Wondering how to start a chocolate business from home? If you are planning to mainstream your chocolate-making passion into a home-based business, there is no better way than to start a chocolate business from home. Since we have a lot to cover, let’s dive into the exact 8 steps you need to take in order to start a successful homemade chocolate business from the ground up.
1. Familiarize Yourself With The Chocolate Industry
In order to start a successful chocolate business from home, you will need to understand the ins and outs of the chocolate-making industry. This will not only make starting a homemade chocolate business easier but also help you massively while scaling the business. The best thing about starting a chocolate business from home is the low investments. You don’t need expensive machinery to make chocolates. It’s all about the recipe and flavors. Since the chocolate business is growing rapidly, you should keep pace with the current trends in the chocolate and cottage food industry.
a. Chocolate Business Overview
Americans consume around 2.8 billion pounds of chocolate every year. To put that into perspective, it’s around 9 pounds of chocolate per person per year. The chocolate business is an ever-growing industry. As per reports published by Fior Markets, the global chocolate market is expected to reach USD 200 billion by 2028. That is a CAGR of 4.8% for the period 2021-2028. Therefore, rest assured if you want to start a homemade chocolate business, now is a perfect time.
b. Understand the Regulations to start a Chocolate Business from Home
Starting a chocolate business from home is really simple but selling chocolates online requires proper steps to make sure you are following the regulations. You need to be certain that you are following FDA, USDA, and States’ regulations. Keep in mind, you need to register your homemade chocolate or chocolate-based products with your local plus state-level health departments whether you’re selling them online or offline.
Furthermore, I would also like to discuss the laws concerning the legalities of operating a food business from a home kitchen. While most states allow entrepreneurs to operate from home kitchens, there may be restrictions on where and how you can sell your products. There could also be restrictions on the volume of products sold. To give you some context, some states like Rhode Island allow the sale of chocolate from qualified farmers only. On the other hand, states like Oklahoma, Illinois, and New Jersey do not permit homemade chocolates to be sold at all. Therefore, make sure you understand the laws in your state concerning the sale of chocolate products manufactured in home kitchens.
And lastly, keep in mind, home kitchens are randomly inspected by the local health department on a regular basis. These inspections will check for compliance with local health laws, typically related to the prevention of food contamination. Therefore, make sure to thoroughly clean your preparation area beforehand, and correct any discrepancies regularly.
c. Understand the costs to start a Chocolate Business from Home
You could start a chocolate business at home on a basic level for around $2,000 to $5,000. An extra $2000 to $3,000 could get you off to a great start. That being said, if you want to operate on a bigger scale and sell through a storefront, it could cost you anywhere from $150,000 to $200,000 depending on the location and targeted clientele.
Like a skincare business, most of your startup funds will be involved in buying equipment and raw materials for the production of chocolate. Bear in mind, if you want to go really cheap, you can buy as you grow. If you don’t mind a little hard work, the homemade chocolate business is one of the best businesses to start and grow.
d. Is the Homemade Chocolate Business Profitable?
Yes. The homemade chocolate business is incredibly profitable if executed properly. On average, if you sell your homemade chocolate at $10 per pound, the profit margin would be around 40%-50%. That means around $4-$5 profit per pound of chocolate produced. Your total annual profit will, therefore, depend entirely on the volume and type of chocolate product you produce and sell.
2. Plan your Chocolate Business
Planning is key to the success of any business. The same applies to the homemade chocolate business too. Let’s get into some of the key steps you will need to understand while planning your homemade chocolate business.
a. Choose a name for your Homemade Chocolate Business
Whether you want to start a chocolate business from home or a honey business, you have to choose a name that resonates with your company’s values and beliefs.
Bear in mind, you need to ensure the legal business name complies with state naming rules in the states where you’ll be operating your business – otherwise, a state might not accept the documents filed to form or qualify the company.
Prior to choosing a name for your homemade chocolate business, it is also wise to discuss branding and its impact on your business. The key question here is – will your legal business name also be your brand name or your brand name will be separate from your legal name?
I will be honest with you, it is better to use your legal business name as your brand name while starting. Why? You may ask. The reason is that it makes things a lot easy, is really straightforward, and is also way cheaper.
However, if you run an informal business (Sole proprietorship, Limited Liability Partnership, or General Partnership), some states require you to use your surname as your business’s legal name.
Would you be okay using your surname as your legal business name? If YES, you can move on to the next step. On the other hand, if your answer is NO, stay with me.
If you don’t want to use your surname as your legal business name, then you must file a Fictitious Business Name Statement with the county where the head office of your business is located.
So, let’s revise the concept once more. The legal business name is the name that is indicated on your formation documents. On the other hand, a brand name is a name that you’ll use to market your homemade chocolate business. Now, there are three different branding scenarios.
Business Legal Name and Branding Name are the Same
Just register your legal business name when you file your formation documents.
Business Legal Name is different from its Brand Name
You must file a DBA – a.k.a doing business as – a.k.a Fictitious Business Name Statement with the county where your business head office is located.
If your Business has a legal name but several Brand Names
You must file multiple DBA’s. To put things in perspective a legal name “The CocaCola Company” has multiple brand names like Fanta, Sprite, Powerade, etc.
Shopify’s Business Name Generator is a free tool that helps to brainstorm brandable names for your homemade chocolate business.
Once you decide the name of your homemade chocolate business, you need to perform three final checks.
- First, check your State’s business name database to see if your desired business name is available.
- Second, do a domain name search to check if your business name is available as yourbusinessname.com. If it is available go ahead and register the domain before anyone else gets it. Namecheap offers domain names for as cheap as $0.99 for the first year. You can use the tool below to see if the domain name is available.
Find a domain starting at $0.88
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- And lastly, do a federal search on the US Trademark Electronic Search System and make sure nobody has already trademarked your name.
If the name for your homemade chocolate business is available you can choose to trademark it, but honestly – don’t bother about it right now. It is a lengthy process and will cost you around $600. I would rather spend the money and time on marketing your chocolate products to generate more sales.
b. Choose the right Business model for your Homemade Chocolate Business
In order to start a successful chocolate business from home, you will need a solid business model, at a minimum. Don’t just get into the homemade chocolate business because it sounds fancy and people are making a living from this sector.
Ask yourself – what will be the USP (Unique Selling Proposition) of your homemade chocolate products? What are the creative ways, you’ll lure customers to your business? What is your strategy to retain your existing customers?
Also, bear in mind, you should be ready to clock in at least 60-100 hours of work per week on your new homemade chocolate business, especially at the beginning where you will need to figure out a lot of new things in this industry and you’ll most likely be alone in this journey.
c. Write a solid Business plan for your Homemade Chocolate Business
If you want to start a successful chocolate business from home, you will need an actionable strategy in place. A well-written business plan should explain the core objectives of your homemade chocolate business and how you plan to achieve them. One of the other purposes of a business plan is that it makes your homemade chocolate business look professional and appealing to prospective lenders.
All in all, a well-written actionable business plan is a crucial document for your homemade chocolate business. Without it, you’d be running around like a headless chicken.
An actionable business plan has many sections, some of the must-includes are:
- Executive Summary
- Business Description
- Market Analysis
- Competitor Analysis
- Products to Offer
- Competitive Pricing Strategy
- Marketing Strategy
- Financial Projections
3. Register your Chocolate Business
Prior to registering your homemade chocolate business, you will need to understand the different business structures available to register your homemade chocolate business. Most of the states in the US offer these three types of business structures for a homemade chocolate business.
The biggest advantage of registering your homemade chocolate business as a corporation is the separation of your business affairs from your personal life. As a legal entity existing separately from its owners, a corporation limit’s its owners from personal liability.
However, a key thing to keep in mind, while registering your homemade chocolate business as a corporation is that both the corporation and the shareholders pay taxes. This means double taxation on all the business income.
You can raise money for your corporation through the sale of shares and the corporation will continue operating even after the death of the owners.
Don’t go the solo DIY route here, it’s too risky if you plan to go public at some point. Consult a business lawyer before forming a corporation for your homemade chocolate business.
b. Limited Liability Company
LLC, as the name suggests, provides some form of personal liability protection to its owners. LLC also gets taxed differently. Keep in mind, an LLC can be managed by one or more managers.
In this business structure, an LLC is treated as the same tax-paying entity as its members. All business tax obligations pass through the member’s tax returns. Keep in mind, business profits are also subjected to self-employment taxes.
Incfile offers one of the best services when it comes to forming an LLC. Their pricing starts from just $0 + state filing fees. And these costs are often tax-deductible.
c. Sole Proprietorship
A sole proprietorship is one of the easiest and most straightforward business structures you can choose in order to start a chocolate business from home.
As a sole proprietor, you have full control of your business. You will receive all the profits of the business directly and are liable for any taxes or liabilities of the business.
As we already discussed, in the case of LLC – if you choose to name your business differently than your name(example: Sarah Peters Chocolates), you must file a Fictitious Business Name Statement with the county where the head office of your homemade chocolate business is located.
Operating a homemade business as a sole proprietor doesn’t require any formation fillings with the state. However, keep in mind, you may need to do some other state filing, depending on the scale and nature of your business operation.
Obtain an EIN for your Homemade Chocolate Business
After you register your homemade chocolate business the next step is obtaining an EIN. Fortunately, registering for Employee Identification Number(EIN) is simple and straightforward through the IRS website.
EIN is a 9-digit number, the government provides to every business in order to identify them as a tax-paying entity. You’ll need an EIN while filing taxes, hiring employees, or opening a business bank account.
You can apply for an EIN by telephone, mail, or fax but applying online is completely free and you will get your EIN immediately.
4. Get Funding for your Chocolate Business
If you have enough startup capital to start a chocolate business from home you can skip this section. However, if you have time, I would highly recommend going through this section because while scaling your homemade chocolate business, you will need a way to finance the growth.
There are plenty of incentives, grants, loans, and equity investments available for small businesses. But a thing to keep in mind, no matter the funding route you take, you will need to have(at a minimum) the following documents:
- A business plan
- Projected Financial Statements
- Tax returns of both the business owner and the business itself(when available)
- An explanatory document on how the money will be used
- A description of products offered by your homemade chocolate business
Though there are multiple routes you can go in order to get funding to start a chocolate business from home, I will only discuss two of the best ones here.
a. Obtain funding from SBA Backed Lenders
If you have little to no investment to start a homemade chocolate business, you can apply for an SBA loan. The US Small Business Administration (SBA) works with lenders to provide loans to small businesses around the country.
Keep in mind, the agency doesn’t lend money directly to small business owners. Rather, it drafts guidelines for loans made by its lending partners, community development organizations, and micro-lending agencies.
Let’s get familiar with three of the most popular SBA loans.
- 7(a) Loans: This type of loan guarantees a portion of the total amount, cap interest rates, and limit fees.
- 504 Loans: These types of loans provide long-term, fixed-rate financing to purchase assets for your business.
- Micro-Loans: These are the loans that provide $50,000 or less to help small businesses start up and grow.
SBA-guaranteed loans feature a plethora of benefits. These loans generally have rates and fees that are comparable to that of non-guaranteed loans. Furthermore, SBA-backed loans come with continued support to help you start and run your business. Moreover, some SBA loans feature lower down payments, flexible overhead requirements, and no collateral.
Now that you understand the whole SBA lending process, it’s time to know some of the most popular SBA-backed lenders in the USA:
- US Bank
- Wells Fargo
- United Midwest Savings Bank
- Live Oak
- MidFirst Bank
b. Obtain funding from P2P Lenders
P2P stands for ‘Peer to Peer’ and this type of lending is really similar to crowdfunding with the only difference being your loan application is reviewed and presented to several lenders and investors.
This type of lending is a great option if traditional lenders have turned down the business loan application for your homemade chocolate business. Some of the well known P2P lending companies include:
5. Get required Equipment to start a Chocolate Business from Home
When you want to start a chocolate business from home, startup costs can add up fast. Along with your raw material and marketing expenses, equipment cost is one of the main startup costs to plan for.
But which tools are essential? Well, that depends on your specific business structure. However, I have listed a few crucial types of equipment below:
A Melanger (Wet Stone Grinder) :
When making chocolates, a Melanger is typically used to grind the small chunks of roasted cocoa beans into a thick chocolate liquid. It is an absolute necessity if you want to make your chocolate as smooth and silky as you’d find in shops.
Melangers come in a range of sizes and styles. To be honest, it depends on the scale of the production. But for home-makers and small businesses, I would strongly suggest the Premier 2L Tilting Wet Stone Grinder.
Chocolate Moulds :
A lot of people think molds do not make that much of a difference in chocolate making. However, a quality chocolate mold could make all the difference, especially when it comes to the final product. It is the mold that gives the chocolate bar a shiny and smooth finish. If you want professional-looking chocolate bars, I would recommend getting HomEdge break-apart chocolate mold.
A Thermometer :
A well-calibrated thermometer is a piece of essential equipment required in the chocolate-making business. Even a few degrees of temperature error results in a dull chocolate bar that melts in your hands. An infrared thermometer works best in our opinion however the most important thing is that it is accurate and well-calibrated. AikTryee thermometer is one of the best thermometers while starting your homemade chocolate business journey.
A Roaster :
There are various ways of roasting the cocoa beans but if you are going to be doing it regularly, consistency is key. Therefore, you will need a roster that allows you to control the temperature for a far more even roast and to stick to certain flavor profiles for each batch of chocolate production.
Kitchen Scales :
Scales are a must-have tool for making any recipe. When you formulate your chocolate recipe and find your perfect mix of ingredients, you will need some scales for consistency. When you are involved in the chocolate-making business, always remember that consistency is key. Ideally, You’d be doing many experiments on ingredients. And recording the measurement, when you are happy with the recipe. This makes it far easier to recreate the next batch of chocolates.
A Tempering Machine :
A tempering machine is not essential for making small batches of chocolates at home. However, such equipment will save you tons of time. A business must produce consistent and professional-looking chocolates and a quality tempering machine will allow that.
Pots, Pans, Bowls, Microwave, and other Utensils :
Alongside the above-mentioned equipment and tools, you’d want to make sure to have plenty of utensils in your kitchen.
6. Develop a Product Line
One of the hardest phases of starting any business is finalizing the product line. And if you want to start a chocolate business from home, this is going to be one of your biggest tasks. List your chocolate creations by flavor and variety. Create a menu that lists all the chocolate products that your brand is going to offer. Create a well-rounded selection for different tastes and remember to explore new products and flavor combinations with the help of family and friends.
The packaging of your homemade chocolates also plays an important role in making your business and brand better. There are various packaging boxes for your chocolate confections available on Amazon and Etsy. All in all, try to be creative with your packaging, this will help your products stand out from the rest.
7. Sell your Chocolates Online
The next step is putting the name of your homemade chocolate business out there on the web for everyone to see. Websites are a crucial part of the homemade chocolate business. You need to have a professional online store in order to sell chocolates online.
Make sure to utilize the power of the internet. You must customize your website and make it align with your brand. You can put images of your chocolate products plus testimonials and make an excellent impression on your visitors. Furthermore, don’t forget to include your mission statement on your website and let your customers know why they should buy your chocolate products.
Designing an online store has become really easy. The days when you needed to pay thousands of dollars for a website developer for a small website are gone. Thanks to Shopify, you can now create a brand new online store for your business starting just from $29. The cherry on top is that Shopify offers a 14-day free trial (no credit card required) for you to try the platform. This is more than enough time to set up an online store, upload your products, and set up the payment systems.
If you want someone else to work on the technicalities while you focus on acquiring more clients for your business, we are ready to help you. Our $499 digital package comes with a professionally designed online store, custom email, 24/7 support and maintenance, SEO, and digital marketing services. You wouldn’t want to miss the deal. Contact us today before the deal runs out.
8. Promote your Chocolate Business
Most business owners do not consider marketing in their business strategy for some reason. This is possibly one of the biggest mistakes and you should not repeat it. The best form of marketing for a chocolate business from home is ‘word of mouth’. Once your prototype for the chocolate is ready for production, give the samples to your friends and family to try. Ask for feedback on your chocolate and list the things they liked and didn’t like. If they liked your chocolates, ask them to tell their friends and relatives about them. You can also ask them to share your social media pages with their friends.
You can also opt for digital marketing to market your chocolates nationally or internationally. Furthermore, join your local chamber of commerce and small business groups in your locality and find out what tools other business people are using to market their products and services If you need any help to run digital ads for your chocolate business, get in touch with us. We can provide free consultation and resources to market your homemade chocolate business.