Decided to open a business in the food industry? Just before you rush to sign a lease or order expensive kitchen equipment, it's worth remembering that the road from the dream to the customer's plate runs through a maze of bureaucratic hurdles.
The food sector is subject to strict regulation, divided between the requirements of the Ministry of Health, the tax authorities, the fire department and municipal business licensing regulations.
Identifying the sanitary, commercial and legal considerations at an early stage makes it possible to build a realistic business plan, and thus to successfully navigate the stages of establishing the business.
What approvals are required to open a business in the food industry?
Food businesses are subject to the Business Licensing Law, 5728-1968, and licensing requirements vary according to the type of business, the activity and the location. A restaurant, a catering business (food manufacturers and bakery operations, for example, are not assessed in the same way). You must also check the requirements of the local authority and the Ministry of Health.
Activity involving the production or handling of food is subject to the Protection of Public Health (Food) Law, 5776-2015. The requirements include, among other things: sanitary conditions, storage, cleanliness, handling of raw materials and temperature control.
Can a food business be operated from home?
Not every home kitchen is suitable for producing or selling food commercially. In some cases, questions may arise regarding use contrary to the designated purpose – which constitutes a violation of planning and building laws, licensing requirements and more.
For example: a particular structure may not conform to the city building plan, which defines a specific designated use for each parcel of land and each structure.
What type of business is best to open from the tax authorities' perspective?
It is important to choose the business structure according to the expected turnover, the expenses, the nature of the activity, the business plan and more. The options include exempt dealer (osek patur), licensed dealer (osek murshe) or a limited liability company (Ltd.).
Opening a business also requires opening files and managing your affairs with VAT, the Income Tax Authority and the National Insurance Institute. You must register with National Insurance and report the commencement of activity. National Insurance advance payments are determined according to income during the year. It is important to report the expected income and to update any significant changes in activity.
Which insurance policies are important to consider in a food business?
In food businesses it is important to consider third-party liability insurance, professional liability insurance and property insurance. Depending on the activity, there may also be coverage relating to the food products and to the potential damages typical of the sector. The type of insurance depends on the nature of the activity and the risks it involves.
For example: a landlord, a supplier or a business client may impose certain insurance requirements. Engagements with retail chains or other businesses may also include insurance conditions. Refrigerated transport, deliveries, etc. – all of these require insurance of their own.
Proper planning of the business's financial management
The costs of raw materials, employees, rent, packaging, electricity and depreciation all have a significant impact on a food business. Therefore, you should build a forecast that separates fixed expenses from variable ones, and then examine and decide what price is required in order to maintain profitability. It is important to plan and build the cash flow before opening the business. This makes it possible to identify in advance periods in which income does not cover expenses. Professional guidance makes it considerably easier to build the financial framework suited to the anticipated activity.