There’s an undeniable allure to candy. It’s a symbol of childhood, celebration, and simple pleasures. It’s also a multi-billion dollar industry that continues to grow, presenting a tantalizing opportunity for aspiring entrepreneurs.
But, it takes more than having a sweet tooth to start a successful candy business. If you are ready to take the first step but don’t know where to start, our guide will help you through the process by providing an overview of the business, steps to get started, and answers to common questions.
Business Description
A candy business involves manufacturing confectioneries like chocolate, chewing gum, or hard candies. Products are sold wholesale to distributors or retailers, or directly to consumers through an online shop or retail location.
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Industry Summary
The United States is one of the largest markets for candy consumption, with around $37 billion in retail sales in 2023.1 It is projected to grow by 5.88% annually, driven by factors, such as the increasing demand for premium and organic candies, the rise of e-commerce channels, and the popularity of candy-related experiences such as candy-themed restaurants and attractions.2
Some of the leading players in the industry include The Hershey Company, Mars Inc., Ferrero Rocher, and Nestle. However, there is room for small and niche players to carve out a profitable niche, especially when it comes to the customization of candy products for special occasions such as weddings, birthdays, and corporate gifts. Also, the demand for premium and gourmet candies is rising, as consumers are willing to pay extra for high-quality artisanal sweets and health-conscious options like low-sugar and organic candies.
Steps To Start A Candy Making Business
Step 1: Write a Business Plan
Regardless of whether you’re a seasoned candy maker or a novice in the confectionery world, writing a business plan is a critical first step when starting a candy business. Even if you have perfected your candy recipes and techniques, running a successful business involves more than just creating excellent products. In addition to most lenders requiring one before funding, here’s just a few reasons why you need a business plan:
Provides clarity and direction: Writing a business plan brings clarity and direction to your vision. It helps you define your goals and identify potential challenges and opportunities. A business plan outlines the structure and strategy of your business, giving you a roadmap to follow that will help you reach your objectives.
Market research: A business plan helps you to better understand the candy industry, local consumer preferences, and competition. It allows you to make informed decisions about the type of candy to sell and identify your target audience.
Financial projections: Creating a business plan helps you think about the financial aspects of your business, where you estimate startup costs, forecast revenues, and evaluate the profitability of your candy business.
Related: How to write a business plan
Step 2: Source Funding
Starting a candy business can be a lot of fun, but it also requires a significant amount of financial resources to get off the ground. From purchasing inventory to securing a storefront, startup costs can quickly add up. Finding the money to start can be a challenge, so let’s look at the most common sources of funding for a candy business:
Personal investment: Start by looking at your personal savings to see how much you can contribute to financing your business. If personal funds won’t cover all startup costs, outside funding will be needed.
Lenders: Traditional lenders, such as banks, are a common source of funding for businesses. To secure a loan, they usually require you to invest at least 15% of your personal funds, have a good credit score, and provide sufficient collateral. In some cases, if the bank needs additional security, they may consider using a Small Business Administration (SBA) loan guarantee.
Friends and family: Another option is reaching out to friends and family for financial support. It’s important to approach these arrangements professionally by putting any agreements in writing. This helps to avoid misunderstandings and maintain healthy personal relationships.
Microloans: If you have smaller funding needs or traditional lending options are unavailable, microloans can be an alternative. These loans are provided by local economic development organizations and may offer business training along with funding.
Related: Finding the money to start a business
Step 3: Register the Business
Starting a candy business involves several steps to properly register and ensure its legality. Requirements will vary depending on where the business is located, but here are some things to look out for:
Business structure: Choose the appropriate business structure for your candy business. The four common types are:
- Sole proprietorship: Easiest and cheapest to establish, as no formal business registration is required. The downside is that the owner has unlimited personal liability.
- General partnership: Simple to establish between two or more people. Like a sole proprietor, there is no formal business registration, but the partners have unlimited personal liability.
- Corporation: More complex and expensive to set up, but provides liability protection for owners.
- Limited Liability Company (LLC): Provides personal liability protection for owners while being easier to run than a corporation.
Related: Comparison of business structures
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
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Business name registration: After registering the business structure, you may need to register your business name. This process will vary depending on what business structure you pick. Sole proprietors and partnerships will often be required to register a “Doing Business As” (DBA), while corporations and LLCs register with the state during the formation process.
During this time, it’s also a good idea to check if the name you want is available as a web domain, even if you’re not ready to set up a website yet.
Related: Finding a domain name for your business
Obtain business licenses and permits: Businesses operating in the food industry often require specific licenses and permits. For a candy business, you may need a food handler’s permit, health department permits, and possibly a home business license if you’re operating from your residence.
In addition, there will likely be a variety of general business registrations needed before opening. These could include a business license, seller’s permit, and Employer Identification Number (EIN).
Related: What licenses do candy businesses need?
Step 4: Figure Out Production
Once your funding is secured and your business is registered, it’s time to get into the part you’ve probably been waiting for, which is setting up production.
First off, you need a place to make your candies. Depending on the size of your operation and the state’s cottage food laws, you may be able to start production in a home kitchen, assuming it meets health and safety regulations. Alternatively, you can consider a shared kitchen or a commercial kitchen space. Shared kitchens offer professional-grade equipment and only charge by how long you need the facility, while commercial kitchens provide full control over the production process and are better suited for larger operations. Both shared and commercial kitchens help in adhering to health and safety regulations, a crucial aspect of food production.
With the facility out of the way, you’ll need to take stock of what equipment you still need. This can vary depending on the type of candy you are producing.
Last, identify where you are going to purchase your raw materials. This may be a grocery store or warehouse club to start or a food distribution company if you need larger quantities. Additionally, find suppliers for your packaging materials. Make sure your labels and packaging are compliant with any legal requirements, including listing ingredients, nutritional information, and allergen warnings.
Step 5: Set Up Sales & Marketing
Once your candy business is operational and you have a product to sell, it’s time to focus on how you’ll get your candies into the hands of customers. This involves setting up your sales channels and planning your marketing strategy. There are several ways to sell your candies, and the best method depends on your business model, target market, and resources.
Selling your candy wholesale allows you to reach a wider customer base by partnering with distributors. Your candies can be stocked in grocery stores, convenience stores, gift shops, and other retailers. To get your product placed on shelves, focus on developing relationships with these retailers. Attend industry events, reach out to potential distributors, and showcase the unique qualities of your candy. Building strong partnerships and maintaining a solid reputation for quality and consistency will help you secure placement in retail locations.
Retail is another option for candy business owners who want to sell directly to customers in a physical store. This involves getting your own store and investing in a location that is easily accessible to your target audience. When choosing a location, consider the demographics of the area, foot traffic, and the competition in the area. You will also need to develop a strong brand identity, create unique packaging, and offer competitive pricing to make your product stand out from the competition.
With the rise of e-commerce, selling your candies online has become a viable option for candy business owners. This means setting up a website, a payment gateway, selecting a shipping method, and promoting your product online. This method allows you to reach a wider audience, but it also means competing with established online stores and marketplaces. To make your online candy business successful, you need to create a user-friendly website, optimize your product descriptions for search engines, and offer competitive pricing and shipping options.
Step 6: Hire Employees
If you are planning to hire employees, it’s important to understand the responsibilities and legal requirements of being an employer. As a new employer, you are responsible for several key aspects.
First, before hiring employees, you’ll need to obtain an Employer Identification Number (EIN) from the IRS. This is a unique identifier for your business that is used for tax purposes.
As an employer, you must also ensure your employees are legally eligible to work in the United States. This involves verifying their employment eligibility through the completion of Form I-9 and reviewing acceptable documents as proof of identity and work authorization.
Be aware that each state has different forms and reporting requirements for hiring employees. This can include new hire reporting, where you must report information about your new employees to a designated state agency. Also, most states require worker’s compensation insurance. This type of insurance provides coverage for medical expenses and wage replacement in the event that an employee is injured or becomes ill on the job.
Last, familiarize yourself with federal and state labor laws. These laws cover various aspects of employment, including minimum wage, overtime, breaks, and workplace safety.
Related: State guides for hiring your first employee
Step 7: Prepare to Open!
To wrap up the steps for starting a candy business, there are still a few minor tasks to consider. These tasks will vary on individual needs, but here are some common ones to keep in mind:
Business insurance: For a candy business, common types of insurance include product liability insurance, which protects against damages your products might cause, and general liability insurance, which covers accidents or injuries at your business location. Depending on your specific needs, you might also consider commercial property insurance if you own a physical shop.
Setting up bookkeeping: This can range from hiring a bookkeeper to using accounting software like QuickBooks, FreshBooks, or Xero. These systems will help you manage daily transactions, taxes, and financial statements.
Opening a business bank account: Setting up a dedicated bank account for your business is important for managing finances effectively and separating personal and business expenses.
Accepting credit cards: Setting up credit card processing allows you to accept payments from customers who prefer this method, which can increase the convenience and flexibility of your payment options.
Creating a marketing strategy: Develop a marketing strategy to spread the word about your new candy business. This could include activities like designing a logo and website, implementing social media campaigns, leveraging local advertising channels, and exploring collaborations with other businesses to expand your reach.
Preparing for the grand opening: Plan a grand opening event to create buzz around your business. This might include special promotions, samples, and local media coverage. Ensure everything from production to storefront (if applicable) is ready and appealing.
Common Questions When Starting A Candy Business
How much does it cost to start a candy business?
Starting a candy business can be a sweet endeavor, but it’s essential to understand the associated costs. On average, the cost to open a candy store can range from $3,000 to $50,000, depending on various factors like location, size, and type of candies you plan to sell. Here are a few budget items for you to consider:
Location and renovation: If operating out of a retail shop, the location may be the most significant expense. A deposit for a commercial lease can range from $2,000 to $12,000, depending on your region and the size of the space. Additionally, you might need to budget for renovations to create an appealing and functional store layout, which could cost between $10,000 and $30,000.
Equipment: Depending on your products, the equipment can be anything from molds, bowls, and mixers to machinery such as an industrial caramel-making machine, candy thermometers, etc. You might also need cold storage. Likewise, your equipment costs can start from as little as $500 to as much as several thousand US dollars.
Licenses and permits: Registering your candy business and obtaining the necessary licenses may cost between $50 and $1,000, depending on your location and the specific requirements in your area.
Raw materials: Depending on the size of your operation, raw materials may only be $200 at a time. It is good to know that the more you can buy in bulk, the smaller the costs will likely be.
Insurance: You might expect to pay between $500 and $2,000 per year for a basic business insurance policy
Packaging and labeling: How will you present your product? Will you sell it in boxes? Packaging material can cost between $100 and $300 to start with.
Marketing and advertising: The cost of initial marketing efforts for a candy business can also vary widely. This might include costs for website development, social media advertising, print advertising, and promotional materials. For a small business, you might spend between $1,000 and $5,000 on initial marketing efforts.
How profitable is a candy business?
Estimating the potential profitability of a candy business involves considering various factors such as revenue, expenses, and market positioning. For simplicity, let’s assume a small to medium-sized candy business that successfully establishes itself in a local market.
Revenue: Suppose the business sells an average of 300 units of candy per day, with each unit priced at $2. This results in daily revenue of $600. Over a month, assuming the business operates 26 days, the revenue would be approximately $15,600.
Expenses: Key expenses include cost of goods sold (COGS), labor, rent, utilities, marketing, and miscellaneous costs.
Assuming COGS at about 35% of revenue (a common ratio for food businesses), this would be $5,460 per month.
Labor costs, including salaries for a small team, might be around $4,000 monthly. Rent and utilities could cost $2,500, while marketing and miscellaneous expenses might add another $1,000.
So, monthly expenses could sum up to:
– COGS: $5,460
– Labor: $4,000
– Rent and Utilities: $2,500
– Marketing and Miscellaneous: $1,000
Total Expenses: $12,960
Profit: Subtracting total expenses ($12,960) from monthly revenue ($15,600) gives a potential monthly profit of $2,640. Annually, this would amount to approximately $31,680.
It’s important to note that these figures are assumptions and can vary widely.
What is the NAICS code for a candy making business?
The NAICS code for a candy making business is 311352, which is categorized under Confectionery Manufacturing from Purchased Chocolates.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.
Related: What is a NAICS code?
