salsalady
eXtreme Business
Starting a Hot Sauce Business 101-
There you are again….at another family gathering and everyone is gobbling up your SuperAwesomeSauce. Last week at the company picnic, it was the same story.
Everyone says It’sTheBest!
And Everyone says YouShouldSellThis!
So you start to think…Why Not? Everyone loves it, I could make a million dollars selling my SuperAwesomeSauce!..................…
Now What????
_______________________________________________________
So you want to start a food business. Bravo! Almost every food product on the market starts out with this same scenario, but there are a few steps to take between “let’s sell it” and making that million buck$. Hopefully, this information will answer some questions about getting started with the business side of things. It may seem overwhelming, but don’t worry. Thousands have successfully navigated the journey to becoming a self-employed food processor. One step at a time.
First thing to know is- there are people who can help! It’s what they do. Small Business Administration field offices, local Economic Development groups, SCORE volunteers who are retired business executives that volunteer their time to mentor and consult with new business people, and in many areas there are incubator/shared use kitchens with staff that help people navigate through all the processes and agencies involved in running a food processing business. Call Around, Ask Around, call your local Chamber of Commerce, ask who in your area can help!
Here’s the Basics 1-13 for starting a food/sauce business, (also known as Don’t put the cart in front of the horse!-
)
1. Have a totally awesome kick-butt product that people are willing to pay a reasonably nice price for that you totally love and believe in from dawn to dusk and beyond! But make sure it really is a totally awesome kick-butt product!
2. Doodle a logo/label…….and set that aside for now....
3. Talk with the agency or inspector who will be issuing the food processor license
4. Get licensed as a normal business- local/state and federal
5. Get the product tested as required (different products require different testing )
6. Find a place to process or talk with a co-packer
7. Get food process licensed
8. Get business and food processor insurance
9. Revisit that doodle of a label now that you know what your inspector will require on the label
10. Make your first production run…and SELL! SELL! SELL!
11. Lather. Rinse. Repeat
12. See below for details on the above
13. Dunno, what this is for….might show up…just wanted to have an item # 13 Continue on to Item Details Below---
1. Have a Kick-Butt Product-
Before even considering the business side of things, consider what you will be selling.
Is it really as good as your friends and family say it is? Don’t rely on the opinion of people who know you and most likely won’t say bad things about your product cuz they don’t want to hurt your feelings. Take your product out to gatherings anonymously, listen to what people say. Ask others to take it out and listen to comments. Send out samples to peers with the request for honest reviews, comments, suggestions.
Take those comments, make more batches, make some MORE batches, and refine your product until it really is as good as those first people said it was. Small batches of 1-2 gallons will yield 12-24 5-10oz bottles. Easy and cost effective to produce and that size batch can be done over and over until the recipe is consistent and excellent.
When your product is dialed in, and can be consistently produced the same way, and tastes the same every time, then start thinking about offering your product for sale.
-----VERY IMPORTANT NOTE! Hopefully the people reading this thread are those interested in doing a food business the right way. It is illegal and unsafe to offer processed foods for sale that are not licensed. Just don’t do it. It’s not worth the financial risk to yourself and your family, not even considering that someone could get sick or die from an improperly made food product. Don’t sell anything until you are properly licensed.
2. Graphics- About this time, folks are sketching logos and running names up and down the flag pole…SURE! Have some fun with the concept, the logo, product names…and then set it aside. You need to know what your food inspector will require on the label before printing anything and it’s good to have others take a look at the labels for other potential errors or omissions. Posting label proofs here on THP is an excellent resource for that 6th, 7th and 20th pair of eyes looking at it and seeing potential issues. It’s not a requirement to have a Heat indicator on hot sauce labels, but it’s a pretty darn good idea.
Sketch some things up, and then set it aside until the sauce is finalized. The label may sell the sauce the first time, but if the sauce doesn’t taste good, customers won’t buy it again. Focus on the product, not the label.
3 & 4- Food Business
First thing to realize about starting a food business is that it is first and foremost- a BUSINESS! Which means rules, regulations and taxes. You will need Business licensing as well as Food Processor licensing.
Business licensing is just what it says- a license to operate a business in a given location. Every store, shop, shoeshinebox, restaurant and online book seller has a business license allowing them to operate a business in their location. Beyond that, certain businesses require further licensing specific to their trade such as cosmetologists, restaurant workers, tradespersons, and food processors. Contact your local city hall or state business licensing agency to find out what is required for you to operate a business where you will be operating.
Generally, if the business is located inside incorporated town/city limits, that municipality will oversee business licenses. If the business is located in rural areas, it’s business licenses are usually with the State.
Sole Proprietor, Partnership, LLC or Corporation? Most people set up shop as a Sole Proprietor, Partnership or as an LLC (limited liability corporation) Very few small businesses start out as an S-Corp. There’s tons of info on business structures out on the interwhebz. Research it and figure out what business structure works to get started, realizing that the business can restructure later as needed. And talk with those business resources listed at the top of the post! Remember…their job is to help people get started in business. They’ve BeenThere, DoneThat. These business structures are registered at the State level.
And next is Federal business licensing….yea, the IRS. It’s kinda confusing , but as far as the IRS is concerned, Sole Proprietors and LLC’s all file as a Sole Proprietor with the IRS. Again…tons of information available for the googling and talk with your business resource people. (I’m not familiar with Partnership structure, if anyone has further information about filing taxes as a Partnership, please post.)
Corporations are a whole other elephant. Consult those business professionals again. For 99.9% of budding entrepreneurial sauce makers, going full-on corporation is cost prohibitive and not necessary to get started. Most start as Sole Proprietor, Partner and LLC. Again, all 3 of those business structures are licensed at the state level and report the same to the IRS. For the first year or 2, it may be beneficial to work with someone proficient in small business tax preparations when preparing your first tax returns involving Schedule C's.
Remember, if you make money, you pay taxes. Every person who has ever gotten a paycheck has paid taxes. Those line items on the pay stub called “Withholding, Social Security and Medicare” are funds withheld from the employees’ paycheck by the employer and sent to the Federal Government on the employee’s behalf.
What most employees don’t realize is- those 2 items of SS and Medicare that are taken out of the paycheck (currently amounting to ~7.5% of the paycheck)…the employer is required to match that same 7.5% amount out of their own pocket. As a Self Employed business person ( aka… a sauce maker…), you are required to pay the full 15% taxes on the income made in the sauce business. Plus the Withholding amount! Something to keep in mind when all that dough starts rolling in. Set aside a good portion of it to hand over to Uncle Sam at the end of the year.
BUT! Being a self-employed business person, you are allowed to take deductions for expenses- like mileage driven delivering sauces, shipping, farmers market stall fees…
….that will help with taxes owed, but not entirely.
91-numbers- If the business hires employees, a 91-XXXXXX number will be required. This is a Taxpayer Identification Number (TIN) assigned by the IRS for filing paperwork involving employees. Other state paperwork for employees will be required also. If the business does not have employees, no TIN or other registrations are required.
There are just too many tax and business scenarios to consider here on a forum. So do your homework, get educated, please utilize the resources listed at the start of this post for detailed information on state and federal tax items. They know what is required for your state and your business situation.
Food Processing –
As soon as an ingredient is altered, that is considered Food Processing. In our area, farmers can rinse the dirt off the carrot and sell the carrot as is, no licensing required. If they trim the top and stick it in a jar of vinegar, that is Food Processing and licensing is required.
Depending on what is being made and where it is being sold, regulations vary. For most beginning sauce makers and food processors, your state’s Department of Agriculture is where to start for information on becoming a food processor. Most states have pretty good food processor information and application packets available online.
In most areas, the local health department that inspects restaurants is not the agency responsible for commercial food processing licensing. Even if you are considering using a restaurant after hours for making sauces, the food processor licensing will not be through the restaurant health department, but most likely with the state dept of ag.
The Pickle Bill-
Most states have adopted what is called the Pickle Bill for Cottage Industries. This bill allows certain foods to be made in home kitchens and sold directly to customers at farmers markets or similar venues. Allowed foods are Low Risk foods like fruit pies (not merengue or cream pies), full sugar jams and jellies (no low sugar/no sugar), cookies, bread, candies, and vinegar pickled items. The regs are very specific as to what is allowed and as far as I have seen, hot sauces and salsas are not allowed under the Pickle Bill. Contact your state for definitive information as to what is allowed in your area to be made in a home kitchen.
Also keep in mind that Farmer’s Markets are considered Retail venues. The maker is selling directly to the consumer. The consumer can ask questions of the maker, so licensing and labeling regulations vary.
5. Process Authority and Process Review-
Step 3 is talking to whoever issues the food processing licenses. In MOST cases, the food inspector will review the initial recipe and will likely require a Process Authority letter.
A “Process Authority” is a person authorized to review recipes and manufacturing processes and approve/deny/request changes to the recipe and process. The PA will-
· analyze the ingredients of the sauce ( is there an acid? Are there any Critical Items like meat or dairy? Are there any allergens? Is the acidity-to-other ingredients ratio acceptable?)
· analyze the process (are the ingredients cooked and to what temp? for how long? Is any ingredient added at the last minute that wouldn’t have been fully cooked?)
· How is the sauce packaged (Boiling water bath in glass? Hot Fill glass bottles/INVERT/hold? Let it cool to room temp and put into plastic jars?)
Most universities that have a Food Science program have Process Authorities on staff and offer process review and other food processing testing services for reasonable fees for things like pH testing (usually included with a process review), shelf stability, water content, and a plethora of other tests that most people don’t need to get started. Independent labs also offer process reviews and testing. Before sending samples for review, talk with your inspector. They can help you figure out what testing is required and the best process for your sauce based on your ingredients and your detailed cooking/packaging process.
When the SuperAwesomeSauce recipe is absolutely finalized- then the recipe, detailed instructions as to how it is made, ingredient measurements to the gram for everything, and a sample of the sauce packaged as it will be sold is send to the PA. Once the sauce is reviewed and approved to be made a certain way (such as Hot Fill/Hold) the sauce must be made exactly the same way using exactly the same ingredients every time. There are no substitutions or deviations.
Non-Disclosure is standard when working with labs and PAs. They should send something in the first batch of paperwork when starting discussions about your sauce, testing and processes.
FDA-
US Food and Drug Administration
DISCLAIMER- This is the general current regulations as I understand them at the time of this writing. Every licensing situation is different and regulations change over time. Updates may or mayn not be able to be made to this first post. Keep reading in case updated information is posted. Most important is to find out what is specific to your situation from your AHJ when you are working through the licensing process. The food processor inspector and the PA should help with whatever forms are needed if FDA registrations is required.
If all the following criteria are met, the sauce maker is not required to register as a food processor with the FDA-
low pH in the product
does not contain any critical ingredients
approved as a Hot Fill/Hold (HFH) process
the sauce is ONLY sold within the state where it is made(no internet sales, no sales across state lines)
-if all of the above apply, FDA registration is not required.
If any of the follow criteria are met, then the sauce business needs to be FDA registered.
the sauce contains a critical ingredient
the sauce requires the processor to be BPCS certified
the sauce is sold across state lines
the sauce requires a process other than HFH
Nutritional Labeling-
Nutrition Information Panels (NIPs) are not required on labels. With the following notes-
The processor must file and yearly renew a free Nutritional Labeling Exemption through the FDA.
The exemption is good for operations employing less than 100 employees average and making less than 100,000 units of that product per year.
Some distributors or grocery stores may require NIPs. That is their own internal policies, not federal regulations. You may be able to talk with the purchaser/broker/distributor and negotiate an exception.
Same thing for bar codes.
They are not required by the FDA or any other licensing agency. Some distributors or stores require bar codes per their own policies.
And again for shrink wraps-
Not required by food processing regulations, but distributors and stores may require them. Shrink bands really are a good idea, regardless if they are required by the distributor or store chain…………
Label requirements- Consult with your inspector about what is required for your state. Most states follow basic FDA regulations, but there are some requirements specific to your state (such as font sizes for the logo, name, Oz/Ml,) and what contact info is required. Make SURE you have everything correct before pulling the trigger on that order for 10,000 labels! Last thing you need as a new business is to have to toss 9,920 labels cuz something wasn’t right…. Send final proofs to your licensing inspector just to make sure.
6. Where to Process-
This is the choice of using a co-packer or processing yourself. Take a hard look at what your passion is, what your strengths are, who is helping, what physical facilities you have access to or can build, and how much time you can realistically commit to the different tasks. Especially if this is a side business and you are still working a day-job. Burnout happens fast, be aware of how much energy can be committed to the sauce business, and also how much resources/$ can be used for the sauce business without compromising the household.
If your passion is creating and selling sauces, then spending hours a week in the kitchen bottling the sauces is time not spent selling the sauce. If you love interacting with people, and want to focus on selling/marketing your sauce, then consider using a co-packer. If there are 2 or more people involved with the business, consider one person taking care of production and another one marketing/selling. If dumbass customers drive you nuts, maybe the kitchen is the spot to be.
Processing Kitchens-
Everyone wants the $100k kickstarter to build their own kitchen, but the reality is, most people start using someone else’s kitchen. Think outside the box because kitchens are…literally…. Everywhere…..
Fraternal organizations (Elks, Eagles, Moose, Masonic), VFW, community kitchen, closed restaurant, restaurant after hours, Grange hall, fire hall, church, private school, incubator or shared use kitchens set up for starter businesses…just to name a few. Maybe the owner of the closed restaurant isn’t ready to sell the building but would welcome some income from a private tenant. Sometimes you may need to get creative with rental agreements. Offer to do bookkeeping, janitorial or grounds keeping in exchange for kitchen time. Maybe someone in your area has a licensed kitchen making salad dressing a couple days a week. As a hot sauce business, you would not be competing with the dressing business, maybe they would rent some kitchen time. Look for all sorts of locally made products and try to contact the owners. You never know where you may find a commercial kitchen to use!!!
Keep in mind that wherever you get set up to process, it should be someplace where you can stay for at least 6 months to a year or longer. Once the business is licensed at a certain facility, if you move, you will need to get re-licensed in the new facility. Sometimes, things like water purity testing is involved, which can be a bit expensive if dealing with a private well. Try to make sure your kitchen can be your base for a while.
Co-packers-
Co-packers are fully licensed processing kitchens that will make and package your sauce for you. They can take cases of fresh peppers and other fresh ingredients, wash, trim, chop, mix, add other ingredients, cook, macerate, grind, sieve, bottle, label, shrink-wrap, stuff the bottles back in the boxes and most will load the pallet of finished sauces into the back of your truck with a fork lift! Or they can arrange shipping the pallets of sauces to you by truck. Whatever is needed.
Most will work with you to do test batches if the recipe is still in development stages, most will help with Process Reviews. Some have people on staff that can do the process reviews and testing, others work with an outside lab.
Most co-packers are busy. Know that they charge for their services, know that they have minimums, know that they can take your sauce from concept to finished product if that is what you need and will charge accordingly. It may seem daunting when looking at a several thousand dollar production run, but keep in mind that one production run in 8 hours can yield hundreds of cases of sauce. Compared to the time it would take one person in a kitchen to make that amount of sauce, and the expertise a co-packer can offer, or the dollar saving of doing your own packaging in a shared use kitchen….decisions, decisions, decisions!
Each business will have different items to consider and items will have different importance to each business. There is no one right answer for how to process. Find what works for you.
Expiration, Sell By and Best By dates-
Unless required by your process authority, Sell By, Best By and Expiry dates are not required for most hot sauces. An expiration date is when a product is not safe to eat. Dairy and Meat have Sell By dates, which means the product is safe to eat for a number of days after it is purchased. BestBy dates are when the product is still good for consumption, but may have some deterioration in color, consistency or some other factor.
Lemon Juice has no expiration date. The juice will darken over time, but that does not make it inedible or in any way compromised. It just doesn’t look as nice. So it is BEST By the date on the bottle.
Most hot sauces don’t have an expiration date. Most have a Best By date. It may be for some degradation in color or whatever, often times is strictly for marketing.
Consult with your PA and inspector when making a decision to put an Expiry or BB date on your bottles.
The down side of BestBy dates is…let’s say you have a co-packer run 500 cases and you put a BestBy date 2 years out. If you don’t sell all those cases within 18 months, that BB date on the bottle is not looking so good. There may be absolutely nothing wrong with your sauce, it may not have any degradation in color or anything, but approaching a business to start carrying your sauce with a BB date 6 months out?
Just another thing to consider~ especially if the BB or Expiry date is ink printed on the bottles on the production line.
Another side of the co-packer option is those hundreds of cases of sauce. It’s an up front expense and you may be sitting on those cases for months, if not years. If you do your own processing, the smaller batches ensures fresher product, less money tied up in inventory sitting in storage, and also the ability to make changes on the fly. Not necessarily changes to the recipe, (although that can happen by sending a sample of the revised version of sauce to the PA for review and getting approval), but more along the lines of tweaking the label, name, marketing, things like that.
7. get food licensed-
A lot of these processes will be happening concurrently. Don’t Panic! Take each item separately, You’ll get it done~ With #7, you will be working with your inspector to get things sorted out as to your facility, recipe and such. Keep on it, get those forms filled out and submitted.
8. get business insurance
Business Insurance is totally separate from your standard run-of-the-mill car insurance. Find insurance agents in your local area who deal with business insurance. Every business you see on your local street (should/or does have) business insurance. Ask the vendors with similar products to yours at the FM who they use for business insurance. And SHOP AROUND!!! Shop! Shop! Shop! If attending an event/festival/holidaybazaar is remotely on the business plan, you will need a business insurance policy. “Additional Insured” will be a part of those events.
Policies will vary depending on your packaging and units made. A policy for refrigerated salsa in plastic tubs is different than a policy for a hot packed shelf stable sauce in glass bottles. Suck it up, become the business person that you are destined to be, and find the commercial food processor insurance that you need for your hot sauce business.
9. revisit that doodle of a label-
Finally! The FUN stuff!!! That label and branding, logos, and stuff..
Look at it again, tweak the name and logo….but DON’T PRINT YET!!!!
(sigh! I know….not quite fun stuff….)
10. Make your first batch-
Once you have all the ducks in a row for your recipe, licensing, kitchen, PA, business license, business insurance, and you have the AHJ’s authority, you will likely have to schedule an initial sauce making session with your licensing agent at the processing facility you will be using.
They will be watching you make your first batch. There may be things that come up with the processing, maybe some adjustment in ingredients or equipment that your processor inspector will sign off on while on-site. Altering the ratio of ingredients may change how they are listed on the label so make SURE the recipe is absolutely finalized before printing labels.
11. lather, rinse, repeat….
Ok, got nothing for this other than to keep making sure the recipe and production are spot on.
12- it might actually be time to print some labels and sell some sauce!
WooHoo!
I’d suggest home printing or using a local print shop for a first and 2nd run of labels. Short Runs. Use pre-sized labels, 6-up, 8-up or 10-up on a page. Labels can be formatted on your home computer using any number of templates or photo/graphics programs, kick ‘em to a flashdrive and have the local print shop laser color print them for about $1 a page of 6-10 labels.
There are so many little details that come up when bringing a sauce to market that I strongly encourage people to get out there with a simple home printed label at the farmer’s market and get a feel for the consumers. Do they like the name? Is there something really confusing about the name/logo/identity? Is there a typo that no one noticed? Is there some subliminal thing going on with colors or images that no one noticed before?
Get some test run color labels done before sinking $$$ into full run labels. As a new sauce maker bringing a sauce to market, customers will be very helpful and considerate when looking at your first run labels and are more than willing to offer feedback.
Other things to keep in mind with labels-
Will the labels be applied by the co-packer using one of their machines? If so, what are the size requirements, orientation, label stock, core size, etc....
Will the final product be exposed to certain environmental aspects? Heat? Cold? Moisture? Refrigeration and condensation? For most hot sauces, basic label stock is fine. For a refrigerated salsa, the labels need to be geared towards that environment. Make sure your label design and label stock is exactly suited for your product.
13- GO For IT!!!
Basically, for Licensing… YOU (as the new food processing business person) need to find out what is required for your product in your situation in your locations with your regulations and your licensing agencies.
Some things are general to all food processors, but ultimately each individual processor has to make their way through the process of becoming a licensed food processor.
Take heart knowing many others have successfully navigated through all the red tape. Don’t rely on the interwhebz for specific information to your specific situation. Get in touch with your local/state processing licensing people. They will work with you and get it all sorted out.
Hopefully this information will give a bit of direction and clarification of what’s involved. Most importantly, HAVE FUN!!!
All the Best,
salsalady
There you are again….at another family gathering and everyone is gobbling up your SuperAwesomeSauce. Last week at the company picnic, it was the same story.
Everyone says It’sTheBest!
And Everyone says YouShouldSellThis!
So you start to think…Why Not? Everyone loves it, I could make a million dollars selling my SuperAwesomeSauce!..................…
Now What????
_______________________________________________________
So you want to start a food business. Bravo! Almost every food product on the market starts out with this same scenario, but there are a few steps to take between “let’s sell it” and making that million buck$. Hopefully, this information will answer some questions about getting started with the business side of things. It may seem overwhelming, but don’t worry. Thousands have successfully navigated the journey to becoming a self-employed food processor. One step at a time.
First thing to know is- there are people who can help! It’s what they do. Small Business Administration field offices, local Economic Development groups, SCORE volunteers who are retired business executives that volunteer their time to mentor and consult with new business people, and in many areas there are incubator/shared use kitchens with staff that help people navigate through all the processes and agencies involved in running a food processing business. Call Around, Ask Around, call your local Chamber of Commerce, ask who in your area can help!
Here’s the Basics 1-13 for starting a food/sauce business, (also known as Don’t put the cart in front of the horse!-
)1. Have a totally awesome kick-butt product that people are willing to pay a reasonably nice price for that you totally love and believe in from dawn to dusk and beyond! But make sure it really is a totally awesome kick-butt product!
2. Doodle a logo/label…….and set that aside for now....
3. Talk with the agency or inspector who will be issuing the food processor license
4. Get licensed as a normal business- local/state and federal
5. Get the product tested as required (different products require different testing )
6. Find a place to process or talk with a co-packer
7. Get food process licensed
8. Get business and food processor insurance
9. Revisit that doodle of a label now that you know what your inspector will require on the label
10. Make your first production run…and SELL! SELL! SELL!
11. Lather. Rinse. Repeat
12. See below for details on the above
13. Dunno, what this is for….might show up…just wanted to have an item # 13
Continue on to Item Details Below---1. Have a Kick-Butt Product-
Before even considering the business side of things, consider what you will be selling.
Is it really as good as your friends and family say it is? Don’t rely on the opinion of people who know you and most likely won’t say bad things about your product cuz they don’t want to hurt your feelings. Take your product out to gatherings anonymously, listen to what people say. Ask others to take it out and listen to comments. Send out samples to peers with the request for honest reviews, comments, suggestions.
Take those comments, make more batches, make some MORE batches, and refine your product until it really is as good as those first people said it was. Small batches of 1-2 gallons will yield 12-24 5-10oz bottles. Easy and cost effective to produce and that size batch can be done over and over until the recipe is consistent and excellent.
When your product is dialed in, and can be consistently produced the same way, and tastes the same every time, then start thinking about offering your product for sale.
-----VERY IMPORTANT NOTE! Hopefully the people reading this thread are those interested in doing a food business the right way. It is illegal and unsafe to offer processed foods for sale that are not licensed. Just don’t do it. It’s not worth the financial risk to yourself and your family, not even considering that someone could get sick or die from an improperly made food product. Don’t sell anything until you are properly licensed.
2. Graphics- About this time, folks are sketching logos and running names up and down the flag pole…SURE! Have some fun with the concept, the logo, product names…and then set it aside. You need to know what your food inspector will require on the label before printing anything and it’s good to have others take a look at the labels for other potential errors or omissions. Posting label proofs here on THP is an excellent resource for that 6th, 7th and 20th pair of eyes looking at it and seeing potential issues. It’s not a requirement to have a Heat indicator on hot sauce labels, but it’s a pretty darn good idea.
Sketch some things up, and then set it aside until the sauce is finalized. The label may sell the sauce the first time, but if the sauce doesn’t taste good, customers won’t buy it again. Focus on the product, not the label.
3 & 4- Food Business
First thing to realize about starting a food business is that it is first and foremost- a BUSINESS! Which means rules, regulations and taxes. You will need Business licensing as well as Food Processor licensing.
Business licensing is just what it says- a license to operate a business in a given location. Every store, shop, shoeshinebox, restaurant and online book seller has a business license allowing them to operate a business in their location. Beyond that, certain businesses require further licensing specific to their trade such as cosmetologists, restaurant workers, tradespersons, and food processors. Contact your local city hall or state business licensing agency to find out what is required for you to operate a business where you will be operating.
Generally, if the business is located inside incorporated town/city limits, that municipality will oversee business licenses. If the business is located in rural areas, it’s business licenses are usually with the State.
Sole Proprietor, Partnership, LLC or Corporation? Most people set up shop as a Sole Proprietor, Partnership or as an LLC (limited liability corporation) Very few small businesses start out as an S-Corp. There’s tons of info on business structures out on the interwhebz. Research it and figure out what business structure works to get started, realizing that the business can restructure later as needed. And talk with those business resources listed at the top of the post! Remember…their job is to help people get started in business. They’ve BeenThere, DoneThat. These business structures are registered at the State level.
And next is Federal business licensing….yea, the IRS. It’s kinda confusing , but as far as the IRS is concerned, Sole Proprietors and LLC’s all file as a Sole Proprietor with the IRS. Again…tons of information available for the googling and talk with your business resource people. (I’m not familiar with Partnership structure, if anyone has further information about filing taxes as a Partnership, please post.)
Corporations are a whole other elephant. Consult those business professionals again. For 99.9% of budding entrepreneurial sauce makers, going full-on corporation is cost prohibitive and not necessary to get started. Most start as Sole Proprietor, Partner and LLC. Again, all 3 of those business structures are licensed at the state level and report the same to the IRS. For the first year or 2, it may be beneficial to work with someone proficient in small business tax preparations when preparing your first tax returns involving Schedule C's.
Remember, if you make money, you pay taxes. Every person who has ever gotten a paycheck has paid taxes. Those line items on the pay stub called “Withholding, Social Security and Medicare” are funds withheld from the employees’ paycheck by the employer and sent to the Federal Government on the employee’s behalf.
What most employees don’t realize is- those 2 items of SS and Medicare that are taken out of the paycheck (currently amounting to ~7.5% of the paycheck)…the employer is required to match that same 7.5% amount out of their own pocket. As a Self Employed business person ( aka… a sauce maker…), you are required to pay the full 15% taxes on the income made in the sauce business. Plus the Withholding amount! Something to keep in mind when all that dough starts rolling in. Set aside a good portion of it to hand over to Uncle Sam at the end of the year.
BUT! Being a self-employed business person, you are allowed to take deductions for expenses- like mileage driven delivering sauces, shipping, farmers market stall fees…
….that will help with taxes owed, but not entirely. 91-numbers- If the business hires employees, a 91-XXXXXX number will be required. This is a Taxpayer Identification Number (TIN) assigned by the IRS for filing paperwork involving employees. Other state paperwork for employees will be required also. If the business does not have employees, no TIN or other registrations are required.
There are just too many tax and business scenarios to consider here on a forum. So do your homework, get educated, please utilize the resources listed at the start of this post for detailed information on state and federal tax items. They know what is required for your state and your business situation.
Food Processing –
As soon as an ingredient is altered, that is considered Food Processing. In our area, farmers can rinse the dirt off the carrot and sell the carrot as is, no licensing required. If they trim the top and stick it in a jar of vinegar, that is Food Processing and licensing is required.
Depending on what is being made and where it is being sold, regulations vary. For most beginning sauce makers and food processors, your state’s Department of Agriculture is where to start for information on becoming a food processor. Most states have pretty good food processor information and application packets available online.
In most areas, the local health department that inspects restaurants is not the agency responsible for commercial food processing licensing. Even if you are considering using a restaurant after hours for making sauces, the food processor licensing will not be through the restaurant health department, but most likely with the state dept of ag.
The Pickle Bill-
Most states have adopted what is called the Pickle Bill for Cottage Industries. This bill allows certain foods to be made in home kitchens and sold directly to customers at farmers markets or similar venues. Allowed foods are Low Risk foods like fruit pies (not merengue or cream pies), full sugar jams and jellies (no low sugar/no sugar), cookies, bread, candies, and vinegar pickled items. The regs are very specific as to what is allowed and as far as I have seen, hot sauces and salsas are not allowed under the Pickle Bill. Contact your state for definitive information as to what is allowed in your area to be made in a home kitchen.
Also keep in mind that Farmer’s Markets are considered Retail venues. The maker is selling directly to the consumer. The consumer can ask questions of the maker, so licensing and labeling regulations vary.
5. Process Authority and Process Review-
Step 3 is talking to whoever issues the food processing licenses. In MOST cases, the food inspector will review the initial recipe and will likely require a Process Authority letter.
A “Process Authority” is a person authorized to review recipes and manufacturing processes and approve/deny/request changes to the recipe and process. The PA will-
· analyze the ingredients of the sauce ( is there an acid? Are there any Critical Items like meat or dairy? Are there any allergens? Is the acidity-to-other ingredients ratio acceptable?)
· analyze the process (are the ingredients cooked and to what temp? for how long? Is any ingredient added at the last minute that wouldn’t have been fully cooked?)
· How is the sauce packaged (Boiling water bath in glass? Hot Fill glass bottles/INVERT/hold? Let it cool to room temp and put into plastic jars?)
Most universities that have a Food Science program have Process Authorities on staff and offer process review and other food processing testing services for reasonable fees for things like pH testing (usually included with a process review), shelf stability, water content, and a plethora of other tests that most people don’t need to get started. Independent labs also offer process reviews and testing. Before sending samples for review, talk with your inspector. They can help you figure out what testing is required and the best process for your sauce based on your ingredients and your detailed cooking/packaging process.
When the SuperAwesomeSauce recipe is absolutely finalized- then the recipe, detailed instructions as to how it is made, ingredient measurements to the gram for everything, and a sample of the sauce packaged as it will be sold is send to the PA. Once the sauce is reviewed and approved to be made a certain way (such as Hot Fill/Hold) the sauce must be made exactly the same way using exactly the same ingredients every time. There are no substitutions or deviations.
Non-Disclosure is standard when working with labs and PAs. They should send something in the first batch of paperwork when starting discussions about your sauce, testing and processes.
FDA-
US Food and Drug Administration
DISCLAIMER- This is the general current regulations as I understand them at the time of this writing. Every licensing situation is different and regulations change over time. Updates may or mayn not be able to be made to this first post. Keep reading in case updated information is posted. Most important is to find out what is specific to your situation from your AHJ when you are working through the licensing process. The food processor inspector and the PA should help with whatever forms are needed if FDA registrations is required.
If all the following criteria are met, the sauce maker is not required to register as a food processor with the FDA-
low pH in the product
does not contain any critical ingredients
approved as a Hot Fill/Hold (HFH) process
the sauce is ONLY sold within the state where it is made(no internet sales, no sales across state lines)
-if all of the above apply, FDA registration is not required.
If any of the follow criteria are met, then the sauce business needs to be FDA registered.
the sauce contains a critical ingredient
the sauce requires the processor to be BPCS certified
the sauce is sold across state lines
the sauce requires a process other than HFH
Nutritional Labeling-
Nutrition Information Panels (NIPs) are not required on labels. With the following notes-
The processor must file and yearly renew a free Nutritional Labeling Exemption through the FDA.
The exemption is good for operations employing less than 100 employees average and making less than 100,000 units of that product per year.
Some distributors or grocery stores may require NIPs. That is their own internal policies, not federal regulations. You may be able to talk with the purchaser/broker/distributor and negotiate an exception.
Same thing for bar codes.
They are not required by the FDA or any other licensing agency. Some distributors or stores require bar codes per their own policies.
And again for shrink wraps-
Not required by food processing regulations, but distributors and stores may require them. Shrink bands really are a good idea, regardless if they are required by the distributor or store chain…………
Label requirements- Consult with your inspector about what is required for your state. Most states follow basic FDA regulations, but there are some requirements specific to your state (such as font sizes for the logo, name, Oz/Ml,) and what contact info is required. Make SURE you have everything correct before pulling the trigger on that order for 10,000 labels! Last thing you need as a new business is to have to toss 9,920 labels cuz something wasn’t right…. Send final proofs to your licensing inspector just to make sure.
6. Where to Process-
This is the choice of using a co-packer or processing yourself. Take a hard look at what your passion is, what your strengths are, who is helping, what physical facilities you have access to or can build, and how much time you can realistically commit to the different tasks. Especially if this is a side business and you are still working a day-job. Burnout happens fast, be aware of how much energy can be committed to the sauce business, and also how much resources/$ can be used for the sauce business without compromising the household.
If your passion is creating and selling sauces, then spending hours a week in the kitchen bottling the sauces is time not spent selling the sauce. If you love interacting with people, and want to focus on selling/marketing your sauce, then consider using a co-packer. If there are 2 or more people involved with the business, consider one person taking care of production and another one marketing/selling. If dumbass customers drive you nuts, maybe the kitchen is the spot to be.
Processing Kitchens-
Everyone wants the $100k kickstarter to build their own kitchen, but the reality is, most people start using someone else’s kitchen. Think outside the box because kitchens are…literally…. Everywhere…..
Fraternal organizations (Elks, Eagles, Moose, Masonic), VFW, community kitchen, closed restaurant, restaurant after hours, Grange hall, fire hall, church, private school, incubator or shared use kitchens set up for starter businesses…just to name a few. Maybe the owner of the closed restaurant isn’t ready to sell the building but would welcome some income from a private tenant. Sometimes you may need to get creative with rental agreements. Offer to do bookkeeping, janitorial or grounds keeping in exchange for kitchen time. Maybe someone in your area has a licensed kitchen making salad dressing a couple days a week. As a hot sauce business, you would not be competing with the dressing business, maybe they would rent some kitchen time. Look for all sorts of locally made products and try to contact the owners. You never know where you may find a commercial kitchen to use!!!
Keep in mind that wherever you get set up to process, it should be someplace where you can stay for at least 6 months to a year or longer. Once the business is licensed at a certain facility, if you move, you will need to get re-licensed in the new facility. Sometimes, things like water purity testing is involved, which can be a bit expensive if dealing with a private well. Try to make sure your kitchen can be your base for a while.
Co-packers-
Co-packers are fully licensed processing kitchens that will make and package your sauce for you. They can take cases of fresh peppers and other fresh ingredients, wash, trim, chop, mix, add other ingredients, cook, macerate, grind, sieve, bottle, label, shrink-wrap, stuff the bottles back in the boxes and most will load the pallet of finished sauces into the back of your truck with a fork lift! Or they can arrange shipping the pallets of sauces to you by truck. Whatever is needed.
Most will work with you to do test batches if the recipe is still in development stages, most will help with Process Reviews. Some have people on staff that can do the process reviews and testing, others work with an outside lab.
Most co-packers are busy. Know that they charge for their services, know that they have minimums, know that they can take your sauce from concept to finished product if that is what you need and will charge accordingly. It may seem daunting when looking at a several thousand dollar production run, but keep in mind that one production run in 8 hours can yield hundreds of cases of sauce. Compared to the time it would take one person in a kitchen to make that amount of sauce, and the expertise a co-packer can offer, or the dollar saving of doing your own packaging in a shared use kitchen….decisions, decisions, decisions!
Each business will have different items to consider and items will have different importance to each business. There is no one right answer for how to process. Find what works for you.
Expiration, Sell By and Best By dates-
Unless required by your process authority, Sell By, Best By and Expiry dates are not required for most hot sauces. An expiration date is when a product is not safe to eat. Dairy and Meat have Sell By dates, which means the product is safe to eat for a number of days after it is purchased. BestBy dates are when the product is still good for consumption, but may have some deterioration in color, consistency or some other factor.
Lemon Juice has no expiration date. The juice will darken over time, but that does not make it inedible or in any way compromised. It just doesn’t look as nice. So it is BEST By the date on the bottle.
Most hot sauces don’t have an expiration date. Most have a Best By date. It may be for some degradation in color or whatever, often times is strictly for marketing.
Consult with your PA and inspector when making a decision to put an Expiry or BB date on your bottles.
The down side of BestBy dates is…let’s say you have a co-packer run 500 cases and you put a BestBy date 2 years out. If you don’t sell all those cases within 18 months, that BB date on the bottle is not looking so good. There may be absolutely nothing wrong with your sauce, it may not have any degradation in color or anything, but approaching a business to start carrying your sauce with a BB date 6 months out?
Just another thing to consider~ especially if the BB or Expiry date is ink printed on the bottles on the production line.
Another side of the co-packer option is those hundreds of cases of sauce. It’s an up front expense and you may be sitting on those cases for months, if not years. If you do your own processing, the smaller batches ensures fresher product, less money tied up in inventory sitting in storage, and also the ability to make changes on the fly. Not necessarily changes to the recipe, (although that can happen by sending a sample of the revised version of sauce to the PA for review and getting approval), but more along the lines of tweaking the label, name, marketing, things like that.
7. get food licensed-
A lot of these processes will be happening concurrently. Don’t Panic! Take each item separately, You’ll get it done~ With #7, you will be working with your inspector to get things sorted out as to your facility, recipe and such. Keep on it, get those forms filled out and submitted.
8. get business insurance
Business Insurance is totally separate from your standard run-of-the-mill car insurance. Find insurance agents in your local area who deal with business insurance. Every business you see on your local street (should/or does have) business insurance. Ask the vendors with similar products to yours at the FM who they use for business insurance. And SHOP AROUND!!! Shop! Shop! Shop! If attending an event/festival/holidaybazaar is remotely on the business plan, you will need a business insurance policy. “Additional Insured” will be a part of those events.
Policies will vary depending on your packaging and units made. A policy for refrigerated salsa in plastic tubs is different than a policy for a hot packed shelf stable sauce in glass bottles. Suck it up, become the business person that you are destined to be, and find the commercial food processor insurance that you need for your hot sauce business.
9. revisit that doodle of a label-
Finally! The FUN stuff!!! That label and branding, logos, and stuff..
Look at it again, tweak the name and logo….but DON’T PRINT YET!!!!
(sigh! I know….not quite fun stuff….)
10. Make your first batch-
Once you have all the ducks in a row for your recipe, licensing, kitchen, PA, business license, business insurance, and you have the AHJ’s authority, you will likely have to schedule an initial sauce making session with your licensing agent at the processing facility you will be using.
They will be watching you make your first batch. There may be things that come up with the processing, maybe some adjustment in ingredients or equipment that your processor inspector will sign off on while on-site. Altering the ratio of ingredients may change how they are listed on the label so make SURE the recipe is absolutely finalized before printing labels.
11. lather, rinse, repeat….
Ok, got nothing for this other than to keep making sure the recipe and production are spot on.
12- it might actually be time to print some labels and sell some sauce!
WooHoo! I’d suggest home printing or using a local print shop for a first and 2nd run of labels. Short Runs. Use pre-sized labels, 6-up, 8-up or 10-up on a page. Labels can be formatted on your home computer using any number of templates or photo/graphics programs, kick ‘em to a flashdrive and have the local print shop laser color print them for about $1 a page of 6-10 labels.
There are so many little details that come up when bringing a sauce to market that I strongly encourage people to get out there with a simple home printed label at the farmer’s market and get a feel for the consumers. Do they like the name? Is there something really confusing about the name/logo/identity? Is there a typo that no one noticed? Is there some subliminal thing going on with colors or images that no one noticed before?
Get some test run color labels done before sinking $$$ into full run labels. As a new sauce maker bringing a sauce to market, customers will be very helpful and considerate when looking at your first run labels and are more than willing to offer feedback.
Other things to keep in mind with labels-
Will the labels be applied by the co-packer using one of their machines? If so, what are the size requirements, orientation, label stock, core size, etc....
Will the final product be exposed to certain environmental aspects? Heat? Cold? Moisture? Refrigeration and condensation? For most hot sauces, basic label stock is fine. For a refrigerated salsa, the labels need to be geared towards that environment. Make sure your label design and label stock is exactly suited for your product.
13- GO For IT!!!
Basically, for Licensing… YOU (as the new food processing business person) need to find out what is required for your product in your situation in your locations with your regulations and your licensing agencies.
Some things are general to all food processors, but ultimately each individual processor has to make their way through the process of becoming a licensed food processor.
Take heart knowing many others have successfully navigated through all the red tape. Don’t rely on the interwhebz for specific information to your specific situation. Get in touch with your local/state processing licensing people. They will work with you and get it all sorted out.
Hopefully this information will give a bit of direction and clarification of what’s involved. Most importantly, HAVE FUN!!!
All the Best,
salsalady