Secret Sauce: 10 Tips for Getting Your Product into Whole Foods is a guest series by the founders of Bandar Foods. Follow along as Dan and Lalit share their tips and tricks for starting and growing a specialty food company.
We’re over halfway done and well on our way to building an amazing pasta sauce brand! Like last week’s overview of the important players in the industry, this week’s post is a quick run through of the administrative components you’ll need to have in place to get started. You probably already started much of this list, but we recommend checking all these boxes before selling.
INCORPORATION: For numerous tax and business reasons, you will need to incorporate your business before you start selling into stores. The primary purpose is so you can get the appropriate seller’s permits required to sell a food product, as well as to limit your liability as a founder.
HOW TO INCORPORATE: Incorporation is done by the State and typically requires only the submission of a few forms. Among the forms needed, you might need to draft an Operating Agreement or Bylaws for your new entity. The purpose of this document is to provide a written record of who owns stakes in the company and what happens to those stakes in various scenarios. For example, let’s just say you and your grandma decide to split your company 50-50, you will need to have an official document outlining the steps if you want to quit or if the business goes under. Though this process is not overly complex, we strongly recommend first-time entrepreneurs consult a lawyer (or at least a company like LegalZoom.com) to help.
WHICH TYPE OF ENTITY: There are numerous online articles that provide advice on what type of entity to choose; most of the considerations are tax-related. Though not to be construed as advice, we have noticed that many small food brands choose to first incorporate as an LLC assuming they may not be profitable for some time. Again, you should consult with a lawyer before making this choice.
BANKING: Once you receive your official Certificate of Incorporation from the State, the next thing you should do is set up a corporate bank account. This can typically be done in an hour by bringing your newly received business certificate into your local chain and speaking with a small-business banker. You should probably do some research ahead of time if a bank can offer your business any benefits (i.e. extra cash back on purchases or no minimum balance, etc).
The reason to set up a banking account early is because it will help you keep your business expenditures separate from your personal ones – which will make your accounting MUCH easier. Trust us, you do not want to sort through bank statements trying to separate your personal grocery purchases from your business expenses.
ACCOUNTING: Even before you start selling product, you should onboard an accounting system such as Quickbooks or Xero. Take your time setting up categories for your expenses, inventory and sales so you can be extremely organized with your finances. Quickbooks lets you connect your bank account to your accounting system to track your numbers in one system. Accounting and bookkeeping software can take a while to learn. So set time aside to play around or work with a bookkeeper to help you at least get started. The better information you put in, the better results you’ll get out. Though it’s possible to at least start with Microsoft Excel or Google Spreadsheets while you’re small, it’s a pain to port this information to a separate system once you get started. So, you really should go with a proper accounting system as early as possible.
TAX TIME: For first time entrepreneurs, we strongly recommend working with an accountant for your first few tax cycles. The IRS audits business tax returns differently than personal ones, so consult with someone you trust when you submit.
INSURANCE: Nearly every retailer, distributor or other major partner you work with will demand you have insurance in place. There are many types you can (and should) get, but at minimum you will want liability (and product liability) with $2M single and $4M total coverage. Depending upon your business and structure, you should also look into Product Recall Insurance, Workers Compensation, Directors and Officers and other types. We are by no means experts, so as always it’s best to coordinate with a lawyer.
LEGAL PROTECTION: For many of these administrative tasks, it behooves you to consult with a generalist small-business lawyer who can provide guidance. Most small business lawyers will be familiar with incorporation and can offer high-level tax advice. However, food entrepreneurs will also need specialized assistance in two other specific areas:
- Label Review: The FDA has a very detailed rulebook on how a food label need to look. Font sizes, positioning on label and word choice are all covered by these rules. Most lawyers don’t have much experience with this realm, though there are few who specialize in this area. Having a lawyer review your label will better ensure that the FDA doesn’t flag your product and make for a very expensive (and potentially brand devastating) recall.
- Intellectual Property: Unfortunately, we don’t think you can patent a recipe, so you will want to keep your special ingredients secret (think about Coca Cola’s secret formula). However, you will want to trademark as much of your branding as you can. This includes your brand name, logo, tagline and other imagery used for your brand. Trademark protection doesn’t guarantee that you won’t be sued for infringement or that you will win any claim against another company trying to copy you. But, proper federal registrations are important tools to win any potential legal battle and improve the value of your brand.
COMMUNICATION: By law, your label needs to have a way for customers to contact you. This typically can be an email, website, or phone number. Most important for you to set up are:
EMAIL: You might want to create a separate Gmail or Yahoo account so you seem a bit more professional than your personal email account – email@example.com is better than firstname.lastname@example.org.
WEBSITE: Do one for free with Wix.com if you need, but you should have a website with product pictures. If you want to sell product from your website, we recommend Shopify.com for getting started.
PHONE & FAX: Even if you hate talking on the phone (and who has faxed anything in the past twenty years?), you will need both numbers. We recommend getting a toll-free 800 number so you aren’t advertising your personal cell phone number on your website or labels. A company like eVoice or Grasshopper can get you set up with a cheap number and forward all calls to your mobile.
ADDRESS: If you don’t have a separate office, and don’t want to flood your house with business mail, then you might also want to get a PO Box from your local post office.
WAKE UP! Sorry that was boring, but it was chock-full of complete necessities when starting your small business. Next week is also academic, as we will be digging into the numbers. However, it may also be the most sobering post, as we’ll determine how much money you can expect to make, and how much it will cost you. Till then!
PLEASE NOTE: We are not lawyers or accountants, and our comments above are things we have seen in our experience. We are not trying to provide advice and strongly recommend consulting with a lawyer, accountant or professional in this field.