Before starting a cookie business from home, you must first resolve one issue above all others: The legality of operating a home based bakery. Is it legal in your community to sell foods made at home? While the answer may not be obvious, requiring research online, via phone calls and possibly in-person, knowing absolutely that it is legal, is the first step. This may be a significant blow to anyone living in states or municipalities where home food production is absolutely illegal who wanted to start a cookie business from home. There are 25 states with cottage food regulations that permit a home cookie business in some capacity including Arizona, Arkansas, Florida, Illinois, Indiana, Iowa, Maine, Massachusetts, Michigan, Mississippi, Missouri, New Hampshire, New Mexico, North Carolina, Ohio, Oregon, Pennsylvania, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, Wyoming

In states where home processing is illegal, the laws are changing. In fact,  there are eight states with active grass-roots efforts to change the laws. The states are:

California

Facebook Group

Petition

Colorado

Facebook Group: http://www.facebook.com/ColoradoCottageLaw

Georgia

Georgia Cottage Food Law Facebook Page

Louisiana

Louisiana Baker’s Bill 

Maryland

MD Cottage Food Law Facebook Page

Minnesota

MN Cottage-Food-Law

Nevada

NV  Cottage Food Law Facebook Page

South Carolina

Petition

These efforts are very effective in making change happen and while it can feel very slow, especially for those needing the income, in the past few years, we’ve witnessed many states alter their laws to allow home-based baking businesses. If your state is one of those where baking and selling cookies from your home is not permitted, do not give up. Our book outlines many of the creative ways you can work from a commercial kitchen and finance your dream. Yes, it is a cost that bakers in states where home processing is allowed do not incur. However, there are upsides to working from a commercial kitchen for rent or opening a brick and mortar bakery. The growth opportunities are often significantly higher outside of the cottage food regulations.

This video from Julia Sforza of  Half-Pint Preserves shares many of the challenges of the New York Cottage Industry Laws

GET TO WORK

Classes, videos, instruction books and drawings can teach you certain cookie making and decorating skills, but nothing prepares you like doing the work! Practice everything. Master the art of icing your cookies, drawing with royal icing, dipping biscotti in chocolate, rolling your dough to perfect thickness every time, etc. Be able to reproduce your cookies again and again with a mechanical-like precision without thinking, and you will save so much time when deadlines loom.

Product Development

In the very beginning, you might envision baking cookies and brownies for small wholesale accounts or selling at craft fairs. Be very clear about what you do and don’t want to do. At first you probably want to keep it simple. Thus, if you start small with room to grow, you can work alone without the need to hire employees or independent contractors. You can work when you want and still have time to enjoy your family.

If you receive special requests for products you don’t offer, you need to determine whether it is worth it to add those items. They can often take longer to prepare, require more costly ingredients, or simply require practice.

Sooner or later, you will need to make a decision about your product line. Will you offer cookies only or will you expand to other items like petit fours or other baked goods? Will you sell locally, regionally, or sell over the internet? When a potential client asks the question, be prepared to answer and be sure you know exactly what is involved if you choose to expand your product line.

Education

Baking and decorating classes for the novice–as well as for any baker who wants to increase his or her skills–may be the perfect starting point for this endeavor. If you are really serious about starting a business, you must first educate yourself.

Trial and error can be beneficial, but it will not prepare you to own a cookie business. Baking classes teach advanced skills and techniques that will ultimately streamline your efforts. Many cookie business owners who started out just like you teach more advanced classes and offer practical advice. If you can find them, they will be one of your best resources as they often tell it like it is! Once you are established, you, too, might consider offering classes.

Baking and decorating classes specific to cookie production are not offered as frequently as classes on cake baking or decorating, so you may have to find one-on-one training and do a lot of reading. Baking classes in general are often available through culinary schools, craft stores, and baking supply stores. If you are a beginner, make sure you enroll in a beginner’s class. (That may seem obvious, but it’s not always clear from the class listing.) Even if the class is not specific to cookies, a baking class will help you learn to manage your kitchen.

Before registering for a beginner’s class, you should contact the instructor to find out exactly what the class offers. Here are some things you will want to find out from the teacher:

1. What specific skills does this class teach?
2. What tools and equipment, if any, are included in the tuition cost?
3. What are students required to bring to class?
4. Is this a hands-on class, with student practice during each session, or is this a demonstration and lecture class?

Increasing your skills still comes down to just one thing: practice, practice, practice.

Property and liability insurance will be needed for your home cookie business. With some policies your equipment may be insured for its full value by adding a rider to your existing homeowner’s or renter’s policy. Your insurance provider will advise you on the appropriate amount to carry as an additional umbrella policy to cover liability. Keep in mind, it is so important to operate your cookie business legally. If you are not a legal cookie business and operating from home, your insurance policy likely will not cover you as they do not honor claims if the loss occurs within illegal conditions.

If you are starting as a part-time business, disability, health, and life insurance may already be in place through your primary place of employment. As your business expands to a full-time endeavor, insurance coverage may continue in place as part of your benefits. As the business expands, the issue of benefits may be evaluated based on the needs of the qualified staff added to the company.

Again, the types of coverage you should discuss with your agent include:

• General Liability — will cover another person’s bodily injury or their damaged property arising out of the owner’s [in this case, your] negligence. General liability also covers things like a customer taking a fall over your front steps and breaking a leg, or you damaging a client’s property during a delivery. Discuss with your agent the scenario of someone being injured on your premises or becoming sick from your products.

• Business Interruption — is vital for the full-time business owner who faces not only a loss of income, but also the ability to keep up with operating expenses as a result of a catastrophe. This policy will cover expenses such as rent, salaries and utilities.

• Worker’s Compensation — is for the business owner who employs a staff of one or more persons. Mandatory in most states, it provides coverage for medical care, disability income benefits, death benefits and rehabilitation services.

Keep in mind there are many more types of coverage that you should discuss with your insurance provider. I provide a full list in my upcoming book, but this should get you started.

Taxes/IRS

In states where a home-based cookie business is legal individuals often establish their business as a sole proprietorship (unless you plan to have partners) or an LLC . You can usually file your business taxes under your personal 1040 using your Social Security number as the business tax ID.

There are many potential tax benefits to running your business from your home. For specific details, you should contact a professional tax advisor. In many circumstances, a percentage of your home expenses are deductible when you use a percentage of your home exclusively for the business. If you are allowed to use your kitchen both for your business and for your personal use, you will break down this percentage even further. Your tax advisor will help you calculate this figure.

Your deductions may also include all ingredients, equipment, and utilities [electricity, water, gas] as well as any renovation costs for your work space.

Don’t forget about services such as garbage removal, maintenance, and repairs. Travel and auto expenses are deductible when the travel is specifically business-related. Internet expenses, office supplies, advertising, business meals, baking books, equipment repair, and many other items are deductions you may be able to take. If you rent, the same deductions apply. The most important thing is to keep excellent records and receipts of ALL your spending.

If you try to remember expenses months after the fact, you will spend far more time tracking down receipts and probably will make errors. Even if you can’t get to the bookkeeping right away, you can simply keep all receipts in a box. Consider a business credit card such as an American Express Corporate card. In addition to keeping your expenses separate, American Express will break down your purchases in a year-end summary.

It is very important to the IRS that your business in not a hobby. Even if you have another job, your cookie business is likely entitled to tax breaks if you are running it as a business. The IRS considers a hobby an activity “carried on for personal pleasure or recreation.”

The considerations for being identified as a business include: the activity being carried on in a “business-like” manner; enough time invested into your efforts to demonstrate that you intend to make a profit; you depend on the income for your living; your losses are beyond your control (start-up losses are normal); you make changes to make the business profitable; you or your advisors know what you’re doing to make the business successful; you’ve made a profit in similar activities in the past; you start making a profit eventually; you can expect to make a future profit from the appreciation of the assets used in the activity. Note that not all of these qualifications need to be met to qualify as a business.

If you are making a profit, another important consideration is the self-employment tax you will owe in addition to your regular income tax. The self-employment taxes pay for Social Security coverage. If you have a salaried job covered by Social Security, the self-employment tax only applies to the amount of your home-business income that, when applied to your salary, reaches the current ceiling. State taxes and, potentially, sales taxes apply as well. Again, talk to a professional tax advisor. The website www.irs.gov has a wealth of information regarding home-based businesses.

Home office = No rent + Great tax benefits.

If you live in one of the municipalities where operating a home cookie business is legal, there are many potential tax benefits. However, to maintain your professional image and your tax status as a business, not a hobby, you should treat your cookie business like any other job, maintaining a professional image. When getting started with a cookie business, there are so many things to remember and so many documents to keep organized. Be sure to set aside space in your house in addition to your kitchen, specifically for running the business. If you are unable to use your own kitchen to bake your cookies, you can still work from home for all of the day-to-day business activities that are required. Research, sales calls, packaging bookkeeping, ordering supplies, invoicing, marketing, tax preparation are all activities you can conduct in your home office
The tax advantages may be significant when operating a home office. A home office does not have to be glamorous, but it does need to be exclusively used for business and it does need to be comfortable. The IRS typically looks at home office deductions very carefully and you may want to consult with a tax advisor regarding such deductions.
A cookie business does not require a storefront to be successful. There are many sales venues to consider as I discuss in my forthcoming book in the chapter: MARKETING YOUR PRODUCT. In the initial stages, you are still testing and revising to determine the demand, the most successful sales channels and the best product lineup. If it is as all possible to start your business at home, that is the safest way to go. Remember, even if the product is not produced in your home, you can still run the business from home. As you grow, you can make the decision to move to a storefront or wholesale operation (or a combination).

Partner with other similar businesses
When your cookie business is in its early stages, building relationships with similar businesses is a great way to network and get those first orders. Partnering with a complementary business such as a caterer, street vendor, etc. is a delicate matter and certainly an option that does not come without much work, research and discussion. In fact, it isn’t for everyone because it can involve building financial ties with other businesses – not easy or always wise when you’re just starting out. Such an association can, however, help your cookie business develop some very good sales opportunities without ever investing money in advertising. If you do wish to join forces with another company, be careful to do extensive research before affiliating yourself. Get to know everyone involved. How will you work together? What will be the financial issues involved? What if you are bringing in more customers than your partners? Discuss these things up front and consult with professional, legal representation. If you are thinking of starting a cookie business, consider the existing business relationships you have. What is the potential for your cookie business to establish mutually beneficial connections?

Print your own business cards and stationary

There are some business articles that say professionally printed business cards and stationery are a must when starting out. However, if money is tight, an alternative viewpoint exists. You should know that, in most circumstances, laser-printed documents will suffice. You want your new cookie business to have a professional image, but you can keep the cost of business cards low by printing them yourself on a high quality printer or ordering them from a discount print house like Vista Print.

Some of the most elegant, professional-looking cards and letterhead are black and white with a simple font and logo. If your products are of high quality and your customer service solves customers’ problems, then the printing of your stationery (and invoices) won’t matter to your clients. You can get micro-perforated business cards at Staples. When you are first getting your cookie business started, the key is taking action. Having business cards with your information – as a legal, inspected, and licensed cookie business bakery — and handing them out, is critical to orders coming in.

Use your home telephone line or cell phone

When first starting your cookie business, unless you are forming an LLC or partnership in which the separation of assets and finances is critical to maintaining protection from liability, there is often no need to duplicate your utilities. If you are able to start a home-based bakery, there may be no need to spend money on setting up a dedicated phone line. Unless there are others at home during business hours, an additional line may be a luxury that can wait. Perhaps the easiest and most cost-effective solution is to purchase an inexpensive pay-as-you-go cell phone for business calls. You will only pay for the calls you make — with minutes that roll over from month-to-month — and you won’t be locked into a costly long-term contract with a cell phone service provider.

If you decide to use your home phone, caller ID can help you identify calls from family and friends. If you aren’t sure who the call is from, simply answer the phone by saying your first name, so–whether a business or personal call comes in–you’re just saying hello in a nice, but professional way. Google Voice is a great way to get a new phone number dedicated to your business without establishing a new business phone line. Customers can call your Google Voice number, but your existing mobile phone or landline, will ring. (voice.google.com)

Great article on how the internet is fueling bakery success. The story of Hot Blondies is particularly enlightening because they have started a bakery business with $20,000. For New York Standards that is nothing.

Friends were constantly telling Lorin Rokoff to turn her baking hobby into a career. In April 2008, she did, launching Hot Blondies Bakery with co-worker Laura Paterson. The catch: Hot Blondies’ only store is online.

Discouraged by high rents and a slowdown in consumer spending, Hot Blondies is one of several fledgling bakeries to test the waters with e-commerce before settling on a brick-and-mortar shop. By taking advantage of social networking to generate buzz, and jumping on partnerships to grow their customer bases, small bakeries are bootstrapping their way to big sales.

Ms. Rokoff, 31, and Ms. Paterson, 34, launched Hot Blondies with about $20,000 from their respective savings accounts. The duo filled initial orders from Ms. Paterson’s Manhattan apartment and eventually began renting commercial kitchen space in the city. In May, they signed a lease for their own kitchen in the Flatiron district.

“People keep saying now’s the time to get a retail space,” says Ms. Paterson. “But things are going well right now; we’re handling our costs. We’re just not ready to get into that yet.”

The two hope to open a store eventually. In the meantime, they’ve had little trouble getting brownies out the door. Trend-tracking e-newsletter DailyCandy spotlighted Hot Blondies in the bakery’s first week, and the ladies snagged a vendor spot at the Brooklyn Flea, an outdoor market. They also developed followings on Facebook and Twitter.

Hot Blondies’ products are sold at Manhattan’s The Bean coffee shops, and Ms. Rokoff and Ms. Paterson have deals with wholesalers, caterers and even a local cruise line. Last month, they signed a three-year contract with Singapore-based Gill Capital to provide upwards of 5,000 brownies a month for sale at the company’s Dubai candy store, Candylicious.

[From Startup bakeries cook up online strategies - Crain's New York Business]