How to Start a Chocolate Business
Who doesn’t love chocolate? If you have a passion for making chocolates as well as eat them, you may have thought of turning your skills or hobby into a business. It would be a great way to do what you love, make money, and be your own boss.
A chocolate business can be a brick-and-mortar store or an online business. The business will produce, package, and sell various types of chocolates. Some chocolate businesses, particularly franchises, get their chocolates from a manufacturer, but a chocolate business that makes its own products is more unique and often more desirable to customers.
According to Statista, the chocolate industry has been growing modestly, and that growth is expected to continue. The market size for chocolate lovers was $17.6 billion in 2019 and is expected to grow to $20.7 billion in 2025. Chocolates are always in demand, so the chocolate industry is not generally vulnerable to economic fluctuations. They are considered an affordable luxury.
Chocolates are becoming even more popular, in part because certain types of chocolates have been found to have health benefits. People are seeking new and trendy types of chocolates, such as salty chocolates, and dark chocolates are more in demand because of their antioxidant composition.
The target market for a chocolate making business is individuals who like chocolate and can vary based on the types of chocolates that you make. Entertainment venues or caterers are also potential customers, as well as flower shops and retailers.
Skills, Experience, and Education Useful in Running a Chocolate Business
There are several specific skills that you will need to run a chocolate business.
- Chocolate making. Your chocolates need to be great to stand out, so perfect your recipes by testing them with friends and family.
- An eye for design. Your packaging and even your chocolate products should be visually appealing.
- Good taste. Creating new flavors and styles that your customers want is important to keep them coming back.
- Small business knowledge and experience. You will need to have some basic knowledge of marketing, finance/accounting, and human resources.
- Networking with potential business customers such as caterers can help you to grow your business.
- Customer service. You’ll need to be able to build rapport with your customers so that you retain them as customers and gain repeat business and referrals.
Checklist for Starting a Chocolate Business
Starting a chocolate business can be an incredibly rewarding experience, but it’s important to make sure you’re prepared for the challenges ahead. Use this checklist to help get your business off on the right foot.
Step 1: Write your Business Plan
After coming up with the idea, the next step in starting your chocolate making business should be to write a business plan. The business plan will make you focus on some important aspects of the business, such as who your customers are, how you plan to reach them, projecting sales and expenses, your value proposition to use for marketing, and more. You’ll also need to do some research to calculate exactly what your startup expenses will be and what your ongoing expenses will be.
Not only will a bank require you to have a business plan if you need financing, but multiple studies have shown that having a good business plan increases the odds of starting a successful business. Writing the plan helps you think through all the aspects of the business and then serves as a guide as you begin.
Related: How to write a business plan
Step 2: Name the Business
Finding the perfect chocolate business name can be challenging. Not only does the name have to reflect what you do and be appealing to customers, but it also has to be available to use. You can check your state’s website to see if the name is available and register your name. Your name should make you stand out, reflect your brand, and tell potential customers exactly what you do.
Step 3: 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 chocolate 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: Guide 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!
ZenBusiness - Best for beginners. $0 plus state fees & free registered agent for 1 year!
Northwest - Best privacy protection. $39 plus state fees & free registered agent for 1 year!
Step 4: Select your Location
If you choose to have a physical location for your chocolate business, you need to be in a high foot traffic area. Chocolates can be an impulse purchase, so the more people you have walking by, the better.
Depending on the state and volume of production, a chocolate business may be able to operate out of the home under cottage food laws.
Related: Choosing a business location
Step 5: Apply for Business Licenses and Permits
A chocolate making business is considered a food business and will need to be approved by the local health department. They will be looking for things like production equipment, cleanliness, and sanitation practices. While some states will allow home-based production, depending on the volume of sales, more regulations may force you to a commercial facility. The health department will conduct inspections on a regular basis to ensure the facility is up to code.
Some of the common local, state, and federal business registrations a chocolate business may need could include a sales tax permit and an Employer Identification Number if you plan to have employees.
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 chocolate business is another. In order to get a loan, the borrower(s) will need to have good credit and be able to invest 15-25% of their money towards the total start-up costs.
Step 7: Open a Business Bank Account
Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.
Step 8: Get your Marketing Plan in Place
The type of marketing a chocolate business will need to do will largely depend on who their target customer is and the volume of product being sold.
A smaller, home-based operation may focus on farmer’s markets or at events, while a retail location may focus more on individuals. A chocolate business focusing on making mass quantities and selling through retail stores will need to work with a distributor and market through other channels.
Common marketing techniques can include social media marketing, online advertising, and networking. Photographing gourmet chocolates is also a great way to market your products, and regularly using photo-sharing sites like Instagram and Pinterest can create a loyal following. Developing a website can be a significant expense, but it can also give your chocolate business greater visibility online. However, if you have a physical location, your foot traffic will be key, so you need to have great signage and appealing window displays.
Step 9: Get Business Insurance
There are several types of insurance to consider when starting a chocolate business. A few of these include:
– General liability insurance can help protect you from third-party claims of bodily injury and property damage.
– Professional liability insurance protects you from claims of professional errors or negligence that result in a financial loss.
– Worker’s compensation insurance covers expenses like medical bills and legal fees that a business might face if an employee were ever hurt while working.
– Property and casualty insurance protects you if your equipment is damaged.
The cost to insure a chocolate business will vary depending on several factors. To get the most accurate idea of what to budget for small business insurance, request quotes from multiple providers. When comparing the quotes, consider not only the premiums but also how the plan exclusions, coverage limitations, and deductibles compare.
Related: Common types of insurance a business may need
Step 10: Hire Employees
You will probably need employees to run your chocolate business, particularly if you have a brick-and-mortar store.
In addition to salary costs, your budget will also need to include other employee-related expenses. Workman’s comp insurance, unemployment insurance, and paid time off are common expenses that a business will need to cover when hiring staff.
Related: Hiring your first employee
Step 11: Set up an Accounting System
Setting up an accounting system for your chocolate 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.
How much does it cost to start a chocolate business?
Here are some of the typical costs you will face when you open a chocolate business.
– Kitchen equipment such as refrigeration, freezers, cold tables, etc. $1,000-$5,000
– Supplies like mixing bowls, spoons, cups, scale, baking sheet, candy thermometers, packaging, etc. – $200-$500
– Raw ingredients (cocoa beans, cocoa butter, milk, sugar, etc), $2,000-$5,000
Brick and mortar location if you choose to have one $1,500-$3,000 initial deposit
– Initial liability insurance $100-$200
How profitable is a chocolate business?
As a boutique chocolate business, you can charge anywhere from $7 – $10 per pound, or even up to $30 per pound for fine chocolates. Your margins should be around 55 – 75%. If you have a successful chocolate business in a great location, you could make 6 figures or more.
Be sure to research what your competitors create to see if there is anything missing in your markets, such as caramels, hard candies, or truffles.
Are there grants to start a chocolate business?
It’s extremely rare to find a grant to start a chocolate 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 chocolate business?
The NAICS code for a chocolate business is 311351, which is classified under Chocolate and Confectionery Manufacturing.
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.