Cottage Food Workshop

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Business overview of Michigan Cottage Food Law.

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  • Where? This is the place where you live , whether you own the home or are renting .  So, a house, an apartment, condominium or a rental home all could be a single family domestic residence.  It does not include group or communal residential settings, such as group homes, sororities or fraternities. MUST BE a primary residence Does not include a rented kitchen that has a license!!
  • MUST HAVES Name of food Complete physical address (NO PO BOX) Ingredients listed by weight beginning with the largest. If you have chocolate chips, butter or another constituent ingredient as a component of your product you must list ingredients of the constituent ingredient in parentheses Net Weight or Net Volume A solid or thick product should be listed by weight oz or lbs A liquid product should be sold by fluid ounce or volume Fl. Oz or qt. or gallon etc…. Allergens 8 allergens cause 90% of all food allergies Wheat Milk Eggs Soy Tree Nuts (Must Specify) Peanuts Fish (Must Specify) Crustacean shell fish (Must Specify) Statement “ MADE IN A HOME KITCHEN THAT HAS NOT BEEN INSPECTED BY THE MICHIGAN DEPARTMENT OF AGRICULTURE.” The statement printed in at least 11pt type (1/8”) Nutrition Facts – NOT NECESSARY UNLESS YOU MAKE A CLAIM ‘ Low Sodium’, ‘Low Sugar’, ‘High Fiber’ How to get Nutrition Facts MSU Online MUST BE IN COMPLIENCE WITH MDA BE CAREFUL!
  • 7 things wrong with this label Missing ‘THAT HAS NOT BEEN INSPECTED BY THE MICHIGAN DEPARTMENT OF AGRICULTURE’ Low Sodium – Will need nutrition facts! Has a PO Box – Needs physical address Does not break down constituent ingredients ex. Enriched flour, butter, chocolate Chips, Doesn’t list the actual nut Can not say ‘May contain’ Doesn’t list net weight
  • Market Managers – treat people with respect, very simple Sales Limit - $20,000 increase from $15,000 in Oct 2012. 2017 – TO $25,000 Finance and Administration – Figure out what you are passionate about!!! Most likely no sales tax but check with Michigan Department of Treasury Still need to pay taxes Sales - IN PERSON SALES!! NO WHOLESALERS/INTERNET SALES! Zoning – Check with County or City Health Department Insurance – Check renters/home insurance. Most likely want $1M insurance policy.
  • According to Michael Porter in his book COMPETITIVE ADVANTAGE, “a firm can differentiate itself from its competitors when it provides something unique that is valuable to the buyers beyond simply offering a low price. Differentiation allows the firm to command a premium price, to sell more of its product at a given price, or to gain equivalent benefits such as greater buyer loyalty during cyclical or seasonal downturns.”
  • Means – Focuses on the product Source – Focuses on Customer’ need and desires One change might incorporate multiple means of differentiation. For example, changing packaging to a produce product might cause a physical change of the product. It might also give the perception that the product is more upscale or sophisticated. The packaging we discussed under means of differentiation might improve the quality of the produce, especially if it increases the shelf life (which might also affect the time when a product can be purchases). Ready to eat preparation and packaging affect the functionality of the produce. The packaging might mean that the product is available as a Grab and Go item.
  • MarketMaker is a platform that seeks to foster business relationships between producers and consumers of food industry products and services. You'll find information on the types of businesses and operations that want to be found on MarketMaker.
  • Monroe and surrounding 3 counties – Wayne, Washtenaw, Lenawee
  • Jam Maker After Research you find the average jam sells for under $5.00. You have to find ways to differentiate and make it worthwhile to pay the extra.
  • Sole Proprietorship Advantages Easy and inexpensive to form: A sole proprietorship is the simplest and least expensive business structure to establish. Costs are minimal, with legal costs limited to obtaining the necessary license or permits. Complete Control: Because you are the sole owner of the business, you have complete control over all decisions. You aren’t required to consult with anyone else when you need to make decisions or want to make changes. Easy Tax Preparation: Your business is not taxed separately, so it’s easy to fulfill the tax reporting requirements for a sole proprietorship. The tax rates are also the lowest of the business structures. Disadvantages Unlimited Person Liability: Because there is no legal separation between you and your business, you can be held personally liable for the debts and obligations of the business. This risk extends to any liabilities incurred as a result of employee actions. Hard to Raise Money: Sole proprietors often face challenges when trying to raise money. Because you can’t sell stock in the business, investors won't often invest. Banks are also hesitant to lend to a sole proprietorship because of a perceived lack of credibility when it comes to repayment if the business fails. Heavy Burden: The flipside of complete control is the burden and pressure it can impose. You alone are ultimately responsible for the successes and failures of your business.
  • Advantages Limited Liability.  When it comes to taking responsibility for business debts and actions of a corporation, shareholders’ personal assets are protected. Shareholders can generally only be held accountable for their investment in stock of the company. Ability to Generate Capital.  Corporations have an advantage when it comes to raising capital for their business - the ability to raise funds through the sale of stock. Corporate Tax Treatment.  Corporations file taxes separately from their owners. Owners of a corporation only pay taxes on corporate profits paid to them in the form of salaries, bonuses, and dividends, while any additional profits are awarded a corporate tax rate, which is usually lower than a personal income tax rate. Attractive to Potential Employees.  Corporations are generally able to attract and hire high-quality and motivated employees because they offer competitive benefits and the potential for partial ownership through stock options. Disadvantages Time and Money.  Corporations are costly and time-consuming ventures to start and operate. Incorporating requires start-up, operating and tax costs that most other structures do not require. Double Taxing.  In some cases, corporations are taxed twice - first, when the company makes a profit, and again when dividends are paid to shareholders. Additional Paperwork.  Because corporations are highly regulated by federal, state, and in some cases local agencies, there are increased paperwork and recordkeeping burdens associated with this entity. A corporation (sometimes referred to as a C corporation) is an independent legal entity owned by shareholders. This means that the corporation itself, not the shareholders that own it, is held legally liable for the actions and debts the business incurs.
  • Advantages of a Partnership Easy and Inexpensive.  Partnerships are generally an inexpensive and easily formed business structure. The majority of time spent starting a partnership often focuses on developing the partnership agreement. Shared Financial Commitment.   In a partnership, each partner is equally invested in the success of the business. Partnerships have the advantage of pooling resources to obtain capital. This could be beneficial in terms of securing credit, or by simply doubling your seed money. Complementary Skills .  A good partnership should reap the benefits of being able to utilize the strengths, resources and expertise of each partner. Partnership Incentives for Employees.  Partnerships have an employment advantage over other entities if they offer employees the opportunity to become a partner. Partnership incentives often attract highly motivated and qualified employees. Disadvantages of a Partnership          Joint and Individual Liability .  Similar to sole proprietorships, partnerships retain full, shared liability among the owners. Partners are not only liable for their own actions, but also for the business debts and decisions made by other partners. In addition, the personal assets of all partners can be used to satisfy the partnership’s debt. Disagreements Among Partners.   With multiple partners, there are bound to be disagreements Partners should consult each other on all decisions, make compromises, and resolve disputes as amicably as possible. Shared Profits.  Because partnerships are jointly owned, each partner must share the successes and profits of their business with the other partners. An unequal contribution of time, effort, or resources can cause discord among partners. A partnership is a single business where two or more people share ownership. Each partner contributes to all aspects of the business, including money, property, labor or skill. In return, each partner shares in the profits and losses of the business.
  • A limited liability company is a hybrid type of legal structure that provides the limited liability features of a corporation and the tax efficiencies and operational flexibility of a partnership. Advantages Limited Liability.  Members are protected from personal liability for business decisions or actions of the LLC. This means that if the LLC incurs debt or is sued, members' personal assets are usually exempt. This is similar to the liability protections afforded to shareholders of a corporation. Keep in mind that limited liability means "limited" liability - members are not necessarily shielded from wrongful acts, including those of their employees. Less Recordkeeping.  An LLC's operational ease is one of its greatest advantages. Compared to an S-Corporation, there is less  registration paperwork  and there are smaller start-up costs. Sharing of Profits.  There are fewer restrictions on profit sharing within an LLC, as members distribute profits as they see fit. Members might contribute different proportions of capital and sweat equity. Consequently, it's up to the members themselves to decide who has earned what percentage of the profits or losses. Disadvantages Limited Life.  In many states, when a member leaves an LLC, the business is dissolved and the members must fulfill all remaining legal and business obligations to close the business. The remaining members can decide if they want to start a new LLC or part ways. However, you can include provisions in your operating agreement to prolong the life of the LLC if a member decides to leave the business. Self-Employment Taxes.  Members of an LLC are considered self-employed and must pay the self-employment tax contributions towards Medicare and Social Security. The entire net income of the LLC is subject to this tax.
  • General Liability Insurance Business owners purchase general liability insurance to cover legal hassles due to accident, injuries and claims of negligence. These policies protect against payments as the result of bodily injury, property damage, medical expenses, libel, slander, the cost of defending lawsuits, and settlement bonds or judgments required during an appeal procedure.
  • Product Liability Insurance Companies that manufacture, wholesale, distribute, and retail a product may be liable for its safety. Product liability insurance protects against financial loss as a result of a defect product that causes injury or bodily harm. The amount of insurance you should purchase depends on the products you sell or manufacture.
  • Home-Based Business Insurance Contrary to popular belief, homeowners' insurance policies do not generally cover home-based business losses. Depending on risks to your business, you may add riders to your homeowners' policy to cover normal business risks such as property damage. However, homeowners' policies only go so far in covering home-based businesses and you may need to purchase additional policies to cover other risks, such as general and professional liability.
  • Cottage Food Workshop

    1. 1. Michigan’s Cottage Food ActAn Opportunity toParticipate in Michigan’sGrowing Food IndustryMichigan State University ExtensionMay 9, 2013
    2. 2. Micah LoucksMichigan State University ExtensionMichigan State University ExtensionEastern MarketEastern Market2934 Russell St.2934 Russell St.Detroit, Michigan 48207Detroit, Michigan 48207Phone: 313-778-6028Phone: 313-778-6028loucksmi@msu.eduwww.slideshare.net/loucksmi
    3. 3. Overview Acceptable LocationAcceptable Location LabelingLabeling Cottage Food BusinessCottage Food Business DifferentiationDifferentiation SellingSelling PricingPricing Legal StructureLegal Structure InsuranceInsurance Resources of the Product CenterResources of the Product Center
    4. 4. Under Michigan’s Cottage Food Act, wherecan food products be produced?A single family domestic residence• House• Apartment• Condo• Rental House
    5. 5. What needs to be onyour label?• Name of the foodproduct• Ingredients• Net Weight orVolume• Name andAddress of theBusiness• AllergenLabelingAll food produced under Michigan’s Cottage FoodAct Must Contain the Statement:Made in a home kitchen that has not beeninspected by the Michigan Department ofAgriculture
    6. 6. LabelingMADE IN A HOME KITCHENHigh FiberHigh FiberChocolate Chip CookiesChocolate Chip CookiesArtie PinksterPO BOX 123Cookie City, MI 82682Ingredients: Enriched flour, butter, chocolate chips, nuts, sugar, eggs, salt, artificialvanilla extract, baking sodaMay Contain: wheat, eggs, milk, soy, nutsContains 3 Cookies
    7. 7. LabelingMADE IN A HOME KITCHEN NOT INSPECTED BY THE MICHIGANDEPARTMENT OF AGRICULTUREChocolate Chip CookiesChocolate Chip CookiesArtie Pinkster123 Foodstuff LaneCookie City, MI 82682Ingredients: Enriched flour (Wheat flour, niacin, reduced iron, thiamine, mononitrate,riboflavin and folic acid), butter (milk, salt), chocolate chips (sugar, chocolate liquor,cocoa butter, butterfat (milk), soy lecithin as an emulsifier), walnuts, sugar, eggs, salt,artificial vanilla extract, baking sodaContains: wheat, eggs, milk, soy, walnutsNet Wt. 3 oz
    8. 8. The business aspects of the MichiganCottage Food Act• Market managers are veryimportant to your success• Sales limit• Finance and Administration• In person sales only• Local zoning can be anissue• Liability insurance• Product insurance
    9. 9. Developing a BusinessDevelop a Concept• Is there a market?• Can you produce it?• Can you deliver it?• Can you finance it?• What is your risk tolerance?
    10. 10. DifferentiationIncreasing the bundle ofbenefits vs. decreasing price.Focus on customer’s needsand desires.Create points of difference.Focus on points of differenceTHE MEANS TO SUCCESS!
    11. 11. Competitor LogName Size RetailPriceAttributes Comments
    12. 12. MeansSourcePhysicalChangePerceptualChangeServiceChangeSupplyChangeQualityFunctionalityFormPlaceTimeEase ofPossessionDifferentiation Chart
    13. 13. Where Should I Sell?• Need to determine who will want to buy your product• Decide on the best means to deliver your product to yourcustomer• Use MarketMaker to identify your marketswww.mimarketmaker.msu.edu
    14. 14. Michigan Market Makerwww.mimarketmaker.msu.edu
    15. 15. Michigan Market Makerwww.mimarketmaker.msu.edu
    16. 16. Michigan Market Makerwww.mimarketmaker.msu.edu
    17. 17. PricingConsumer Price Ranges:• $1.00 - $5.00• $5.00 - $10.00• $10.00 - $15.00• $15.00 - $25.00• $25.00 - $50.00Find Shelf Price Range:• Jam at $4.00• Your jam is $7.50
    18. 18. PricingFinding Production Cost Target:• 40% of Retail PriceJam• Retail at $7.50• $7.50 X .40 = $3.00• $2.00 = packaging,labeling & time• $1.00 for ingredients
    19. 19. Legal Structures• Sole Proprietorship• Partnership• Limited Liability Company
    20. 20. Advantages•Easy and inexpensive to form•Complete control•Easy tax preparationDisadvantages•Unlimited personal liability•Hard to raise money•Heavy burdenSole Proprietorship
    21. 21. Advantages•Easy and Inexpensive•Shared Financial Commitment•Complementary Skills•Partnership Incentives for EmployeesDisadvantages•Joint and Individual Liability•Disagreements Among Partners•Shared ProfitsPartnership
    22. 22. Limited Liability CompanyAdvantages•Limited Liability•Less Recordkeeping•Sharing of ProfitsDisadvantages•Limited Life•Self-Employment Taxes
    23. 23. Insurance• General Liability• Product Liability• Home Based Business Insurance
    24. 24. General Liability• Covers:• Accident• Injury• Negligence• Expected Amount• $1 Million
    25. 25. Product Liability• Covers• Financial loss as a result of a defect productthat causes injury or bodily harm• Amount• $1 Million
    26. 26. Home-Based BusinessInsurance• Covers• Property damage• Accident and injury at home• Expected Amount• Depends
    27. 27. MIFMA Insurance• Michigan Farmers Market Association• $1 million in general liability.• $1 million in product liability.• Includes personal and advertising injury.• Must be a resident of Michigan.• Coverage is available at all farmers markets indicated onyour enrollment form.• $300 premium provides coverage from April 1 – March 31 (Standard premium is $500 for non-MIFMA members.)
    28. 28. Resources of the ProductCenter• One-on-one counseling in:• Strategic Planning• Operation/Production• Financial Planning• Organizational/Legal• Feasibility Study• Market Research• Resource Assessment• Human Resource Plan• Marketing Planning• Product Testing/Packaging• Regulatory Requirements• Label Design/Nutrition Labeling• Innovation Counselor network
    29. 29. Finding More HelpMichigan Department ofAgriculturemichigan.gov/mdaMichigan State UniversityProduct Centerproductcenter.msu.edu
    30. 30. QuestionsMicah LoucksInnovation Counselorloucksmi@msu.edu313.778.6028www.slideshare.net/loucksmi

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