How To Set Up a Legal Home-based Baking Business

How to set up a legal home based baking business

You’ve got your recipes down and your decorating skills are on point, so what’s stopping you from making it official?  The most common reason I hear for people not starting their own baking business is that the process of officially and legally registering a baking business just seems too daunting.  

Well, I have good news - It’s really not as complicated or time-consuming as you might think!  I’m going to break it down into a step by step process to make sure you have everything in place to register your business and start trading legally as a home baking business. 

Please note that this is a guideline for what is generally required, but the specifics will vary between countries and states, please check everything with your local authority to find out exactly what is required in your area. 

There are a few different areas to consider when setting up your home-based baking business.  We'll cover all of them in this post, but I have also made a handy checklist for you to print and check off as you go.


Health and Safety

First and foremost you need to think about health and safety, you are providing a product for people to consume so you need to ensure that the environment you are preparing it in and the processes you are using are completely safe and up to standard.  

  • Check your local authority for any rules around what you are and aren’t allowed to make in your home - e.g. some states don’t allow you to make cheesecakes in your home, while others do.  Find out what applies to you.

  • Take a food hygiene course and get a food hygiene qualification.  This step freaks a lot of people out but it’s actually a very simple process and most of the information is common sense.  You can usually do this online, relatively inexpensively and it won’t take up more than a few hours of your time.  There is usually a course that will take you through all the food safety regulations for your country and what they look like in practice, then there will be a test for you to sit online.  After completing the test you will have a food safety certificate.  Make sure that you go to an official site that has the right to award you an accepted certificate in your area.

  • Getting the certificate is one thing, but you need to actually put that information into practice.  Set up your home and processes to be compliant with the food safety regulations.  You may need to adjust how you do things in order to be compliant.  For a rundown of how the food safety regulations actually translate to baking businesses, check out my post ‘Food Safety for Bakers’ 

  • Depending on your local authority, you may need to book a site inspection where somebody will come out to make sure you are complying with all the rules and preparing your baked goods in a safe environment.  Don’t be nervous about this, the inspectors are not there to catch you out, they are there to help you figure out what you need to do to get up to standard, if something isn’t right they will just tell you what needs to be changed and give you time to fix it.


Register Your Business with the Local Authorities

This seems like a big step, but it’s usually a very simple process.  All you will typically need is a name to register your business under and a trading address (this can be your home address).  

The next big question is whether you want to register as a sole proprietor or if you want to incorporate your business.  See my post on ‘Should you incorporate your baking business?’ 

If you choose to incorporate and become an LLC, there are a few more steps involved in registering, but it may make more sense for you in the long run.  If you intend to grow the business beyond being a small home baking business then it may be smart to consider incorporating from the start so you are set up that way from the get-go.  

US info: https://www.sba.gov/business-guide/launch-your-business/register-your-business 

Canada info - https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/registering-your-business/business-registration-online-overview.html 

UK info - https://www.gov.uk/set-up-business


Prepare to Pay Taxes

Arguably the least fun part of starting a new business is having to think about the taxes.  But it's important, and getting yourself set up properly now can save you a lot of time and headaches down the line.

The way you decide to structure your business (sole proprietor or corporation) will also affect how you pay your taxes.  If you're unfamiliar with this process you should consult an accountant and find out the best way for you to go about this.

You likely won't have to worry about your business taxes until the next tax season,  but that doesn't mean you shouldn't be thinking about them.  Find out what you need to report and when.  Mark it in your calendar so you are well prepared.   Find out what percentage of tax you will owe based on your company structure and keep it in mind with every sale you make.  Set money aside for taxes so you don't have a nasty surprise when you submit your return.

It also pays to be really diligent with your bookkeeping from the start, so when you come to do your tax return you will fly through the reports.  I highly recommend using software like Xero or Quickbooks to make this process as painless as possible.


Licenses, Permits, and Local Legislation

This part depends entirely on where in the world you are baking.  Every country and local authority may have their own rules around what you are allowed to produce and what you have to have in order to do it.

In the US there are cottage food laws in many states to provide bakers with an opportunity to sell their goods whilst ensuring a high level of public safety. However not all states allow home-based foods to be sold, and those that do have rules on how much you can earn, and who you can sell to. Further, some states require regular inspections and a home-based business certificate to prove that you are permitted to sell your wares.  

In some countries, such as Canada, there are no cottage food laws, so it's up to each province to decide what can be produced.  They have strict rules on what kind of kitchen you are permitted to bake in, and you may have to carry out some expensive renovations to become compliant.  If this is the case, it may be worth looking into renting a commercial kitchen.

You should also enquire if any specific permits or licenses are required in your area for you to legally sell your products.  Your local authority will help you with a list of everything you need here.


Labelling and Allergen Information

It is vital that you have information available to your customers on exactly what is in your products.  Depending on your area, you may need to have labels on every single box, or it may suffice to have a pamphlet or link to your website with the information.  Either way, your customers must be able to access the ingredients and allergen information for everything you sell. 

If you have many different products and are labelling everything individually, it may we worth investing in some kind of labelling software, this way you set up the products once and it will produce all the labels for as and when you need them.   However, if you have a limited range it may suffice to just create the label information yourself.

Remember you must take cross-contamination into consideration when listing your allergen info.  For example, if you prepare a nut-free product in the same area as a product with nuts, you will need to mention this in your labelling.  This is to protect both your customers and yourself.


Insurance

It is extremely important that you protect yourself and your business against any eventuality.  As your baking business grows you will be exposed to more situations and more people, and that means more potential for something going wrong.  Hopefully, you will never have to use your insurance, but in the event that something does happen you want to make sure you're covered.  

There are several different kinds of insurance that may or may not apply to you, depending on the set up of your business.  It's best to shop around for a company you like and chat to them about your specific needs.  You may need:

Public Liability will cover claims from the public of an injury or damage incurred by your products/services or on your premises. e.g. If a customer swallowed a piece of glass in one of your cakes and was injured. 

Business Contents insurance protects your equipment, furniture, stock, etc in case of damage.

Buildings insurance protects your building - won't be relevant if you are working from home.  May,  or may not be included in commercial rent - check with your landlord.  If you are working from home, you should speak to your home insurance and let them know you are carrying out business activities and ensure you are still covered for this.  

Employers Liability insurance will provide protection should anything go wrong with one of your employees.  Obviously only applies if you are employing someone other than yourself.

Professional Liability - should you be providing professionals services, for example, advice to other bakery businesses, this will protect you against claims of advice deemed to have caused harm


If Unsure, Just Ask!

There is a lot to cover to set yourself up properly, but once it's done, it's done, and you'll feel ready to focus on growing your business.  Often people think that the local authorities are to catch them out or stop them from setting up, but that is the exact opposite of the truth!  The Government wants to encourage small businesses and help them to thrive, so while are a lot of hoops to jump through, there are always people available to help guide you through it, you just have to ask.

Download my printable 'Bakery Set-up' Checklist


DOWNLOAD CHECKLIST

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