If you want to start an at-home bakery business, you’ll need to make sure that you can do it legally, depending on where you live.
This is REALLY important, because if you sell food illegally, or in an area where home-based bakery businesses aren’t allowed, you can end up having to pay a lot of fines.
Make sure to do your homework before you sell anything…This article goes over some things that you should check out, and I’ve included a list of US state business offices that you can start with.
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What licenses are involved?
(This isn’t legal advice, it’s general information, and I’m speaking from my own experience. You need to do your own research based on where you live!)
Depending on where you live, you’ll need different licenses and permits to sell food from home, and you might also have to pay additional taxes.
If you can sell food from home, you may or may not need a business license to do that. If you do need a business license there might be a fee to file that, or it could be based on your annual income.
In the state where I live there was no fee for a business license if you earned less than a pretty high amount per year, but you still had to file annually to get a license each year.
I also had to pay for a litter fee, which is something that my state tacks on to businesses that sell food, and I also had a food inspection fee.
In addition to that, I had to file to collect and remit sales tax to the state, and even though there’s no charge to do that, you still have to do the paperwork.
Then we also have a “personal property tax” which means that I have to pay a tax on the value of any equipment that I own to use for my business. So each year I have to file a statement that lists the value of my printers, computers, etc., etc.
If you want to form an LLC that’s an additional amount of paperwork.
If you have cottage food laws in your location, you might not have to file the same paperwork as someone who files as an inspected business. On the other hand, there could be limitations to what you can make to sell, and how you can advertise it.
So basically, there’s going to be some research that you have to do before you can even start naming your business. Make sure that you have all the paperwork lined up because if you forget to file a form or pay a tax, they’re not shy about going after you to make you pay a fine!
Do you even need a business license?
While you’re doing your research, the first thing you should check out is whether you can even sell baked goods from home at all.
I live in a county outside the city, and I was able to sell custom wedding cakes from home. But my friend who lived 10 miles away in the city couldn’t, and she had to rent a commercial kitchen.
The laws are going to be different depending on where you live, so you need to check!
Once you know that you can sell bakery products, you can check to see if you need a business license or not.
A lot of states have put cottage food laws in place, and those make it a lot easier to sell things that aren’t considered to be as hazardous as far as food storage and preparation goes.
You may or may not need a license if you sell under the cottage laws, but if you can do that you’ll also need to see if you can advertise online. Some cottage laws have rules about saying that it’s okay to bake at home, but you can’t sell online, only in person.
And that varies by location too, so it’s more research to do.
You’ll also need to see if you have to file to collect and remit sales tax to the state, since that’s part of it, too.
If you do need a business license, it’s usually not too difficult to file that, but you’ll need to make sure that your business name is available. Click here to read an article about that!
List of state tax authorities for the US.
Here’s a list of the websites for each US state. Click the state to go to the official website to start your business license research. You’ll also need to find the food laws for your county or city because as I mentioned above, there could be additional regulations that they have.
One thing to mention, if the state website says that the state doesn’t have a general business license, that doesn’t mean that you don’t need one!
My state has that message, but business licenses are issued by the local county or city, not by the state itself. You’ll need to make sure that you’ve checked everything out on the local level to make sure that your business is covered.
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Should you create an LLC?
It’s up to you to decide what structure your business is going to take as far as choosing between being a sole proprietor or an LLC, but I would advise that you form an LLC to protect your personal finances.
This isn’t legal advice, I’m just speaking from my own experience. But when I started my business I started as a sole proprietorship because it was easier. When I wanted to change to an LLC later, I basically had to go through filing all the same paperwork for a new business license and everything else.
It would have been a lot easier to just do it to begin with so that I would have been protected and only had to file the paperwork once.
An LLC will basically put a level of legal protection between you and your business, but that’s something that you should check for yourself about. If you have an attorney, check with them.
Do I need insurance?
This is separate from a business license, and the short answer to whether you need insurance or not is yes, you do.
If you’re selling anything to people, especially food, you need to be insured for various things. You don’t want to get sued for someone eating something that you made that gave them an allergic reaction, and it’s possible that people will sue you for anything these days.
You also need to be protected in case your house burns down so that you can replace your business equipment.
I know a baker who this actually happened to, and because she was insured she was able to replace her equipment.
You also need to insure your car as a business vehicle if you use it for deliveries. If you’re delivering something and get into an accident, the insurance company might not cover the damage if they find out you were using the car for work.
And you ESPECIALLY need insurance if you ever have anyone come to your house to pick things up. If someone trips on your property and you’re not insured, you can lose a lot of money. And this is another reason to be an LLC instead of a sole proprietor.
If someone sues you and you have an LLC, they’ll be suing the LLC, not you. It protects your personal assets (like your house and bank accounts.) Check with an attorney about this!
I get my business insurance through the agency that does my homeowners insurance. I let them figure out what coverage I need based on what I’m selling, and they find me the best rates with the best coverage.
Can I sell online and send baked goods through the mail?
Having a business license doesn’t automatically give you the right to sell food online.
Like I mentioned before, some cottage food businesses aren’t even allowed to advertise online. And selling food across state or country lines gets even more complicated.
When you have a license to sell food in your state or location, that’s what you’re allowed to do. If you send food out of state, though, it gets into federal food law territory.
This is going to be different based on what you’re selling (candy vs cookies vs cakes etc.) but it’s up to you to make sure that what you’re selling can be legally sent through the mail.
Most of the time, the FDA requires that anything that’s sent across state lines is manufactured in a licensed commercial kitchen, so there are laws that cover this.
You’ll need to do your own research to see what’s allowed and what isn’t, but it’s a lot easier to just sell locally, if you ask me.
It will limit your customers to locals, and that will also limit your sales tax collection responsibilities, and it will completely eliminate any questions about out of state selling.
Keeping your customers local makes your life a lot easier.
So before you start a business you’re going to have a lot of research to do to make sure that you’re getting set up correctly.
Make sure to protect yourself so that you don’t find out the hard way that you’ve done something wrong!
