STARTING A HOME FOOD BUSINESS
Feb. 16, 2016
Last month I wrote about foods that you can make in your residential kitchen and legally sell to others. Those foods include baked goods, double-crusted fruit pies, candy and fudge, jams and jellies, packaged dry products, and acid foods such as vinegars and mustards. Read that article about “homestead food operations” for more details. This month I want to continue with that topic and talk about what steps you might take in order to actually start a business selling a food you make in your kitchen.
Let’s say that you make a delicious homemade mustard. Better than French’s. Better than Grey Poupon. You satisfy all of the legal requirements to qualify as a homestead food operation to produce the mustard in your home kitchen and sell it to others. How do you go from making a great product for your family and friends to selling it in stores or at markets? Well, I don’t know where you can get mustard seeds or turmeric (that is what makes mustard yellow) in bulk. I can’t tell you where to buy mustard jars. And I don’t know where to get your labels made. Those are things you’ll need to figure out.
What I can help you with is establishing a business entity. Under New Hampshire law, you have several options. Sole proprietorship. General partnership. Limited partnership. Limited liability partnership. Limited liability company (LLC). Corporation. Non-profit. Et cetera.
Within each category are more considerations. For example, do you want to be a sole-member LLC? Does your investor-friend just want to invest money or does she want to also help run the business? Are you in business to make a profit or to foster social justice? Will you have employees? These and other considerations will inform your decision about what type of business entity you should create.
An important consideration is liability. You see the word “limited” in many of the names of businesses, such as limited partnership and limited liability company. For the most part, the word “limited” refers to someone’s personal liability being limited.
Liability for what? Liability for the debts of the company or for a court judgment against the business, among other liabilities. You might make great mustard, but if you bought three truckloads of turmeric on credit moments before the market that you sell to goes out of business, you may not be able to pay your turmeric supplier. You may then find yourself with other bills that you cannot pay. Maybe the turmeric supplier sues you in superior court and wins a judgment for $20,000. Maybe you file for bankruptcy or go out of business. If you are a sole proprietor, for example, there may be nothing protecting you from being personally liable for these business obligations.
If, though, you set up your business in such a way as to separate your personal assets from the business, you would avoid putting your personal assets at risk in the event that the business has liabilities or doesn’t work out as planned. This is not to say that you can set up an LLC and do whatever you want and never be responsible for anything. You must treat your business as it is, an entity that is separate from you. In other words, there are legal formalities that you need to adhere to in order to protect your limited liability status.
There are many other considerations involved with choosing the type of business entity you want to create. You should consider how you prefer to be taxed, your succession plans for the business, the size of the business, the money and credit available to you, and who else will be involved in running or investing in the business.
Once you decide on the type of business entity, and you’ve come up with a business name, you will have to file certain documents with the New Hampshire Secretary of State (and pay a modest fee). You may also need to file documents with the Internal Revenue Service if, for example, you want to obtain a tax identification number (TIN), which is also known as an employer identification number (EIN). You’ll need one of these if you intend to have employees.
There are a lot of other considerations—more than I can address in this article. But if your mustard is that good, perhaps the hard work is worth it. However, even the best mustard will not cut the mustard without sound business planning.