No doubt about it, America loves a big event, which is why it’s no surprise that the US catering industry was worth more than $72 billion in 2023. Whether you’re catering to high-end clientele, a small private party, or a corporate sales promotion, there’s profit to be made by selling food and drink.
Starting a catering business can put you firmly on the path to financial success, but how do you get there, what hurdles must you cross and most importantly, what will it cost? Let’s find out. Read on to discover all you need to know about launching your own catering operation.
Before you even begin to get your new catering business off the ground, you’ll need to decide the fundamentals:
Starting from brand-new gives you the chance to shape your catering business exactly as you want it and avoid the hassle of modifying an existing operation to your tastes. However, the downside to this route is time. Starting fresh means building your customer base and brand presence from zero and that could take longer than you think, especially if you’re competing with well-established rivals. In contrast, buying a going-concern allows you to hit the ground running, with an oven-ready customer list and brand recognition – but the downside to this route is cost. It may be significantly more expensive to buy an existing caterer than it is to start from scratch.
Determining who your customers will be will help you shape your business plan and arrange your financing. If you’re going to pursue high-end events such as banquets or lavish weddings you’ll probably need to spend more on marketing, equipment and staff training than you might if you are going to pursue corporate clients who typically want a streamlined service and an understanding of B2B catering requirements. You could also chase light-catering gigs where you limit your offer to finger food and cocktails. Speed, cost-efficiency and flexible staffing are essential to succeed in the economy end of the catering market.
Once you know what kind of business you want to operate, you’ll need to choose a business name that’s memorable and gives customers an idea of your services. (If you’re buying an existing caterer, you may want to keep the old name to preserve brand name recognition). When choosing a name, you’ll need to make sure it’s available in your state. You should also ensure it’s available as a domain name for your website – you can do this at any of the major hosting platforms such as GoDaddy.com.
As for business entity, you could register your venture as sole trader, which means you own the business in your name and have personal liability for its performance, or you could register as a limited or general partnership or limited liability company (LLC). These options will give you increased personal protection, but they require more paperwork and will cost more to establish.
If you’re seeking external investment or a commercial business loan to launch your business, you’ll need a detailed business plan to support your pitch or application. Investors and lenders will want to know why you need their funds and what the money will do for your new venture. Business plans should do more than paint a rosy picture – explain the risks involved, what the downsides could be – and how you intend to overcome them.
Even if you don’t need investment or a loan, a business plan can still be a very useful vital tool. Use it as your business manual, referring to the contents to guide your strategy and manage your financials.
Find out more about creating your business plan here.
With your business name selected, you can register your venture with your state’s business filing office. You’ll also want to get an Employer Identification Number (EIN) from the IRS. You can do this online in just a few minutes. Note that your EIN acts as a business tax ID and it is usually needed when applying for commercial finance.
Because your business is handling food you’ll almost certainly need to get licenses and permits and your state health department may also want to check your kitchen and food preparation location to ensure it’s up to code. In most states it is illegal to run anything but a tiny food business from your home, so you’ll need to find suitable premises for your operation. Ideally, you should choose a location that already has certification for food preparation as that will save you the time and cost of modifying the site to meet the required hygiene regulations and waste controls.
Liquor sales are governed by a host of laws, so if you plan on selling alcohol at events – either as part of a pre-paid package or by operating a cash bar – you’ll need to get the necessary licenses and permits. Initially, you must register with the federal Alcohol and Tobacco Tax and Trade Bureau (TTP). They can also give you the information you need to get state and local operating licenses and permits for your business. Don’t be tempted to start trading without the proper licensing as that can lead to large financial penalties or even prosecution.
Your target market and the type of service your business sells will help you to determine how much you charge. At the luxury end, there may be more room for mark-ups, but your costs will be higher. At the economy end, margins will be lean even if your costs are much lower. Be aware that in general, the US catering industry works to tight profit margins – typically 7% or 8% – and it is common for customers to shop around for estimates before settling on a supplier.
Getting your pricing right is critical to succeed. You don’t want to lose business because your pricing is too high. Nor do you want to provide your services at a loss. Do your homework. Set your pricing to be competitive without losing out.
How to set your pricing:
Top tip: Most service businesses make their best profits on the ‘extras’ they can sell. These are the luxury or convenient add-ons that customers may be tempted to pay for on top of the set budget. Build your pricing on a tiered format – set menus – then offer ‘a-la carte’ options that add more bling, convenience, or luxury to the deal. Because these customized extras are provided outside of published pricing it is usually more difficult for customers to shop for comparisons.
Smooth service is critical in the catering industry. No customer wants waiters or chefs spilling food or drink or ignoring the needs of their guests. Although you will pay more for experienced staff, they will add a professional aura to your business, and reduce the risk of problems at an event. They can also act as team leaders for the less experienced members of your staff. It’s also worth investing in professional staff training and providing refresher courses if you secure an event that requires specialized service.
When you cater to an event, keep in mind that every guest is a potential customer down the road. Make the most of the moment. You can do this with obvious tactics, such as putting branded tent-cards on table tops and handy leaflets for guests to take away, or you can rely on more subtle advertising, such as branded plates and glassware, staff uniforms with ID badges, chefs’ aprons carrying your logo, etc. It’s also worth asking the client if they will give you a credit in their event program or offering them a small discount – 1% or 2% – for getting a shout out in their literature and advertising.
If you don’t have enough cash on hand to launch your new catering business on your own, you’ll need funds from investors or lenders. Many new businesses get started using financial support from friends and family, but if that’s not an option, there are networks of venture capitalists and angel investors readily available online. Bringing in external investment can give you the cash you need to get your catering business off the ground but be aware that investors will usually want a piece of the action in exchange for their money. This means you will need to give up a share of your ownership and you may lose overall control of the business.
With a business loan you don’t have to surrender a share of your venture to get the funds. Although it’s never easy for new businesses to borrow money, some lenders have special products and programs for startups and entrepreneurs. These types of financing include:
To get these types of loan you can approach banks, credit unions and online lenders one by one, or you can use the services of a loan marketplace that will immediately introduce you to a choice of startup loans from different lenders. Some marketplace platforms can also give you advice and help you with the application process. This can be especially useful for borrowers who have never taken out a startup loan before.
Let’s face it, stuff happens. Catering businesses are people businesses. You’re bringing a team of cooks, waiters, bar staff and technicians into an environment packed with people. As well as having adequate business insurance to cover public liabilities, you should also have a contingency fund to cover equipment breakages, extra cleaning and losses. If possible, build a safety margin into every event – say 10% – to cover unexpected operating costs or claims. It’s also worth scouting for deals with B2B suppliers to care for your vehicles and replace chinaware, glassware and serving equipment at a discount. Remember that the difference between a profit or loss will often come down to how well you offset any problems.
The cost to start a catering business varies widely, but it typically ranges from $10,000 to $50,000 or more. Key expenses include permits, licenses, kitchen equipment, initial ingredients, marketing, and insurance. Actual costs will depend on the scale of your operation, where you are located, and the level of service your business offers.
Running your own catering business can be lucrative and a lot of fun, but you’ll need cash to get you there. Funding is where Swoop can really help. No matter if you’re launching a brand-new catering venture, or you’re buying an established business, chances are you’ll need finance to make the operation grow. Many types of business loans are suitable for caterers, but working with finance experts can make all the difference when applying for funding. Contact us to discuss your borrowing needs, get help with loan applications and to compare high-quality business loans from a choice of lenders. Make your catering business the toast of the town. Register with Swoop today.
Swoop was amazing! I was looking for refinancing and they were straight onto finding me the best possible option. I would highly recommend them.
Owner, F45 Cambridge
Written by
Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Wells Fargo Bank, Visa, Experian, Ebay, Flywire, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of US consumer and business finance.
Swoop promise
At Swoop we want to make it easy for SMEs to understand the sometimes overwhelming world of business finance and insurance. Our goal is simple – to distill complex topics, unravel jargon, offer transparent and impartial information, and empower businesses to make smart financial decisions with confidence.
Find out more about Swoop’s editorial principles by reading our editorial policy.
UK
IRE
AU
CA
US
ZA
NG
yet? Register here!