When it comes to food-based businesses, you have a few choices — you could go into business as a restaurateur or start a catering business.
A catering business can be a great choice if you don’t want the expense of running a restaurant. You can still earn good margins on the meals you produce without having the overhead of running a restaurant.
Catering Business formation guide
Running a successful catering business can be a big challenge. Whatever your idea for doing business as a caterer, turning that vision into a company that creates amazing cuisine and delights your customers is doable, so long as you take the right approach. In this guide we’ll cover:
Understanding the world of catering
Paying taxes for your catering business
Deciding if you’re ready to start a catering business
Hiring employees, managing finances and administering your catering business
Planning out your catering business
Locating other resources for your catering business
Determining the best legal structure for your new organization
Following various rules and regulations
And much more
By the time you've read through our complete catering business guide, you will have all the information you need to set up and manage a catering. Let's get into it.
Understanding the World of the Catering Business
Caterers exist to provide food for major events, parties and functions. They exist to take the stress out of preparing, cooking and serving food. Good catering businesses can expect repeat bookings, and lucky business owners will get long-term agreements to provide food on a regular basis.
Caterers and other food establishments are big business in the U.S. Here are some surprising statistics about their popularity.
Sales of social caterers in 2017, up from $7.7 billion in 2015
Total revenue for catering businesses in 2017
Catering businesses in the U.S.
Caterers employ people, or just over two per catering business
Caterers support many different diet types, including...
The market is growing by 1.3 percent a year
Corporate events are some of the biggest opportunities for caterers, followed by weddings and social catering
Buffet-style catering is most popular, followed by plated meals
This makes the catering industry very attractive to aspiring entrepreneurs, but there are big challenges in opening, running and growing a successful catering business. They demand a great deal of work, so expect long hours. Add to that the need for a constantly full pipeline, challenging profit margins and seasonal variation; you will need to work hard to ensure your business is successful.
But for those with the discipline, focus and commitment, running a catering business can be a hugely satisfying experience for you, your staff and your patrons.
What Your Catering Clients Are Looking For
When it comes to catering, your clients want several things:
If food doesn't show up, there’s normally hell to pay! Clients will demand reliability and trustworthiness — if you can build up a reputation as a friendly, reliable caterer, expect good repeat bookings.
It’s not just about the food you prepare, it’s also about how that food is served. Many clients will expect you to provide wait staff and servers, and you will need to ensure they have the right approach and attitude.
Value for money
Catering is a competitive business, and profit margins can be slim. You will need a rock-solid understanding of all your costs so you can price your services correctly.
Many clients will look for something a little bit different. If you can provide varied foods at a reasonable price, that’s a great way to stand apart from your competitors.
Questions to Ask Before You Start a Catering Business
Is Catering Entrepreneurship for You?
Running a catering business requires resilience and good planning. You will need to combine great marketing with an interesting and accessible menu and competitive pricing. You will need to attract clients in a competitive local marketplace. Then, you must create amazing dishes, hire staff, get chefs and ensure you always have work coming in.
You can’t forget about the administrative side of this business either. Sourcing ingredients, sorting out disputes, working out profits and more are all required. In fact, being a cater requires one of the most well-rounded skillsets of any business you might choose to go into. Along the way, you’ll learn amazing skills, develop great people management techniques and build huge amounts of experience in creating and running a successful business.
What Are the Main Skills, Expertise and Experience to Be a Successful Catering Entrepreneur?
As we mentioned above, running a catering business requires a huge and diverse range of skills. Among other areas, these skills include:
Finding, interviewing and hiring great service industry employees for kitchen and food service work.
Dealing with staff, coverage, issues and other people management areas.
Promoting a catering business against a competitive field. Local marketing expertise is essential.
Working with chefs to create innovative meals, source ingredients and create reasonable profit margins.
Setting up the kitchen in the first place, which includes finding equipment, furniture, fixtures and fittings.
Ensuring clients are treated well, orders are dealt with promptly and food is prepared to the standards you expect.
Sorting out profits, payroll, financial management, accounting and all the other areas that go into running any successful business.
What Are the Main Challenges for a Catering Entrepreneur?
There are several major challenges for any catering business owner. These start with competition — your local area only has a certain number of clients, and you’re likely competing with a few other local businesses. Although you will build up a good reputation over time, strong marketing is essential in attracting clients to your business.
Another major issue for catering owners is financial management and making a profit. The vast majority of revenues you receive from patrons will go toward food ingredient costs (27-30 percent), staff salaries and wages (20-25 percent), occupancy costs (5-10 percent for utilities, rent, etc.) and other costs. After all expenses are taken into account, overall profit margins typically clock in at around 10 percent, compared to the average restaurant profit margin that runs between 2 and 6 percent.
Staff management also comes with is own list of challenges. From unexpected absenteeism to interpersonal conflicts, juggling staffing priorities will take up a lot of your time!
No two days are the same for a catering business owner, but all those days will be long. From working out menus, training staff, marketing and administration in the mornings through delivering food and providing services, you can expect to start work before 8 a.m. and not finish until late. If you open a catering business, you need understanding family and friends because they will not be seeing much of you.
Different Types of Catering Businesses
There are several different ways to set up and run a catering business. These include:
Perhaps the most basic type of catering business, they involve setting up a mobile kitchen and providing food to the public at events, outside establishments and other gatherings.
Private event caterers
Mainly providing food for private events like weddings, christenings, wakes, and the like, these caterers primarily serve individual customers.
Corporate event caterers
A popular and growing field, these types of caterers mainly serve business customers, providing food for meetings, conferences, seminars, and other company events.
These caterers go into partnership with other businesses, taking away the stress of preparing and serving food for their partners. Examples of this type of business could be partnering with pubs, clubs, and similar establishments.
You can set yourself apart by providing specialized catering for different dietary needs including vegetarian/vegan, gluten-free, kosher, halal and others.
Understand Your Catering Business Model and Financial Projections
All businesses need a business model, which is how you will generate sales, provide services and make money. Think about your business model now, because it’s better to have that in place so you can start acquiring customers and generating revenue from day one.
You will also need to look at financial projections for your catering business. What are your expected sales and revenues? What is your profitability? How much money will you keep in the business to grow it? How much will you pay yourself and others? If you can, try to plan your revenue for the next month, three months, year and two years.
Write a Business Plan for Your Catering Business
Finally, you should put your business plan together. Business plans do vary slightly, but they should cover the following areas:
An executive summary with the most important points from your business plan
Your goals and what you hope to achieve with your catering business
A description of your business, background information and context
Choose the Right Business Structure and Register Your Catering Business
Now that you have all the background information for your catering business, it’s time to make it into a reality. That starts by choosing the right structure or “legal entity” for your business. In the U.S., there are four main business structures. They are:
This is the "default" business structure and is what your business will be if you decide not to create a more formal structure. We don't recommend this type of business as it doesn't give you the legal protections you need.
This is a special type of LLC entity that's only available in certain states. It allows you to create "mini" LLCs, each with their own limited liability and separate assets, under the umbrella of a master LLC.
Once you've legally created your catering business, you’ll need to get some other things in place.
Depending on the size of your business, you will need a location with excellent kitchen facilities. It must be easily accessible, should meet the needs of your staff and clients and shouldn’t eat into your profit margins too much.
You will need to hire employees throughout your catering business. From chefs to serving staff to assistant cooks, getting your staff balance right is essential to your success.
Finances and Taxes
What kind of bank account will you get? And how will you pay your business taxes? These are all important things to consider so your catering business stays in the green. Here at Incfile, we can even help you file your taxes.
Permits and licenses
Running a catering business comes with certain rules, regulations and legalities you need to be aware of, especially around staff health and safety and food hygiene and preparation. Incfile can conduct a Business License Research package for you, or you can take the time to do the research yourself.
Your catering business likely needs its own website, and you will also need to develop a local brand, logo and other marketing collateral. You should engage with local marketing firms who understand your immediate marketplace and can provide advice on getting your name out there.
Equipment and ingredients
Caterers need a lot of upfront capital to invest in equipment, fixtures and furniture. From kitchen equipment to tables, chairs, plates and silverware, you will need to carefully budget everything you spend. Add to that the cost of ingredients, and you must keep a tight rein on expenses.
There are many software products specifically for caterers that can make managing this business much easier. From taking orders to checks and food preparation to point of sale, the right software will make running a catering company more efficient and cost-effective.
Most states require businesses to file an Annual Report report once a year. You will also be expected to pay estimated taxes on what you plan to earn in the current business year. Four federal, state, regional and city business licenses and permits may need to be renewed on a regular basis, typically once a year.
The Complete "Start Your Business" Checklist
A Clear and Comprehensive Guide to Starting Your Business the Right Way
A forum for mobile caterers and food concession businesses
Useful Online Tools for Your Catering Business
Here are some really great online tools for managing your catering business. They will reduce the time you spend on administration, help you to collaborate with others and free up your time to grow and manage your new venture.
If you want to start a business that’s going to be a challenge but also bring a huge amount of pleasure and reward, then running a catering company could be right for you. The food you create and the trust you build will help set you apart in the minds of your clients and bring joy into people’s lives.