Starting a baking business from home is a dream a lot of us who love to bake, share. As a result, the dream of starting a business using those passions is something we hold as a “someday” dream. At least that is the way it started for me. It took years of prompting and encouraging from others who wanted more ready access to the breads and rolls I made.
When I finally decided to “go for it” I took some classes, wrote a business plan, filled out the appropriate paperwork for the state and local officials, and headed to the bank. Now I recommend most of the above, except for the last one. I really don’t recommend heading to the bank, but starting really small instead. Let your business finance itself, believe me, having a huge loan on your shoulders is a heavy burden to carry. It takes a lot of the fun out of business ownership.
Back to the ready to go for it part. The passage of Cottage Food Laws is making it easier for the start up of home based baking business. To get started, you need to find out what the laws of your state dictate. First you have to determine if you can bake at home. Then you need to see if you need a DBA which is a “Doing Business As” which basically assures that no one else is using the name you have chosen for your business. Next you want to consider the type of business you want to be, meaning are you going to be a sole proprietor, an LLC, an S Corp, or a C Corp. There is liability involved with most businesses, and you want to protect yourself. That said, don’t go overboard with this, because it is expensive and involved to set up a C Corp. Get good advice from a qualified professional.
Smart Businesses Protect Themselves
I know that in the beginning resources are limited, believe me, I understand. The thing is, ask questions like how much real risk are you taking with a small micro business, and can you change your legal structure as you grow? Can you cover yourself with an umbrella insurance policy and be okay? I don’t know the correct answers, because it depends on your situation, and the laws of your state. I will tell you that we went way overboard, and paid way too much.
You also have to find out what the rules about collecting sales tax are required by your state. You may need to get a tax id. I know it is a pain, but sales tax is a reality in many states. The good news is that a tax id allows you to purchase from vendors the general public does not have access to.
Set up a business checking account that only is used for the business. Give your business a start up loan to open the account. From that time forward, only use the business money to pay for the expenses, and don’t withdraw from that account for personal stuff. Then what is left in that account is profit after all the expenses are paid, and remember, your salary is an expense that has to be paid. That is the way business works.
Uncle Sam Wants His Share
Set aside a percentage for taxes from the beginning. (You might want a separate sales tax account to make sure that does not disappear, Uncle Sam does not look kindly at waiting for his money). You will have sales tax and income tax liability. As far as income tax, a rule of thumb is to set aside 25%. Check with your accountant to get accurate advice on that.
I know that just the mention of all the business set up is a hurtle for many of us. The reality of it is that if you truly want to be a business owner, you have to put on your business owner pants and get with the program. No one likes it, but it should not be significant enough to be a deal killer. If it is, then maybe it is a sign that business ownership is not a good fit.
I know, that all sounds really complicated, intimidating, and harsh. It is paperwork, you need to understand the basics to protect yourself, but search out good professionals who can help you/ Find a good entrepreneur class to walk you through the basics. You computer can find most of the information you need to get started, but don’t forget the power of asking questions for the departments you need to work with. Taxpayers pay the salaries of the various government departments, and they are willing to help you if you just ask.
Another great resource is SCORE
Those people have been in the trenches and know what they are doing. The best part is that it is free and can really help you get started on the right path. I can help you with day to day running your small baking business, but my advice is to get started on the right foot by setting your structure up correctly. As you walk this path, I am here to encourage you and help you in any way I can, so please leave comments and questions and we can have a conversation.
photo credit : fivequidexpert