Skip to Content

How Much Does It Cost to Start a Catering Business? (Sales Forecast and Breakeven Analysis Included)

You need an estimate of $50,000 to open a catering business from home. Starting a business on a small scale is a good thing. You do not have to start big to make it big.

As a matter of fact you may choose to start on a small scale, and before long with consistency and hard work, your business can scale into being a medium sized business. There are some things that should be considered they include the following;

Estimated Cost Breakdown for Opening a Catering Business

  1. The Total Fee for Registering the Business in America: $750.
  2. The budget for Liability insurance, permits and license: $5,000
  3. The Amount needed to acquire a suitable Facility with storage space for 6 months in Chicago, Illinois (Re – Construction of the facility inclusive): $70,000 but could be higher when looking to run a medium to large scale catering business.
  4. The Cost for the purchase of furniture and gadgets (fridges, TVs, Sound System, tables and chairs et al): $15,000. This could definitely be more if you decided to run a medium to large scale catering business.
  5. The Cost for Catering Equipment (Standard commercial oven, Industrial Gas Cooker, Baking Sheets and Racks, Mixers, Work Tables, Sinks, Slicers, Scales, Cake decorating Tools, Ingredient Bins and kitchen utensils et al) : $15,000. Could be more with a medium or large scale business in view.
  6. The Cost of Launching a Website: $600
  7. The cost for our opening party: $5,000
  8. Additional Expenditure (Business cards, Signage, Adverts and Promotions et al): $5,000

Going by the report from our research and feasibility studies, it is estimated that a catering business would cost about $10,000 – $50,000 to start (based on research).

However, I want you to know that you can start with much less than the figure stated above; if only you are willing to start from home, invest more sweat equity and rent, rather than buy your catering equipment.

3-Year Sales Forecast and Breakeven Analysis

Initial Capital: $50,000

Fixed Cost: Monthly expenses such as rent, salaries, utilities, etc.

  • Rent: $1,000 per month
  • Salaries: $2,500 per month
  • Utilities and other fixed cost $500 per month
  • Total Fixed Cost per Month: $4,000
  • Total Fixed Cost per Year: $48,000

Variable Cost: Costs that vary directly with sales, primarily cost of goods sold (COGS) such as ingredients, supplies, etc.

  • COGS: 40% of sales

Sales Growth:

  • Year 1: Starting average monthly sales of $10,000
  • Year 2: 20% increase in total sales from Year 1
  • Year 3: 15% increase in total sales from Year 2

Variable Cost: Calculated as a percentage of sales.

Total Cost: Sum of fixed and variable costs annually.

Year 1:

  • Monthly Sales: $10,000
  • Total Sales for the Year: $10,000 x 12 = $120,000
  • Variable Cost: $120,000 x 0.40 = $48,000
  • Fixed Cost: $48,000
  • Total Cost: $48,000 + $48,000 = $96,000

Year 2:

  • Total Sales for the Year: $120,000 x 1.20 = $144,000
  • Variable Cost: $144,000 x 0.40 = $57,600
  • Fixed Cost: $48,000
  • Total Cost: $57,600 + $48,000 = $105,600

Year 3:

  • Total Sales for the Year: $144,000 x 1.15 = $165,600
  • Variable Cost: $165,600 x 0.40 = $66,240
  • Fixed Cost: $48,000
  • Total Cost: $66,240 + $48,000 = $114,240

Breakeven Point

Breakeven Sales per Month = Fixed Cost per Month ÷ (1 − Variable Cost Percentage)

: = 4,000 ÷ (1 − 0.40)

Breakeven Sales Monthly = $6,666.67

Factors That Determine the Cost of Starting a Catering Business

1. Location: $3,000 – $6,000

You would need a place that would serve as a kitchen where preparation and packaging of your food would be done. Most countries require that the location you select for your catering business be approved by the environmental health authority in your country, so it is smarter for you to visit their local office for a checklist of guidelines before you select and pay for a place.

Apart from the rent you would have to pay, you would also need to incur some related expenses like utility bills, maintenance, repairs and security. For this, you should make a budget of about $3,000 – $6,000.

2. Business Licenses and permits: $1,000 – $3,000

You cannot just become a caterer overnight. You would need to obtain permits and licenses that would enable you operate your catering business freely. For this, you should budget between $1,000 and $3,000 depending on your business location.

3. Employees and hired helps: $1,000 – $4,000

You would also need to incur some costs on the people that would assist you in running your business. You can decide to pay them on a commission basis or based on each job you get but you should ensure that you set aside between $1,000 and $4,000 to cover all employee related costs including taxes and employee insurance.

4. Advertisement – $2,000

This is an aspect that sadly, a lot of caterers neglect. Advertising your business is very important and it can make things a lot easier for you in terms of increasing business patronage. You should print handbills and hand them out at every event you cater for and consider using radio or television as a means of increasing awareness for your business. A budget of about $2,000 dollars should go a long way.

5. Insurance – $1,000

Another business expense you would have to incur is insurance. You may think that you would not need insurance but you just might need it someday and its better you are prepared for it; if you ever need it than otherwise. It is important that you obtain liability insurance as well as a personal insurance to be on a very safe side of your business. Insurance should cost you about $1,000 to start with.

6. Equipment – $25,000

This is the most important and the most expensive of them all. You would need a lot of equipment to run a catering business and this might cost you up to $25,000 dollars. You can decide to purchase used equipment if you cannot afford new ones

Some of the equipment you will need includes industrial gas cookers, cookware, bake wares, pots, kitchen utensils, coolers and several catering equipment.

You would also need a means of transporting cooked food around as it is a bit unhygienic to transport food through public transport. This means that you would need to invest in a food truck which you can also convert into a mobile food truck at times when you are not catering.

7. Food and beverages: $1,000 – $1,500

You should also set aside some amount for food and beverages. About $1,000 to $1,500 should be enough to cover that. Some of these items include spices and herbs, cooking oils, preservatives and sometimes alcohol. If you would be buying alcohol, you may also need to obtain license for the alcohol.

8. Training – $1,000

Training is also essential in starting a catering business and you should not forget this vital cost when planning to start your catering business. You can register for short courses on catering. These courses are usually offered by renowned successful caterers or community colleges. You can also enroll for a food and nutrition related course in the university.

Whichever option you choose, you must ensure that it is one that leaves enough room for practical training. Registering for catering courses on the internet would not help you because to really learn anything tangible, you have to be there to see how it is done and also gain some hands-on experience that would help you in running the business. You should set aside at least $1,000 to cover initial training expenses.

9. Networking costs – $500

You should also not forget what it would cost you to get more clients through other people. You would probably have referral programs that would set you back a few dollars in terms of commission and payments. You should set aside at least 500 dollars for this.

10. Time

Lastly, it would cost you a lot of time and energy to start a successful catering business and who says time is not money? Be prudent with your time and use it in the wisest way possible so that at the end of the day, all of your efforts would pay off.

Financing your Catering Business

Since you are really determined to start a catering business, then part of what you must have figured out is the fact that you already have a reliable source for financing your business. There are different ways through which you can finance your business. They include;

  • Family and Friends

This option is very much a great way to raise funds to start a business. This means that y6ou may have family and friends who buy into your business and are willing to support your course financially.

  • Loans

These days more than ever before, there are banks who are all out to grant loans to those who wants to start a trade. Care must however be taken in seeing to it that you have all that the bank requires before you are granted a loan.

  • Grants

There are foundations and organizations through which you can be granted a startup. You have got to be well positioned and aware of this act before you can be a beneficiary.

  • Angel investors

There are investors who when moved or captured by the exactness and reality of a business plan invests greatly in it. This is why it is vital to have a compelling business plan.