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Raising funds the legal way

Raising funds the legal way

Question:

Is it legal to run a home-based bakery or catering business to raise funds to open my restaurant?

– Caroline Medina, Astoria, NY

Answer:

Because restaurants require a good deal of start-up capital, a common launch pad for an independent owner is a catering or small-scale food manufacturing business before taking steps to move into restaurant real estate. Selling food at fairs and festivals, for example, can be a side business that evolves into a full-scale enterprise. Legal or not, this type of preparation is often done from home kitchens, but running a business from home and commercially preparing food at home are two different issues.

Mimi Shotland Fix, author of Start & Run a Home-Based Food Business, says: “Across the US, 31 states currently have a 'cottage food law.' This type of law allows that food prepared in a home kitchen may be sold to the public. Many more states are moving towards this type of business regulation. Every state however, writes its own unique law.”

Often these state laws (including New York's) restrict production to non-hazardous foods such as baked goods and put limits on the sales and marketing of these products.

Catering from a home kitchen is typically not allowed. But you may consider running the business side of a catering or baking operation from home and using an approved commercial kitchen for your production. While state and local codes vary, most allow shared use of kitchen space in a variety of scenarios:

Incubator kitchen. These facilities, also paired with business counseling/consulting services, help new food entrepreneurs bring product to market.

Kitchen rental. You can often rent approved space from a community site or other business during off-hours.

Shared/communal kitchen. Increasingly, small-scale processors are collaborating to buy shares of a kitchen housing multiple companies.

Copacking. Consider not producing your own product but rather contracting with an existing company to make products to your specifications and focus on the sales and marketing side.

My advice is to find one of the scenarios above that can work for your situation.  You’ll have the space and equipment to do it right.  Fix says, “In our dismal economic times, with so many people unemployed, it's beneficial for everyone to know that creating an income is a real possibility.”

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