December 9, 2022
Adam Hoeksema
The catering industry is a resilient and adaptive one, able to adapt to and overcome a lot of the challenges that are thrown its way. Even as pandemic restrictions are lifted, the industry is benefitting from a new approach, with an increase in mobile catering services taking advantage of the shifts in consumer demands. If food is your passion, and you’re looking to make it into a lucrative pastime, you may be interested in learning how to start a catering company of your own.
Starting a catering business may tick a lot of boxes for you here, but you’ve got to know where to begin and how to plan it well. We’ll cover all this for you in this article, right after we take a look at the industry as a whole.
The Catering Industry: An Overview
The global catering services market is closely tied to the food service industry, which helps to provide insight into market trends. Overall food service markets reached almost $517 billion in 2020 and are expected to reach nearly $673 billion by 2026, at a CAGR of 4.5%. As a subset of this, the catering services market specifically is projected to progress at a CAGR of 6.1%.
Demand is driven by different segments, with contract caterers typically forming the majority of growth in the industry. These are caterers hired for events, such as weddings, parties, and other large-scale institutions to provide food services for them.
Major drivers are the increasing urban populations and a change in consumer expectations relating to more diverse and specialist international cuisines. Increased globalization has led to more exposure to and experimentation in popular food choices, and a push for more mobile food options among the working population is seeing a rise in on-the-go solutions like food trucks and similarly accessible food options.
Catering services were hit by Pandemic restrictions in some segments, while others thrived. Models supplying public gatherings struggled the most, of course, but home delivery services boomed, and the move to mobile food looks to be a trend that is set to continue.
Competition is always a big challenge, as well as supply line issues and rising operating costs as a result of the war in Ukraine. Staples such as wheat and sunflower oil are now under threat as two of the largest exporters (Russia and Ukraine) are now otherwise involved. The rise in transport, too, has affected every part of the industry.
Still, the market is expected to withstand these setbacks, and given the right approach, there’s very much still a case to be made for a good startup in the catering world. If these challenges seem straightforward enough, you might be ready to look into how to start a catering business of your own and to begin with, you’ll want to know what it will cost to start.
Starting a Catering Business: Startup Costs and Revenue Streams
There are several common models for a catering business. Contract caterers, as we mentioned, supply gatherings of people, and usually operate out of a fixed location, serving a range of food types from snacks to full menus, or specialty items such as French bakery or international cuisines.
As such, there can be a cheap way and an expensive way to get started, depending on your intended model. If you’re starting a fixed location, specialty cuisine catering service, you’ll have to find and populate a kitchen, get specialist staff and equipment, and be ready with a delivery network or appropriate vehicles to supply your clients. Depending on the scale, location, and specialty, this could cost you well into the millions of dollars to get started.
On the other hand, a small, two-person mobile catering van can be bootstrapped for a couple of thousand. This approach will only require the vehicle, the registration and insurance costs, and the equipment and supplies you’ll need to stock to get started, and can be a very profitable starting point to enter the industry.
Whichever route you take, your revenue streams will be much the same: you’ll be making the majority of your income on food sales. However, different models will have different opportunities. If you have a fixed kitchen, you may be able to rent it out to other companies for one-off or short-term projects, or you may be able to host events such as training days or cooking lessons.
If you have a mobile catering service, you might also consider attending festivals or running a delivery service alongside it.
Regardless, setting up the catering company is only the first step. Running it will also involve costs that you’ll need to make sure you’re recouping in order to be profitable.
How to Start a Catering Company: Running Costs
Ongoing costs for your business will, much like the startup costs, depend on the model, the scale, and the location of your company. Let’s start with some of the most common ongoing costs:
Rent – If you’re hiring a kitchen, a restaurant, or a vehicle, this is likely to be one of the most significant ongoing expenses you’ll face. Most catering companies might choose to rent a kitchen by the hour, to use as-needed, as kitchen rental prices are high in the city.
Insurance – Almost as significant will be the coat of making sure you’re covered. General liability at the very least, but also workers’ compensation for your employees (if you have any) and commercial property cover. You may also want a custom-built ‘catering insurance’, which is offered by some insurance firms as an all-in-one solution that can be more cost-effective.
Consumables – dealing with fresh ingredients requires you to have a steady and reliable supply to replace them as they’re sold or begin to perish. Waste will be a significant part of your management requirements, and resupply will correspond to this. You’ll also get through napkins, disposable cutlery, gas, electricity, and water.
Maintenance – A lot of your equipment will need to be maintained regularly. This is one way to stay compliant, but it will also help you save costs in repairs and lost sales if your hardware breaks down unexpectedly.
Licensing and permits – You’ll need a food vendor’s license at least, and this can be in the form of a temporary, fixed, or mobile food service, depending on your model. If you’re serving liquor you’ll need to have a license for that too. States have their own regulations that differ between jurisdictions, so make sure you’re clued in on those.
Salaries – If you’re hiring, you’re going to have to pay the wages of your employees, even if you don’t turn a profit.
So what does this all amount to in real numbers? Let’s break it down a little.
Starting a Catering Company: Revenue and Profitability
Taking one of the models we discussed as an example, for a fixed-location catering service in an urban setting with a rented kitchen, the minimum possible costs might break down as follows:
- Kitchen rental for the first month: $2400 (Based on 2h/day, 3x week).
- Permits: $2000
- Equipment: $8000
- Business registration: $500
- Wages for first 3 months: $10,000
- Inventory: $3000
- Insurance: $1200
- Marketing: $1000
- Miscellaneous: $5000
All this amounts to a conservative estimate of just over $33,000, not including the utilities and maintenance expenses. Of course, these figures will be very variable depending on exactly what you want to set up, but this might give you a rough idea.
A comparable business involving a food truck may drop to $28,000 including the purchase of the truck. If you have one already or plan to rent, this startup cost is substantially lower. Remember, these are conservative figures, based on averages that don’t reflect every location. However, it’s clear that for well under $50k, it’s more than possible to start a catering company of almost any style.
So, what kind of profits can you expect to make on these two models? The average food truck caterer brings in over $100,000 in revenue each year, with the average salary amounting to anywhere from $5000 to $20,000 per month! These figures will be skewed by some of the outliers who made it big quickly, but it does suggest a huge potential for profitability in food truck catering models.
For more traditional-style catering models, the average salary is reported at around $30,000 to $80,000 a year, depending on the location and the size of the company. If this all sounds like a good deal to you, maybe it’s time to look into how to start a catering business from the ground up.
How to Start a Catering Business
From start to finish, the process of how to start a catering business can be roughly broken down into about seven steps. This is a general framework and some of the steps can be switched, skipped, or further broken down, depending on where you are in the journey.
1. Decide on your niche
The first thing to do is have a clear image of what you want to provide. Will you be catering for weddings? Driving between office blocks at lunchtime? What will your cuisine be? You should play to your strengths here; do something you’re already good at and do it in a way that you can manage.
Your image of the company as you expect it to stand in 18 months will give you a much easier time of designing the roadmap to getting there. It doesn’t have to be 100% accurate, and you will probably need to tweak it as your start forming the entity, but it helps to have a clear goal, to begin with.
2. Pick a Location
If you haven’t done this for step 1, you’ll need to start getting a feel for where you want to host your business. If it’s going to be a fixed address, this is a more significant and time-consuming step than if you’re going to be mobile, so budget a lot of time to shop around.
You should know whether you’ll be spending all day there, or just booking it for a few hours at a time; both have benefits and drawbacks. If you’re working with mobile catering, you’ll still need to gather a lot of information on where you’ll be serving food, as this might affect your zoning permits.
3. Identify your specific licensing requirements
Now you’ll know what you’re aiming for, you can find out the right permits and licenses to get. State requirements will vary, but you’ll certainly need a business license, and possibly a zoning permit. Then, because you’re working with food, you’ll probably need health permits specific to your business. Contact your local health department to ask about these.
4. Build up your menu
This step can be completed later, but it’s going to come in handy for your business plan, so it can be a good idea to draw up an early draft of the food you want to serve so that you know what to look for in terms of consumables and the equipment to prepare them.
This will also help you in your market research, especially with the competitor analysis. More on that next!
5. Draw up a business plan
This is going to form the meat of your business set-up process. Here is where you’ll document your market research and really tidy up your image of the company itself as an entity that can provide a unique selling point to your customers.
This is also where you’ll have to get your financial projections in order and begin to design the projections you’ll use to persuade lenders or investors of your prospects in the market. If you want some help with these, take a look at our Catering financial forecast template. It’s totally customizable and comes with free support so that you can work with us to tailor it to your particular catering dream.
These templates are designed to appeal professionally to investors and lenders alike and can help you get the early dose of capital you need to get things off the ground.
Other key elements of your business plan will be your organizational structure, the marketing strategy, and your competitor analysis. These will all contribute to your overall understanding of where your company fits in and how you’ll reach your market.
You’ll want to know exactly what your competition is doing, and what you’re going to be doing differently, but you’ll also need to know that there is a market for those things in your area. For example, if you want to offer sushi and you find a location where nobody else is offering that, find out if there’s a good reason for it. Your market research should tell you where your customers are and what they want, and your competitor analysis should tell you how to get it to them in a unique way.
6. Get funding
If you’ve got a robust business plan you should have no problem getting the funds you need. If your desired business model is small enough for you to cover the costs, consider bootstrapping. This will leave you under no financial obligation and you’ll keep full ownership of the company. If you need a little capital boost, a loan might be a good idea, as long as you know you can pay it back.
If you want to share this venture with someone else and make use of their capital and industry expertise, consider approaching investors. They’ll take some equity share, but you could get access to valuable networks from them that allows you to grow rapidly.
Don’t forget, your funding should cover many months ahead, so budget for about a year, just to cover all your bases when it comes to getting the project up and running. Successful caterers have made things work with a half-half approach, taking out $25k and investing back into the business as it grows to make it successful.
7. Get going
Everything up until now has been in the ‘planning’ stage, and it’s time for execution. If you’ve done your due diligence, and you’re insured, licensed, and ready to go, you should know precisely what to do next. Your marketing strategy needs to come into play here so that you can find the people who are looking for what you’re offering.
Ramp up your social media presence, start a countdown to the big day, pull out all your promotional materials and offers and hit the market hard. You want to start raking in those 5-star reviews at almost any financial cost, as a way of investing in your company’s reputation.
Posting photos online is a great way to lure in customers cheaply, but the best thing you can do is make sure each and every one of them tell their friends about the new place that’s just opened up and spreads the word on your behalf. So don’t let your quality drop!
8. Keep good records
While you’re starting up it can be a mad scramble to create and keep up with demand. But don’t forget your bookkeeping. Your records will factor into your financial projection adjustments, as well as tell you how much tax you owe or are due, and how well your business is running.
Tracking KPIs doesn’t have to be time-consuming, and they can make all the difference down the line when it comes to figuring out where to pool your resources to get your company to the next level.
Conclusion
Catering is a very flexible and often forgiving industry to get into and can be one that’s particularly rewarding in terms of the work you’ll be doing and the money you can make – if you plan the project well!
Knowing how to start a catering business means knowing your market, your desired company structure, and the location you want to operate in. From there, it’s a matter of conducting the appropriate market research and building up a legal and compliant business entity. Then it’s just a matter of putting in the hard work to provide your customers with your unique product and have them coming back for more.
