FDA Rules Every Small Food Startup Should Know

When was the last time you bought gourmet cookies or artisan bread or hard-to-find pickles over the internet? Seems like a great kind of business to go into if you’re a great cook or baker, right? Well, yes and no. The cooking or baking might be the easiest part. The hard part is dealing with government food regulations like site inspections and labeling rules. So, we did some digging for you. Here are some important FDA rules every food startup should know.

If you haven’t read our overview article on starting a food processing business, go read it. It gives you a high-level understanding of which government agency regulates what. It also gives general strategic advice focused on small business exemptions.

This article only deals with the details of FDA food regulations and small business exemptions. We have a sister article on USDA rules if you plan to sell anything with meat or poultry. All our food articles are focused on US law, so if you live in another country, you’ll have to do additional research for your food business.

This article is only on people food instead of pet food (which the FDA also regulates). Here’s our article on pet food or pet treats (publication 2-18-2022), if that’s what you’re looking for. Although we sometimes mention nutritional supplements in this article, if you plan to sell supplements, you’ll need to do additional research as well.

What Types of Food Does the FDA Regulate?

The short and easy answer is that the FDA regulates all food except meat, poultry, and some aspects of eggs. But the devil is in the details. In fact, it can get quite confusing and non-sensical.

One way to look at this is that the FDA regulates all foods except for those that came from farms. Those foods that came fresh from farms are regulated by the USDA. Because meat and poultry (and farmed catfish!) all came from farms, the USDA regulates them. Still, there are other foods like raw honey that don’t follow this logic.

Very likely, the real answer is that the laws that gave these two government agencies regulatory authority is a little unclear on how the work should be divided. And, over the years, the two agencies worked together to clear up the details and figured out who manages what.

So, if in doubt, contact one of these agencies to get the right answer.

What Food Activities Does the FDA Regulate?

If you plan to process food for sale, how would you be interacting with the FDA? Here’s a list of activities the FDA regulates:

• Importation of foods
• Food facility registration (and inspection)
• Seafood and juice HACCP (HACCP stands for Hazard Analysis and Critical Control Points and is a systemized way to ensure food safety)
• Canned and picked foods
• All issues governed by the Food Safety and Modernization Act (FSMA) (This broad law basically sweeps in all human foods)
• Food labeling (e.g. ingredients list, net weight, Nutrition Facts label, etc.)
• Food ingredients (e.g. food coloring)
• Food packaging

From a practical standpoint, except for extremely small businesses (and a food startup might be that), all food businesses have to register with the FDA. Businesses also have to keep documents in a way required by the FDA. These documents become useful in case of food recalls, for example.

Sometimes, but not always, the FDA will send inspectors to inspect food processing facilities for safety and sanitation. Other times, the FDA will draft guidance to businesses on how to follow various food laws and regulations.

For example, the FDA has a detailed Food Labeling Guide to explain where and what type of information should be listed on food labels. It is up to each business to follow this guide and to label correctly, because the FDA doesn’t approve labels. (The USDA, on the other hand, does approve labels and will confiscate food improperly labeled.)

If you skim through these regulations and guides, you’ll find that they’re quite complicated. Some might require laboratory testing, which can get expensive for a small food startup. Fortunately, there are a lot of exceptions and exemptions for small businesses in these laws and regulations.

FDA Food Exemptions for Small Food Startups

To encourage folks to start small food processing businesses, a lot of exemptions are written into the FDA’s food regulations. The exemptions allow small food startups to slowly come in line with the full regulations without having to invest a great deal of money into a business that may or may not survive its first five years. (Five-year survival rate of new businesses is just 50%.)

Below is a quick survey of the FDA exemptions for small and very small businesses. Note that the definition of small business and very small business can be different for different laws and regulations. For now, just know that these definitions exist. So, if you have to do additional research, you can search for these very specific key words and, hopefully, find the exemptions faster.

For the Nutrition Label exemption, know that if you make a “health claim” (e.g. low calories), then you can’t use the exemption.

Home-Based Food Startups

According to the FDA, it does not have the authority to regulate home-based food businesses. This means a home kitchen at an honest-to-goodness residence. Don’t try to get cute by partitioning off an area in a commercial space and put in a bed and a shower.

Home-based food businesses are often regulated by states through cottage food laws. These laws are very specific on what types of foods you can make in your home kitchen and how and where you can sell the foods. Most cottage food laws also limit the businesses to an annual gross income of $50,000.

Generally, you can sell items like baked goods, candy, nuts, dried fruit, and jams and jellies under cottage food laws. You cannot sell meat or dairy products because these require strict refrigeration standards. You also cannot sell pickled or canned products because of botulism.

For more on cottage food laws, see our detailed article (publication 2-11-2022).

Retail-Only Food Startups

Let’s say you started as a home kitchen making your mom’s oatmeal and raisin cookies. In just a few months, you know you’ve got a hit even though you haven’t yet hit that $50,000 gross sales mark to take you outside the cottage food laws.

Still, your kitchen is a mess, and you know you want to quit that job you hate and sell the cookies full time. So, you formally form your business as an LLC and go out and lease a commercial kitchen space. Do you now have to follow all the complicated FDA regulations?

Happily, you do not, if you:

1. Sell only directly to retail customers (i.e. no selling to wholesalers who then distribute to shops that retail to consumers), and
2. Have annual gross sales of not more than $500,000 total for food or non-food items combined, and
3. Have combined annual gross sales of food and/or nutrition supplement of $50,000 or less.

If you qualify, you won’t have to register with the FDA and you won’t have to spend the time or money to make a Nutrition Facts label.

But you’ll still have to follow state and local health and zoning regulations. You’ll also have to follow the other parts of the FDA’s labeling rules. But if you started out as a cottage food business, you’ve probably been pretty much following it already.

Low-Volume Wholesale Businesses

Let’s say you want to work from a commercial kitchen but you also want to wholesale to grocery stores, convenience stores, restaurants, and the like. In that case, you’ll have to register your facility with the FDA. They won’t inspect your facility, but they want to know that you exist.

However, you won’t need a Nutrition Label if you:

1. Employ, on average, fewer than 100 “full time equivalent” employees, and
2. Sell less than 100,000 units of the product in a 12 months period.

A unit means a package. So, if you always pack your cookies five to a bag, then you can sell 100,000 bags/year before you graduate from this exemption.

Small or Very Small Businesses

The FDA regulates a lot of aspects of the food processing business. So far, the exemptions we’ve looked at relate more to facility registration and the Nutrition Facts label.

But the FDA also regulates the sanitation of your manufacturing facility. It does so through a regulation called the Current Good Manufacturing Practice, Hazard Analysis, and Risk-Based Preventive Controls for Human Food.

The regulation requires food processing businesses to set up a plan that includes:

• A hazard analysis
• Preventive controls
• A risk-based supply chain program
• A recall plan
• Procedures for making sure the preventive controls are implemented and are actually minimizing food hazards

This, of course, can get very complicated, very time consuming, and very expensive. Luckily, many small food starups are exempt from this regulation.

For this regulation, a very small business is defined as business that averages less than $1,000,000 in gross food sales. See here for the detailed definition.

A very small business is fully exempt from the regulation if it:

• Has a self-administered HACCP plan and formally notifies and attests to the FDA of this fact, or
• Is complying with state or local level food safety regulations that has an HACCP equivalent plan, is notifying its customers of its manufacturing facility address, and notifies the FDA to claim this exemption.

See this FDA guide for the full rule and for the formal wording of the exemption (p. 7).

Other Small Food Startup Exemptions

In addition to what we’ve covered above, the FDA regulates other areas such as juice making, canning, and nutritional supplement operations. They also regulate most seafood and seafood processing. So, there may be other small business exemptions related to these procedures that we haven’t covered here.

If your business involves these activities, be sure to research the FDA website to see if additional small business exemptions apply to you.

A Word About Nutrition Facts Labels

If your food business is successful, sooner or later, you’ll need to have a Nutrition Facts label for each of your products. There are several ways to make a Nutrition Facts label, some are fast but expensive and others are slow but free.

The most expensive way to make a Nutrition Facts label is to have a food laboratory test your food and make a label based on the test results. This will give you the most accurate results.

Another way to make your Nutrition Facts label is to sign up for online databases where you can type in your ingredients and amount, and the software will generate a label for you. We suspect the database is not cheap because we can’t find pricing for any of them.

Lastly, the USDA has a free database called FoodData Central. It has raw data from various sources. In fact, many commercial Nutrition Facts label databases pull information from this database. However, you’ll have to covert the measurements and amounts yourself.

We looked up a few basic foods, and it’s probably not going to be easy to convert the information to a usable form. But, of course, you can try it first before upgrading yourself to other options. After all, FoodData Central is free.

We recommend you make your Nutrition Facts labels early in your business. Partly, this is so you won’t have to spend a lot of money fast, when you run out of small business labeling exemptions.

But the most important reason is that today’s consumers are often health-conscious. Having the label adds credibility to your food and business. And credibility and trust in your product—especially a food product—is a good thing.

How to Strategically Use the FDA Small Business Exemptions to Build a Successful Food Processing Business

Food processing can be a complicated business, especially when you graduate from a home-based food startup to an outside facility. Fortunately, if you’re regulated by the FDA and if you’re a small business, you’re exempt from a lot of requirements that the bigger processors have to follow.

However, if you’re successful, you can outgrow these exemptions fairly quickly. So, we recommend you use the exemption period to slowly bring your business up to the full FDA requirements. This way, you can learn about the sanitation rules and spend the required money at your own pace.

That is the best way to use your small business exemptions to grow.

Interested in starting and running a small business? Here’s the beginning of our step-by-step guide: What to do right after getting that great business idea.

DISCLAIMER: This article does not constitute legal or accounting advice. Instead, it contains general information. The information gives you the background you’ll need to hit the ground running when you do go get advice from a lawyer or accountant. Only lawyers and accountants properly licensed in your state/country are qualified to give you legal or accounting advice.