Sunday, December 08, 2013
Is my business idea half baked?
A reader in Southern California thinks she may be running afoul of her state's laws.
She's a cake decorator who has made cakes for friends' parties. She reports that her cakes receive many accolades of "Ooooos! and Ahhhhs!" as well as requests for her business card and encouragement to start a business selling her cakes.
"I've actually done two orders for pay," she writes. "I would love to do this on a regular basis to earn extra money, as well as to test the waters to see if I could develop a customer base to start an actual business."
But she's concerned that she might be running afoul of state laws if she starts a business baking in her home rather than renting space in a commercial kitchen. She figures she'd be making one or two birthday cakes a month and even renting a small facility for three hours to complete each cake would cost far more than any profits she could bring in.
"I would be doomed to fail if I were to go all out and start a bakery with no faithful customer base," she writes.
Yet, she knows from talking to others and reading articles on other businesses that have started in this field that most of the people started out "right where you're not supposed to: in their kitchen." Should she follow suit, even if she thinks she might be violating state law?
Regardless of what others have said they have done to get their businesses started or what articles she may have read about storied bakery startups, my reader should not do anything if she knows it will run afoul of state regulations.
My reader should thoroughly research what's required to start a for-profit bakery in her area of the country and to comply with those regulations. Assuming that it's OK to operate in a particular way simply because others have claimed to have done so is foolhardy. Any penalties incurred for doing something that is in violation of state or local regulations could far outweigh the cost of renting a commercial kitchen for a couple of hours if that's what's required.
But from a business perspective, my reader should closely analyze all costs and thoroughly explore whether what her friends are telling her is required to run the business is indeed true.
As it turns out, while California regulations might once have restricted operating food businesses out of home kitchens that changed in 2012 with the passage of the California Homemade Food Act -- AB 1616, which deals with "cottage food operations." For-profit bakers can operate out of their home kitchens as long as they register their business and comply with the specifics of the bill -- none of which are onerous for a baker like my reader. The new state law became effective on January 1, 2013.
The right thing for all new business owners is to research the laws and regulations affecting the type of business they want to start and to comply with those laws and regulations. If they can't afford to do so, then they should not deliberately try to circumvent the rules so they can more cheaply start their businesses. My reader is permitted to operate out of her home kitchen, as long as she complies with the new state law.
Jeffrey L. Seglin, author of The Right Thing: Conscience, Profit and Personal Responsibility in Today's Business and The Good, the Bad, and Your Business: Choosing Right When Ethical Dilemmas Pull You Apart, is a lecturer in public policy and director of the communications program at Harvard's Kennedy School.
Follow him on Twitter: @jseglin
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