How to Start a Home Bakery Business: Cottage Food Guide 2026

Quick answer: To start a home bakery business, read your state's cottage food law to see which baked goods you can make at home, register or get a permit if required, set up compliant labels, check local zoning and licenses, price each item from full cost plus margin, take deposits on custom orders and invoice every order. Foods outside the cottage law need a commercial kitchen.

Learning how to start a home bakery business begins with one question: what does your state's cottage food law allow? Those laws let you bake in your own kitchen and sell low-risk foods without a commercial kitchen, but each state sets its own list of approved foods, sales channels and label rules. Once you know the rules, the business side is simple: price properly, take deposits and send clear invoices. Our free invoice generator handles the billing in a couple of minutes per order.

This guide covers the legal steps, pricing and invoicing, with a worked cost and order example. It is written mainly for US readers and is general information, not legal, food safety or tax advice. Always confirm rules with your state and local authorities.

How to Start a Home Bakery Business Under Cottage Food Laws

Nearly every US state has some form of cottage food law, but the details vary widely. The main differences are:

• Allowed foods: most permit breads, cookies, cakes without perishable fillings, muffins, pastries, candy and jams. Foods that need refrigeration are generally excluded.
• Registration: some states require a permit or registration, sometimes with an inspection or food handler course. Others need nothing beyond a business license.
• Sales channels: some allow only direct sales to consumers, in person or for pickup, while others allow online orders, delivery, shipping within the state or wholesale to shops.
• Sales limits: some states cap annual gross sales, and some have no cap.
• Labels: almost all require a label with set information and a home kitchen statement.

California is a useful example of a tiered system: it splits cottage food operations into Class A, which sells directly to consumers, and Class B, which can also sell through other businesses such as cafes, with separate annual sales limits that are adjusted for inflation and a county permit or registration for each class. Your state may be simpler or stricter, so find its official cottage food page before you bake anything for sale.

Step 1: Check What You Can Bake and Sell

The table shows how common bakery products usually fit under cottage food rules. Treat it as a starting point, not a legal list.

Product	Usually allowed at home?	Why
Bread, rolls, bagels	Yes in most states	Shelf stable, low risk
Cookies, brownies, bars	Yes in most states	Shelf stable
Cakes with buttercream or fondant	Often yes	Many buttercreams are shelf stable; check your state
Cakes with cream cheese frosting or custard filling	Usually no	Need refrigeration
Fruit pies	Often yes	Cooked high-sugar fillings tend to be allowed
Cheesecake, cream pies, meringue pies	Usually no	Need refrigeration
Meat or cheese filled pastries	Usually no	High-risk ingredients
Jams and jellies	Often yes	High sugar and acid; some states limit types

If your best product falls outside the cottage law, you can rent time in a licensed commercial or shared kitchen and get the relevant food business license instead.

Step 2: Register the Business and Get Permits

1. Read your state cottage food rules and complete any registration, permit, inspection or food handler training they require.
2. Check home business zoning. The SBA notes that zoning can still apply to home-based businesses and is usually handled by your city or county, in its guide to licenses and permits.
3. Get a local business license if your city or county requires one, and keep the certificate with your cottage food registration.
4. Choose a structure and name. Most home bakers start as sole proprietors; our guide to types of business entities compares the options, and you may need a DBA for a bakery name.
5. Get a seller's permit if your state taxes the food you sell. Our guide to the seller's permit explains how.
6. Get an EIN from the IRS if you plan to hire or want to keep your Social Security number off forms. It is free.

Insurance

Product liability insurance covers claims that someone became ill or had an allergic reaction from your food. Many farmers markets and event organizers require it before you can sell. Ask your home insurer too, because a standard homeowner's policy may not cover business activity; the SBA notes that home-based business cover is often added as a rider.

Step 3: Set Up Labels and Food Safety Habits

Labels are where many new home bakers slip up. Most states require:

• The product name
• Your business name and address, or your registration number where the state allows it
• Ingredients in descending order by weight
• Major food allergens, such as wheat, milk, eggs, soy, peanuts and tree nuts
• Net quantity or weight
• A statement that the food was made in a home kitchen not inspected by the health department, in the exact wording your state sets

Alongside labels, keep pets out of the kitchen during production, store ingredients for the business separately where you can, and write down your recipes so ingredient lists stay accurate.

Equipment and kitchen setup

Most home bakers start with the kitchen they have and upgrade as orders grow. Before spending, list what limits your output today. Common early purchases include:

• A stand mixer with a large bowl, which saves hours on dough and buttercream
• Extra baking sheets, cake pans in standard sizes and cooling racks
• A digital scale for consistent recipes and accurate ingredient costs
• An oven thermometer, since home ovens often run hotter or cooler than the dial
• Food-safe storage containers and a dedicated shelf for business ingredients
• Boxes, cake boards, bags and a label printer

Track each purchase with a receipt. Equipment is a business cost, and knowing what you spent helps you set the overhead share in your prices.

Step 4: Price Every Item From Full Cost

The most common home bakery mistake is pricing by what a supermarket charges. Handmade, decorated items take much longer and should be priced from full cost. Our guide on how to price a product covers pricing strategies in detail.

Worked example: a dozen decorated cookies

The figures below are a baker's own example costs, not published averages:

• Ingredients (flour, butter, sugar, eggs, royal icing): $9.60
• Packaging and labels: $2.40
• Labor: 1.5 hours × $20 an hour = $30.00
• Overhead share (electricity, equipment wear, card fees): $3.00
• Full cost: $9.60 + $2.40 + $30.00 + $3.00 = $45.00
• Price with a 20% markup: $45.00 × 1.20 = $54.00
• Profit per dozen: $54.00 − $45.00 = $9.00, on top of the $30 paid for your time

If the baker charged $30 a dozen to match a store, they would earn $30 − $15 (ingredients, packaging and overhead) = $15 for 1.5 hours of work, or $10 an hour. Pricing from cost makes the real hourly rate visible. Our break-even point guide shows how many orders you need each month to cover fixed costs such as equipment and insurance.

Step 5: Choose Where and How to Sell

Your cottage law decides your channels. Common options include:

• Custom orders for birthdays, weddings and holidays, taken through social media or a simple website
• Farmers markets and craft fairs, which often need product liability insurance and a market fee
• Pre-order drops, where you announce a weekly menu and customers order for pickup
• Online sales and shipping, only where your state allows it
• Wholesale to cafes, only where your state allows indirect sales

Pre-orders and custom orders are the most efficient for a home kitchen: you bake to order, waste less and get paid before you start.

Selling at markets and events

Markets are a good way to test products and meet regular customers, but they work differently from custom orders. Before booking a stall, confirm that your cottage food law allows sales at that kind of event, and ask the organizer what paperwork they need, which often includes your registration and a certificate of product liability insurance. Plan a short menu of items that travel well and hold up for a day without refrigeration. Price in round numbers for fast cash handling, bring a card reader, and display labels and allergen information clearly. Record what sells and what comes home unsold, then adjust quantities for the next market so waste stays low.

A simple custom order process

1. Collect the details in writing: date, pickup or delivery, servings, flavors, design, allergies and budget.
2. Send a quote with the price, deposit amount, balance due date and your cancellation policy.
3. Confirm the order only when the deposit arrives, and block the date in your calendar.
4. Send a reminder and the balance invoice a few days before pickup.
5. Hand over the order with a label, care instructions and storage advice, then ask for a photo and review.

Setting a minimum lead time, such as two weeks for tiered cakes, protects your schedule. Rush orders can carry a surcharge if you choose to accept them.

Step 6: Take Deposits and Invoice Every Order

Personalized cakes cannot be resold, so take a deposit when the order is confirmed and the balance before pickup or delivery. Our guides to the deposit invoice and the bakery invoice template explain the fields to include.

Here is a party order built in our generator, assuming a state where bakery items are taxed at 6% and the baker charges a delivery fee:

Line	Calculation	Amount
Decorated sugar cookies	3 dozen × $54	$162.00
Two-tier buttercream birthday cake	1 × $180	$180.00
Subtotal	$162 + $180	$342.00
Sales tax	6% × $342	$20.52
Delivery (extra charge field)		$15.00
Total	$342 + $20.52 + $15	$377.52
Amount paid (deposit)		−$170.00
Balance due before delivery	$377.52 − $170	$207.52

Our generator adds the shipping or extra field after tax, so the delivery fee in this example is untaxed. Some states tax delivery charges, so check your state and add delivery as a line item if it should be taxed. The sales tax calculator works out the tax line, and our guide to sales tax on US invoices explains how to show it. A warm, friendly design such as the sunset invoice template suits a home bakery brand.

Number orders consistently with the invoice number generator, and use the invoice record to track total sales if your state has an annual sales cap.

Step 7: Taxes and Records

Profit from your bakery is self-employment income. You owe income tax and self-employment tax, and the IRS says individuals generally must make estimated payments if they expect to owe $1,000 or more, as set out on its estimated taxes page. Our guide to quarterly estimated taxes explains the schedule.

Keep receipts for ingredients, packaging, equipment, market fees and insurance. If you bake only a few orders a month as a side income, our guide to side hustle taxes covers what you still need to report.

Step 8: Know When to Outgrow Your Kitchen

Signs that you are ready to move beyond cottage food include hitting your state's sales cap, wanting to sell refrigerated products, getting wholesale requests your state does not allow at home, or running out of oven time. The usual next step is renting hours in a shared commercial kitchen before committing to a lease. If you also cater events, our catering invoice template guide shows how per-person pricing and deposits work.

Common Mistakes New Home Bakers Make

• Selling excluded foods. A cream cheese frosted cake may fall outside your cottage law.
• Incomplete labels. Missing allergens or the home kitchen statement can lead to fines.
• Pricing below cost. Count your decorating time, not just ingredients.
• No deposits. A cancelled custom cake is a total loss without one.
• No records. Without invoices you cannot track sales caps or prove income.

Create Your Home Bakery Invoice

Knowing how to start a home bakery business means following your cottage food law, pricing every item from full cost and collecting deposits on custom orders. When your next order comes in, open our free invoice generator, list each item, add tax and delivery if they apply, record the deposit and send a clean PDF to your customer.