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Guide to starting a catering business

Business

Guide to starting a catering business

Catering is an exciting and innovative industry — but how do you make sure your catering start-up is set on the path to success? For tips and advice on launching a new catering company, check out this guide and make sure you dodge the common errors made by others getting started in the industry…

What you must know

From buying the right restaurant furniture to complement the tone of your new business, to getting clued up on tax and funding, there are several things you must be aware of when launching a new catering company, such as:

  • Determining how much money you need to get going.
  • Conducting market research.
  • Coming up with a business plan for funding.
  • Choosing between operating as a sole trader or a limited company.
  • Working out how you will pay tax.
  • Setting up your business with a local authority.

Why get into catering?

You have a lot to gain by starting a business in this industry. Although it can be tough at first, you get great satisfaction from building a successful company — plus, there’s plenty of money to be made if you get it right. Other reasons to start your own catering business include being your own boss, doing something you enjoy and having your own working hours.

What you need to do first

The success of your business depends on carrying out adequate market research. Nearly one in ten food service businesses fail to reach their first birthday, and a lack of knowledge about the market is often believed to be a major reason.

Making a success of research

Start by determining what you want to learn from your market research — key questions include:

  • How saturated is the market?
  • What do people who live near my business want?
  • What are their buying habits?
  • Who are my potential customers?
  • Who are my competitors?
  • How much do they charge?
  • Are they successful?

As soon as you’re happy with your list, start finding out the answers.

Different forms of market research

Primary

Primary research is the gathering of your own data, mainly involving questionnaires, surveys and social media polls. If you don’t have access to a customer database, head to your local high street, shopping centre or supermarket and ask members of the public to answer questions. You could also get in touch with a company that specialises in collecting and analysing market research data.

Secondary

This is research that has been published by other bodies and you can carry out secondary research by doing something as easy as searching online. But be careful to check when research was gathered and published — if it was in 2003, it may not be relevant today.

Also, try to stick with credible sites, like government organisations and businesses that specialise in publishing reports and data for up-to-date information.

Funding your new business

It’s not cheap to fund a new catering business, but it is achievable. The cost of setting up a business differs. However, a report by Lloyds Banking Group suggests the average cost is about £12,000. 25% of costs relate to securing property, with transport and IT other areas of significant outlay.

What are your priorities in order to start trading and earning cash? Do you need to buy property, or can you do it from home at first? Can you use a free online website instead of hiring a developer? Do you need to take on staff from the beginning or can you pick up the shifts?

Work to keep start-up costs low to ease the pressure involved with launching a new venture — you never know when that extra bit of saved cash will come in handy.

Other money considerations

Now you have your list of start-up priorities, you can start adding up an overall cost. We’d also advise you to add 30% on top of your final figure to factor in unexpected charges.

Don’t have the working capital? Ring your bank to see if they can offer you a loan or contact a private investor. Although, it’s best to speak with a financial advisor before entering into an official agreement. You need to ensure that terms are set out which are legally binding, for example.

If neither of these options are available to you, try crowdfunding, which is when a business pitches an idea online to secure donations and reach a funding target.

Costs to operate efficiently

Now, you can start trading — but you also have the operating costs to bear in mind. These are the regular outgoings you pay to keep your business trading, day-to-day.

Make sure you closely monitor your operating costs. If they exceed the amount you make from sales, you will be working at a loss — this is unsustainable. The main operating costs of many catering companies are split between fixed and variable.

Fixed costs

These don’t change in relation to sales. They include:

  • Rent/mortgage.
  • Licences to trade.
  • Loan repayments.
  • Business insurance.
  • Business tax.
  • Utilities.

Variable costs

These vary depending on increased or reduced demand. They include:

  • Ingredients.
  • Labour.
  • General maintenance.
  • Fuel for transport.
  • Marketing.

Knowing your operating costs and relating them to projected sales revenue lets you work out a near-accurate budget.

Sole trader or limited company

Working for yourself means you must inform Her Majesty’s Revenue and Customs (HMRC). Anyone earning more than £1,000 a year from business activities needs to register self-employed as a sole trader or limited company.

Sole traders

If you’re a sole trader, you’re self-employed and the sole owner of a business. This includes keeping all profits from business-related activities after tax and national insurance. Becoming a sole trader is a lot simpler than starting a limited company. Plus, there are less accounting responsibilities.

Simply record your sales and expenses and submit a self-assessment tax return to HMRC once a year. However, your personal assets are not considered separate from your business. So, if your business gets into trouble, your home and personal savings could be in danger.

Limited companies

With a limited company, the business is separate from its owners financially and legally, so limited liability is a major advantage. If things go wrong, the only things at risk are any investments the founder made, and any assets attached to it. Basically, your personal assets are protected.

You will also pay corporation tax — often less than income tax. However, disadvantages include a more complex and costlier set up procedure. Financial reporting responsibilities are also time-consuming and may require you to hire an accountant. What’s more, your business’ organisational and financial information is also available to see on the Companies House website.

Choosing the best option

What are your circumstances? If you’re unsure, why not start as a sole trader and then form a limited company later? The UK has more sole traders than limited companies at the moment, but if you want further advice, speak to a financial advisor.

Taxes

Tax and national insurance are taken off earnings under the PAYE scheme when you’re an employee. However, paying tax and national insurance becomes your responsibility when you start your own business. Sole traders must file an annual self-assessment tax return with HMRC, which includes recording money coming in and going out of your business. Keeping receipts, invoices and bank statements is critical — the HMRC might ask for proof of how you calculated your returns.

However, tax is different as a limited company. Firstly, corporation tax tends to be at a lower percentage rate than individuals, but all annual profits are taxable. As the business owner/director, you must declare any money you have drawn from the company over the previous year — like a wage. The withdrawn money becomes liable for income tax.

Registered as an employee of your own company? If so, tax and national insurance are deducted under the PAYE scheme. Ask an accountant or contact HMRC if you’re unsure about tax.

A business plan

Make sure the following features appear in your business plan:

  • A clear understanding of your target market.
  • Your vision for the business.
  • Reasons your business will be successful.
  • Unique selling points.
  • Opportunities for expansion.
  • A plan to market your business.
  • Short-term and long-term business aims.
  • Expected sales/expenses over a specific period.

Your business plan signifies the amount of research you’ve put into your business idea. A good business plan will inspire confidence in potential investors, while a poor one will appear unprofessional.

Registering your business

As soon as you start selling your products and services, you need a licence. Make sure to notify your local council 28 days before you intend to start trading — luckily, it’s free to register a business in the UK. All you must do is give details of the type of business you want to run, along with basic information — like the address you will trade from.

Trading without a licence can result in a fine or up to two years in prison! As soon as the council recognises your registration, an environmental officer (EO) comes to view your premises. If you run a business with a kitchen, the EO will check that it adheres to requirements set out in the Food Safety Act 1990. You will also receive a food hygiene rating that people can see on the council’s website.

Make sure you’re clued up on food safety risks and procedures, such as:

  • Use of additives and food colours.
  • Cross contamination.
  • Temperature control.
  • Allergens.
  • Labelling.
  • Personal hygiene.
  • Premises hygiene.
  • Safe food storage.

Also check if you need to notify your mortgage lender, need business insurance, need to pay business tax, or need to open a business account with your bank. Planning to sell items worth more than £42 online? There regulations for this, too. See the UK government and Food Standards Agency websites for more details about starting a catering business.

Beginning your start-up journey

Chat to other business owners to get an insight into the catering industry and search online for packs to help with legislation, allergens and hygiene. On top of plans, fundraising and getting the right equipment, you also have to think about bins, parking and licenses. Remember, the building structure dictates what type of license you need, while frying and grilling also have different requirements.

Basically, knowledge is key. Do your research, stay proactive and keep a close eye on your business’ outgoings to launch a successful catering start-up.

I am the founder of Startup Today. I am the main writer and have put in many hours of work into creating this blog. If you want to find out more about me then lets get in contact.

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