Starting a food business in the UK offers big opportunities, but success hinges on getting your head around essential legal requirements, securing appropriate premises, and managing finances effectively. This guide covers everything from defining your niche and understanding regulations to funding your venture and marketing your delicious offerings.
What does it take to start your food business
The variety of cuisines available on the high-street and through delivery services has never been greater. 53% of UK consumers would like to try the latest food trends, according to recent research by Bidfood. This makes now a great time to found your own food business and get a slice of this lucrative pie.
Starting your own food and hospitality business could be an amazing opportunity. But how do you start a small food business?
Define your food niche
There are multiple different ways of entering the food industry.
You could start a catering business providing food for events, or you might prefer to open a high-street café. Kicking off with a takeaway food stand, or even a pop-up street food enterprise might be your initial goal. Or you might want to launch a food manufacturing business, making products for the consumer market.
The key is to define your initial niche and to build your business strategy around this goal, taking care to have a clear vision and plan for your new venture.
Understand your target customer profile and competitors
Every business needs customers, to buy your products and/or services and to provide the sales and revenue that fund the business and drive your end profits.
Once you’ve defined your food business niche, the next step is to research your target audience and build up a profile of your ideal customers. If you’re a local café, this may be consumers on the high street. If you’re a food manufacturing business, your customers may be the big supermarkets, or food wholesalers.
Check if you need business premises
Small-scale food enterprises may choose to trade from home. But it’s possible that your food business will need business premises.
Cafés, restaurants and takeaway food businesses will need a bricks-and-mortar presence on the high street. And a food manufacturing business or drinks brewery will need industrial space to produce your goods, plus warehouse facilities to complete the inventory, logistics and delivery of your food and drink products.
Essential legal steps to set up your UK food business
Once you’ve defined your niche, researched your target customers and have the ideal premises to trade from, you can start to get your food business up and running.
But before you can begin trading, there are some legal and compliance rules to be aware of. These help to regulate the food industry and keep consumers, and your food business employees, safe and healthy.
Let’s look at some of the compliance steps:
- Register your business with your local council: You must notify your local council's environmental health service at least 28 days before opening and registering your new business. This applies to most food businesses, from restaurants to home-based operations, ensuring you meet hygiene standards.
- Obtain the relevant licences: To trade, you’ll need licensed approval from your local authority, plus premises and personal licenses to service alcohol. If you play music, you’ll also need a music license. And if you’re a café with pavement-side tables then you’ll also require a license from the council.
- Meet food safety and hygiene regulations: You must meet all the rules around food storage, handling, preparation and cooking. It’s also a requirement to understand the laws around common allergens, providing a safe working environment for your staff and making your premises safe for customers.
- Take out the correct business insurance cover: The only business insurance that’s mandatory under UK law is employer’s liability insurance. This helps you pay compensation if an employee is injured or becomes ill because of the work they do for you. However, it’s strongly advisable to also take out
- Public liability insurance: to cover you for claims made against you by members of the public.
- Contents and portable equipment insurance: to cover the kitchen and food preparation assets you use to run the business.
- Professional indemnity insurance: to cover you if you make a mistake, or if a customer suffers (or claims to suffer) a financial loss as a result of trading with your food business.
Can I legally start a food business from home?
Yes, under UK law you can start a food business from your own home. While there are no rules preventing you from trading from your home, you will need to comply with all the same rules as a high-street food establishment.
This means registering your business with the local authority, complying with Food Standards Agency (FSA) regulations and meeting all healthy and safety requirements. It’s also sensible to take out the relevant insurance policies for a food company.
Choosing the right premises: home vs commercial space
The best trading premises for your new food business will depend on the type of business you’re running. Smaller artisan businesses making hand-made food for small-scale orders could choose to trade from home. Whereas a large-scale food manufacturing business would likely choose commercial premises.
Let’s break down the pros and cons of starting your food enterprise from home, or from purpose-built commercial premises.
Home-based kitchens
First off, let’s start by looking at the intrinsic benefits, and downsides, of setting your food business up in your own home:
- Pros: A home-based kitchen has low start-up costs and you can use existing premises and equipment. This means there’s a reduced initial investment and lower overheads, like rent and commercial rates. Working from home offers highly flexible working hours and a familiar environment to work in. It's also a low-risk way to test your initial food concept with customers.
- Cons: Even if you use a home-based kitchen, you must still meet all UK food safety regulations and pass inspections. This can be challenging in a domestic setting. Space is limited, restricting large-scale production and efficient workflows. There’s also a higher risk of cross-contamination from domestic use and a less professional image as a brand when approaching clients.
Commercial kitchens
Secondly, let’s look at the advantages and disadvantages of opting for commercial premises and a purpose-built commercial kitchen operation:
- Pros: Commercial kitchens are designed to meet food safety regulations, making inspections and compliance easier. The facilities can often be scaled up for higher production volumes and better workflow, with specialised, commercial-grade equipment. Having commercial premises projects a more professional image that’s essential for winning catering and wholesale clients. The separate premises also create a clear separation between work and home.
- Cons: Using commercial kitchens will mean high initial start-up costs and the ongoing costs of rent, commercial equipment, utilities and business rates. The use of the premises will be less flexible, due to lease agreements and potentially restricted working hours. Running a commercial kitchen will also require more complex administration and more employees to run the kitchen.
Whether you choose to base your food enterprise from home or commercial premises will come down to the type of business you’re hoping to run.
Health and safety standards may be less stringent from a home location and overheads will be lower. But growth potential and storage capacity may be restricted if you choose to trade from your own home, rather than professional kitchens.
Key equipment and setup costs for your food business
Starting a food business is not cheap. Founding any kind of food business will mean committing to a certain amount of initial start-up investment.
The amount of capital needed will vary from business to business, depending on your size, niche and existing assets. But purchasing essential kitchen equipment and catering assets will be vital to getting food production up and running.
Think about the costs of:
- Essential cooking and production assets: To produce any food you’ll need, kitchen equipment, refrigeration, cooking appliances, storage facilities and vehicles for delivery of the completed end product.
- Customer focused costs: To trade as a café or restaurant, it’s vital to have point-of-sale (POS) systems, a website and booking platforms, and both digital and hard-copy marketing materials to promote the business.
- Staff and suppliers: Unless you’re running a one-person business, hiring employees will be essential, adding a weekly or monthly payroll cost to your overheads. You’ll also need to pay the suppliers that provide your raw ingredients and the utility companies that provide electricity and gas etc.
How much does it cost to start a food business in the UK?
Your initial capital investment in a new food business can vary greatly, depending on the size and scope of the company. Setup costs can range from around £1,000 (for a small home business) to £50,000+ (for commercial premises).
Effective ways to fund your food business startup
Every new business needs an injection of capital to get the venture off the ground. This funding helps you rent premises, buy catering equipment and take on your first employees, whether that’s kitchen staff or managers for your restaurant etc.
But how can you source this funding?
Let’s look at some potential routes for financing your new food business:
- Use your savings: You may be lucky enough to have substantial savings put away for a rainy day. If you’re willing to accept the risk of this investment, you could use your own money to fund the initial start-up costs.
- Government grants and incentives: Government backed loans, like the Growth Guarantee Scheme allow you to borrow money with reasonable rates and terms. You can also apply for tax reliefs, like business rate relief and capital allowances to reduce your tax costs.
- Start-up loans from high-street banks: The Big Four banks, like NatWest or Barclays, all offer both secured and unsecured business loans for new businesses. You’ll need to have a good business credit score and evidence of the viability of the business when approaching banks for large sums of money.
- Flexible business loans from specialist lenders: Online lenders, like iwoca, offer flexible, short-term loans that are ideal for purchasing equipment, stock or fitting-out your premises. Applying for an iwoca Flexi-Loan focuses less on your credit score and more on your current and future business performance.
- Invoice finance once trading: After you start trading, making use of invoice financing can be a great way to manage your cash flow and iron out any predicted cash gaps. Simply sell your outstanding invoices to the financier and get the funds you need to balance out your cash position.
Is getting a loan for a food business difficult?
Banks and online lenders will be glad to loan you the capital to start trading. But you will need to meet their risk criteria to qualify for a loan or finance agreement.
This means having evidence of your company’s credit profile, or your own personal credit score as a potential director. It may also mean having assets (such as property) to act as collateral for secured lending.
Practical steps to market and grow your food business
Getting your kitchen up and cooking is the first step. Now you need to attract some paying customers to buy your food. This means investing in both online and offline marketing and promotion of your brand-new food business.
Here are some key ways to market the business:
- Build a website: Your website will be your online shop window, helping hungry customers find your business and check out your menu. This site will be the central hub for your digital marketing, so it’s important to use good search-engine optimisation (SEO) and key words to improve engagement and get you appearing on the first page of a local Google search.
- Grow your social media presence: Sign up for business accounts with social media platforms like Facebook and Instagram. This helps you grow a following, both locally and online, and have a ready made audience for discounts, offers and new food products you want to promote to customers.
- Sign up with delivery platforms: Appearing on delivery platforms, like JustEat, Deliveroo, UberEats, can significantly increase the reach of the business and bring in additional revenue from takeaway and delivery sales. Be sure to mention these delivery options on your site and through your socials.
- Partner with local stakeholders: Work with other organisations in the community, to raise your profile. This could mean having a food stall at local events, or farmer’s markets, and providing corporate catering for local companies, charities and public-sector organisations.
- Encourage online reviews and referrals: Signing up for review platforms like TripAdvisor and OpenTable can be a great promotional tool. These online reviews give instant feedback from your customers, with high satisfaction scores helping you raise brand awareness and engagement.
How to manage cash flow and seasonal fluctuations
The food and hospitality sectors are highly influenced by seasonality and the demand from your target customer audience. Holidays seasons, like Easter and Christmans can create spikes in your sales and revenue, while summer can often be a peak time for cafés, bars and al-fresco catering etc.
With fluctuating sales comes the challenge of unpredictable cash flow in the business – a common issue for many new and established food businesses.
So, what can you do to reduce the impact of this unstable cash flow?
- Plan for busy and quiet seasons: Allow for the fact that sales will have peaks and troughs through the year and allow yourself a contingency fund that’s aside for the quiet times. Also be aware that staffing levels and operational costs will rise during the busy times of year, and factor this into your budgets.
- Use flexible finance to balance cash flow: Making use of short-term loans, invoice finance and trade credit can help you to source the capital needed to rebalance the ups and down in cash flow over the year.
- Monitor inventory levels and minimise waste: Spending too much on buying in inventory can stretch your cash flow to breaking point. Applying a lean approach to your inventory restocking means ordering only when required and keeping spending to a minimum. Also make sure that the kitchen is not wasting any raw ingredients and that you’re sticking to an approved budget.
Common pitfalls and how to avoid them when starting out
Starting a new business is rarely plain sailing in the first few years of trading. But by planning ahead and managing your finances in the most proactive way possible, you can reduce some of the challenges and make your business journey smoother.
Typical hurdles that new food businesses fall at include;
- Underestimating set-up costs: You need to account for all initial start-up costs in the most forensic way possible. Create a budget for the first year of trading and stick to it rigidly, making sure you’re not overspending or getting fast and loose with the company credit card.
- Skipping proper licences and food safety rules: As a food business, you cannot cut corners when it comes to food safety and acquiring the relevant licences for the premises. The FSA and local authority will carry out inspections, and can enforce penalties and take legal action if you don’t follow the rules.
- Poor pricing and cost control: When deciding prices, it’s vital to work out your margins extremely carefully. If your price point is too low, you won’t make a profit. If the price is too high, customers will see your food as uncompetitive. It’s also crucial to keep all spending under tight control, so you’re minimising your cash outflows and doing your best to create profitable margins.
- Not planning for cash flow gaps: sales revenue in the food industry can be volatile. It’s important to plan for seasonal peaks and dips, so you have enough liquid cash in the business to get you through the tough times.
iwoca: finance to expand your food business
Getting your food business off the ground is just the first step. Once you’re up and running as a limited company, we can help you expand — whether that’s opening a new site, upgrading equipment or keeping cash flow smooth through busy seasons.
At iwoca, we understand the ups and downs of the food and hospitality sector. Our flexible loans are designed to give limited companies the capital they need to take growth further.
- Borrow from £1,000 to £1 million
- 24 hours to get a decision
- Repay early with no fees
- From 1 day to 60 months
Apply for an iwoca Flexi-Loan