * $1,500 per event).
– Cost of sales: The industry average food cost for catering businesses is 40%. Based on the revenues, inventory expenses would total $100,000
– Labor expenses: The average labor expense is 20%, or $50,000.
– Other overhead expenses: The other expenses for weddings are 20% of revenues or $50,000.
Therefore, the total revenue and expenses would be as follows:
Total revenue: $250,000
Total expenses: $200,000
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.
What skills are needed to run a catering business?
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 they’re found in everything from recipes to planning orders with the right menu and the 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.
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.