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STARTING A FOOD STARTING A FOOD BUSINESSBUSINESS

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Steven C SeidemanSteven C Seideman

Extension Food Processing SpecialistExtension Food Processing Specialist

Cooperative Extension ServiceCooperative Extension Service

University of ArkansasUniversity of Arkansas

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Starting a Food BusinessStarting a Food Business

This module of instruction is for people This module of instruction is for people who are interested in starting a food who are interested in starting a food processing business or learning more processing business or learning more about how to get a food product on the about how to get a food product on the market.market.

It will assist you in the process of getting It will assist you in the process of getting started with helpful hints and contacts to started with helpful hints and contacts to make your journey easier.make your journey easier.

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IntroductionIntroduction

Everyday, people come up with ideas for food Everyday, people come up with ideas for food products that they think may have a market.products that they think may have a market.

Some of these ideas are simply an old family Some of these ideas are simply an old family recipe for a salsa, barbeque sauce or something recipe for a salsa, barbeque sauce or something that friends have encouraged them to market.that friends have encouraged them to market.

Some of these ideas involve totally new products Some of these ideas involve totally new products that may have a market. Almost every major that may have a market. Almost every major food company in existence today started with food company in existence today started with someone in your situation- an entrepreneur.someone in your situation- an entrepreneur.

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So you have an idea for a food So you have an idea for a food productproduct

15,000 new food products introduced to the 15,000 new food products introduced to the marketplace every year.marketplace every year.

Only about 10% last more than one year.Only about 10% last more than one year.

Only about 1-2% ever return the investment Only about 1-2% ever return the investment made to introduce them to the marketplace.made to introduce them to the marketplace.

As a future entrepreneur, you need to be aware As a future entrepreneur, you need to be aware of these statistics and make prudent, minimal-of these statistics and make prudent, minimal-risk decisions that get you where you want to go.risk decisions that get you where you want to go.

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GETTING MARKET SHAREGETTING MARKET SHARE

The single most important success factor a new The single most important success factor a new entrepreneur needs to focus on is getting market entrepreneur needs to focus on is getting market share or volume.share or volume.

People tend to be “creatures of habit”. This People tend to be “creatures of habit”. This means they tend to eat the same foods over and means they tend to eat the same foods over and over again. They tend to eat what they are over again. They tend to eat what they are accustomed to.accustomed to.

In any retail food store, there are literally In any retail food store, there are literally thousands of types and brands of food.thousands of types and brands of food.

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GETTING MARKET SHAREGETTING MARKET SHARE

So how are you going to get a potential So how are you going to get a potential customer to pick up your product? Why customer to pick up your product? Why should they pick up your product versus should they pick up your product versus the competition??the competition??

If you have a great tasting product, how If you have a great tasting product, how will the potential customer ever know it will the potential customer ever know it until they pick it up, purchase it, take it until they pick it up, purchase it, take it home and try it?home and try it?

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FOCUS ON THISFOCUS ON THIS

WHAT WILL I DO TO GET A WHAT WILL I DO TO GET A POTENTIAL CUSTOMER TO POTENTIAL CUSTOMER TO PICK UP MY PRODUCT???PICK UP MY PRODUCT???

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VALUE ADDED FOODSVALUE ADDED FOODS

Value-added food products result when a food Value-added food products result when a food commodity is further processed to produce a commodity is further processed to produce a benefit to the consumer.benefit to the consumer.

Examples are precooked meats and entrees Examples are precooked meats and entrees where all the customer needs to do is “heat and where all the customer needs to do is “heat and serve”serve”

Another example is individually wrapped slices Another example is individually wrapped slices of cheese. This is truly a benefit to customers of cheese. This is truly a benefit to customers and they are willing to pay for it. and they are willing to pay for it.

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FOOD CHANNELSFOOD CHANNELS

Food goes through one of 2 channels;Food goes through one of 2 channels;

*Retail-Sold directly to ultimate consumers *Retail-Sold directly to ultimate consumers where thousands of products are on where thousands of products are on display and competition is fierce.display and competition is fierce.

*Food Service-Sold to restaurants and *Food Service-Sold to restaurants and institutions that prepare the food for the institutions that prepare the food for the ultimate consumer.ultimate consumer.

1212Photo courtesy of USDA

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The Food Service ChannelThe Food Service Channel

The food service channel is one of the The food service channel is one of the most fertile grounds for value added most fertile grounds for value added products.products.They want food items that are prepared so They want food items that are prepared so all they have to do is “heat and serve”.all they have to do is “heat and serve”.They are concerned with the cost and They are concerned with the cost and quality of the workforce.quality of the workforce.Food Safety concerns are also at the top Food Safety concerns are also at the top of their minds.of their minds.

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Photo courtesy of National Restaurant

Association

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Developing Formulations and Developing Formulations and Preparation SchedulesPreparation Schedules

This is the first step in commercializing your This is the first step in commercializing your product idea.product idea.Write out the name of the product, what it does, Write out the name of the product, what it does, how it will be used etchow it will be used etcWrite out the formula in detail. What are the Write out the formula in detail. What are the ingredients and how much of eachingredients and how much of eachWrite out how the product is made-where Write out how the product is made-where mixing, cooking etc take place in the flow of your mixing, cooking etc take place in the flow of your product from raw material to finished/packaged product from raw material to finished/packaged product.product.

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Developing Formulations and Developing Formulations and Preparation InstructionsPreparation Instructions

After you have collected and wrote down After you have collected and wrote down all these formulas and preparation all these formulas and preparation instructions, contact Steve Seideman at instructions, contact Steve Seideman at the Institute of Food Science & the Institute of Food Science & Engineering;Engineering;

We will help you decide if you want to We will help you decide if you want to process the food item yourself or take it to process the food item yourself or take it to a food processor who will copack it for a food processor who will copack it for you. you.

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FOOD PROCESSING FOOD PROCESSING ASSISTANCEASSISTANCE

Steven C Seideman, PhDSteven C Seideman, PhD Extension Food Processing SpecialistExtension Food Processing Specialist Institute of Food Science & EngineeringInstitute of Food Science & Engineering University of ArkansasUniversity of Arkansas 2650 North Young Ave2650 North Young Ave Fayetteville AR 72704Fayetteville AR 72704 479/575-4221479/575-4221 seideman@uark.eduseideman@uark.edu

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FOOD PROCESSING FOOD PROCESSING ASSISTANCEASSISTANCE

The Institute of Food Science & The Institute of Food Science & Engineering works with the Department of Engineering works with the Department of Food Science to assist entrepreneurs like Food Science to assist entrepreneurs like yourself in food product development and yourself in food product development and commercialization. commercialization.

Details of the services we provide can be Details of the services we provide can be found at www.uark.edu/ua/foodpro.found at www.uark.edu/ua/foodpro.

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Directory of ServicesDirectory of Services

Pilot Plant TestingPilot Plant TestingNutritional LabelingNutritional LabelingInstrumentation Food AnalysisInstrumentation Food AnalysisShort Courses/ Work ShopsShort Courses/ Work ShopsDistance Education CoursesDistance Education CoursesSensory/ Taste PanelsSensory/ Taste PanelsIdea DevelopmentIdea DevelopmentGrants AssistanceGrants AssistancePublicationsPublications

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Regulations and Regulatory Regulations and Regulatory AgenciesAgencies

The following are the contacts The following are the contacts for the regulatory agencies for the regulatory agencies that cover food products.that cover food products.

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Government AgenciesGovernment Agencies

There are basically 2 federal agencies involved There are basically 2 federal agencies involved in food regulationin food regulation

1)1)The U.S. Department of AgricultureThe U.S. Department of Agriculture-Food Safety -Food Safety and Inspection Service (USDA/FSIS) controls and Inspection Service (USDA/FSIS) controls meat and meat products, any food item meat and meat products, any food item containing 5% or more meat and open-faced containing 5% or more meat and open-faced sandwiches (including pizza).sandwiches (including pizza).

2)2)The Food and Drug AdministrationThe Food and Drug Administration (FDA) (FDA) controls all other food items and has contracted controls all other food items and has contracted with the Arkansas Department of Health for with the Arkansas Department of Health for services in Arkansas.services in Arkansas.

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USDA/FSISUSDA/FSIS

USDA/FSIS District OfficeUSDA/FSIS District Office

4700 S. Thompson4700 S. Thompson

Springdale, AR 72764Springdale, AR 72764

479/751-8412479/751-8412

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The Arkansas Department of The Arkansas Department of HealthHealth

Arkansas Department of Health State Arkansas Department of Health State OfficeOffice

4815 West Markham4815 West Markham

Little Rock AR 72205Little Rock AR 72205

501/661-2171501/661-2171

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FDA Small Business FDA Small Business RepresentativeRepresentative

David ArveloDavid Arvelo Small Business RepresentativeSmall Business Representative Southwest RegionSouthwest Region Federal Food & Drug AdministrationFederal Food & Drug Administration Dallas, TX 75204Dallas, TX 75204 214/253-4952214/253-4952

www.fda.gov/fed_state/small_business/sb_guidewww.fda.gov/fed_state/small_business/sb_guide/default.html/default.html

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Government Food AgenciesGovernment Food Agencies

If you have a food product containing If you have a food product containing meat, you must contact USDA/FSIS.meat, you must contact USDA/FSIS.

For all other products, it is best to start by For all other products, it is best to start by going to your county Department of going to your county Department of Health. Obtain a copy of the regulations Health. Obtain a copy of the regulations from the county sanitarian and review the from the county sanitarian and review the regulations.regulations.

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Department of HealthDepartment of Health

Requires that all food prepared/processed for Requires that all food prepared/processed for sale must be manufactured in an approved sale must be manufactured in an approved facility.facility.

To be approved, the facility must meet To be approved, the facility must meet requirements related to such things as kinds and requirements related to such things as kinds and number of sinks, location of restroom and number of sinks, location of restroom and materials used in flooring, walls and counters. materials used in flooring, walls and counters.

Home kitchens or ranges placed in garages will Home kitchens or ranges placed in garages will not be approved for commercial food not be approved for commercial food preparation.preparation.

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COUNTY HEALTH COUNTY HEALTH DEPARTMENTDEPARTMENT

The county Health Department has two The county Health Department has two publications that will help you with the publications that will help you with the regulations;regulations;

*Plan Review Guidelines for Food Related *Plan Review Guidelines for Food Related EstablishmentsEstablishments *Rules and Regulations Pertaining to Good *Rules and Regulations Pertaining to Good Manufacturing Practices (GMPs) for Manufacturing Practices (GMPs) for

Food Food Processing Establishments.Processing Establishments.

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PRODUCT CODEPRODUCT CODE

The Arkansas Department of Health requires The Arkansas Department of Health requires that food processors provide a meaningful code that food processors provide a meaningful code for food products. for food products.

The code provides a means for tracking product The code provides a means for tracking product should there be complaints or if a recall is should there be complaints or if a recall is necessary.necessary.

The code should consist of where the product is The code should consist of where the product is manufactured, the date and year it was manufactured, the date and year it was manufactured, the product and batch number.manufactured, the product and batch number.

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Labeling your ProductLabeling your Product

The label is the means by which consumers The label is the means by which consumers identify your product, so time and thought should identify your product, so time and thought should be spent developing a label that draw customers be spent developing a label that draw customers to your product and also complies with federal to your product and also complies with federal and state regulations.and state regulations.The federal regulations require that your product The federal regulations require that your product be labeled to conform to a standard of identity, be labeled to conform to a standard of identity, qualifying statements, weight standards, name qualifying statements, weight standards, name and address of processor, ingredient statement and address of processor, ingredient statement and a nutritional label.and a nutritional label.

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NUTRITIONAL LABELINGNUTRITIONAL LABELING

All food agencies require nutritional All food agencies require nutritional labeling if you do more than $50,000 in labeling if you do more than $50,000 in business. The requirements for nutritional business. The requirements for nutritional labeling can be found at the FDA Small labeling can be found at the FDA Small Business website previously listed.Business website previously listed.

The Institute of Food Science & The Institute of Food Science & Engineering can assist you with the Engineering can assist you with the nutrition figures.nutrition figures.

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UNIVERSAL PRODUCT CODE-UNIVERSAL PRODUCT CODE-UPCUPC

If you plan to sell your product through retail If you plan to sell your product through retail stores, you should plan to get a UPC code.stores, you should plan to get a UPC code.

This barcode provides a means for automated This barcode provides a means for automated identification of your product.identification of your product.

Most brokers, wholesalers and retail buyers will Most brokers, wholesalers and retail buyers will not handle your product without a UPC code.not handle your product without a UPC code.

To obtain a UPC number, contact the following.To obtain a UPC number, contact the following.

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UPC CODEUPC CODE

Uniform Code Council, IncUniform Code Council, Inc

7887 Washington Village Dr, Suite 3007887 Washington Village Dr, Suite 300

Dayton, OH 45459Dayton, OH 45459

937/435-3870937/435-3870

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UPDATEUPDATE

Up to this point, we have covered;Up to this point, we have covered;

*New product ideas and value added.*New product ideas and value added.

*Writing out the product description, formula, *Writing out the product description, formula,

processing instructions.processing instructions.

*Regulations and regulatory agencies*Regulations and regulatory agencies

Now we can go into one of the most difficult, yet Now we can go into one of the most difficult, yet exciting parts of the new product development exciting parts of the new product development scheme.scheme.

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BUSINESS CONSIDERATIONSBUSINESS CONSIDERATIONS

Most difficult, yet most exciting and Most difficult, yet most exciting and important aspect of starting a food important aspect of starting a food business.business.

A majority of companies that go into A majority of companies that go into business go broke the first couple of years business go broke the first couple of years because the entrepreneurs did not fully because the entrepreneurs did not fully understand the marketplace or the understand the marketplace or the financial realities of the business.financial realities of the business.

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DON’T PANIC- THERE IS DON’T PANIC- THERE IS HELP!!HELP!!

There is help available from experts to There is help available from experts to help you in this area.help you in this area.

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Small Business Development Small Business Development CenterCenter

The Small Business Development Center at the The Small Business Development Center at the Sam Walton School of Business at the Sam Walton School of Business at the University of Arkansas offers free brochures and University of Arkansas offers free brochures and consulting to Arkansas-based businesses in consulting to Arkansas-based businesses in planning the business considerations for planning the business considerations for entrepreneurs.entrepreneurs.

It is strongly suggested that you have as much It is strongly suggested that you have as much of your plan written up before going to them for of your plan written up before going to them for advice so they can go through what you have advice so they can go through what you have and what you plan to do.and what you plan to do.

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Sam Walton School of Business Sam Walton School of Business

Contact;Contact;

Jay McLaughlin, Center DirectorJay McLaughlin, Center Director

Small Business Development CenterSmall Business Development Center

Sam M Walton School of BusinessSam M Walton School of Business

140 Reynolds Center140 Reynolds Center

Fayetteville, AR 72701Fayetteville, AR 72701

479/575-6072479/575-6072

www.waltoncollege.uark.edu/sbdcwww.waltoncollege.uark.edu/sbdc

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BUSINESS PLANNINGBUSINESS PLANNING

Before entering a food processing business, you Before entering a food processing business, you should develop a comprehensive business plan should develop a comprehensive business plan to include detailed descriptions of the following;to include detailed descriptions of the following;

*Organization of the business*Organization of the business

*The product(s) to be produced.*The product(s) to be produced.

*Market analysis and marketing plan*Market analysis and marketing plan

*The financial plan*The financial plan

*Operational characteristics and management *Operational characteristics and management plan.plan.

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The Business PlanThe Business Plan

Such a plan will help in determining the Such a plan will help in determining the feasibility of the enterprise and will likely feasibility of the enterprise and will likely be required when seeking outside be required when seeking outside financing.financing.

This information should be written down This information should be written down before contacting the Small Business before contacting the Small Business Development Center.Development Center.

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TWO CONSIDERATIONSTWO CONSIDERATIONS

The two most important areas to be The two most important areas to be considered as you decide whether or not considered as you decide whether or not to enter the food processing business are to enter the food processing business are marketing and finance.marketing and finance.

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The Art of MarketingThe Art of Marketing

One has to constantly find ways to get potential One has to constantly find ways to get potential customers to buy your products.customers to buy your products.This is rarely done by advertising the simple This is rarely done by advertising the simple truths of a product because it doesn’t work.truths of a product because it doesn’t work.It must appeal to the customer in some way that It must appeal to the customer in some way that personally affects them or by repetition (eg How personally affects them or by repetition (eg How many times do we see the same commercial many times do we see the same commercial over and over). over and over). These may seem odd but they work.These may seem odd but they work.

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MARKETINGMARKETING

The most important marketing consideration is to The most important marketing consideration is to simply understand your product and its place in simply understand your product and its place in the marketplace.the marketplace.

*What are the characteristics of your product which *What are the characteristics of your product which will make it appeal to the target market?will make it appeal to the target market?

*Who are the constituents of the target market?*Who are the constituents of the target market?*Is the market for your product likely to grow?*Is the market for your product likely to grow?*Is the production, distribution and/or promotion of *Is the production, distribution and/or promotion of

your product seasonal or restricted by your product seasonal or restricted by geographic or other factors?geographic or other factors?

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COMPETITION CONCERNSCOMPETITION CONCERNS

What is the availability of the same or similar What is the availability of the same or similar products?products?Are substitutes available?Are substitutes available?Why should a consumer buy your product rather Why should a consumer buy your product rather than that of a competitor?than that of a competitor?How many competitors exist and what is their How many competitors exist and what is their size (market share)?size (market share)?Are competitors willing to protect their market Are competitors willing to protect their market share by cutting prices?share by cutting prices?

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DISTRIBUTION AND DISTRIBUTION AND PROMOTION CONCERNSPROMOTION CONCERNS

Will your product be distributed through direct sales, Will your product be distributed through direct sales, mail order, wholesalers, specialty shops or large mail order, wholesalers, specialty shops or large retailers?retailers?

Do the characteristics of your product fit your Do the characteristics of your product fit your distribution channel?distribution channel?

What is your advertising plan?What is your advertising plan?

*How to differentiate your product from the *How to differentiate your product from the competition?competition?

*What media to use to reach the consumer?*What media to use to reach the consumer?

*Are you willing to accept introductory discounts, *Are you willing to accept introductory discounts,

coupons, slotting fees or other promotional tie-inscoupons, slotting fees or other promotional tie-ins??

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PRODUCT COSTING PRODUCT COSTING CONCERNSCONCERNS

What will be the price of your product and will it What will be the price of your product and will it sell at that price?sell at that price?

Does the market for similar goods exhibit relative Does the market for similar goods exhibit relative price stability?price stability?

Are the costs of producing the product likely to Are the costs of producing the product likely to remain relatively stable?remain relatively stable?

And lastly and most important, can the product And lastly and most important, can the product be produced, distributed and sold at a profit?be produced, distributed and sold at a profit?

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FINANCINGFINANCING

While help is available in answering While help is available in answering questions about financial issues, one is questions about financial issues, one is well-advised to seek competent well-advised to seek competent professional advice when attempting to professional advice when attempting to address the various financial issues.address the various financial issues.

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FINANCIAL CONCERNSFINANCIAL CONCERNS

Form of business organization-Sole Form of business organization-Sole proprietorship, partnership, limited liability proprietorship, partnership, limited liability company or corporation?company or corporation?Capital intensity-is your type of business Capital intensity-is your type of business characterized by high fixed or high variable characterized by high fixed or high variable costs?costs?Start-up costsStart-up costsLevel of inventory neededLevel of inventory neededLevel of accounts receivableLevel of accounts receivableSales forecastSales forecast

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Financial ConcernsFinancial Concerns

If you know the answers to the previous If you know the answers to the previous questions, you may be able to determine questions, you may be able to determine the amount of internal versus external the amount of internal versus external funding you will need.funding you will need.

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FROM RECIPE TO REALITY FROM RECIPE TO REALITY

The University of Nebraska holds The University of Nebraska holds seminars several times per year for seminars several times per year for entrepreneurs.entrepreneurs.This seminar is an excellent way for This seminar is an excellent way for individuals to learn about the issues they individuals to learn about the issues they will need to consider when starting a food will need to consider when starting a food manufacturing business.manufacturing business.This seminar has been going on for years This seminar has been going on for years and is the best of its type.and is the best of its type.

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FROM RECIPE TO REALITYFROM RECIPE TO REALITY

It is a one-day program and costs about It is a one-day program and costs about $350.00.$350.00.The University of Nebraska has other programs The University of Nebraska has other programs in place to help entrepreneurs.in place to help entrepreneurs.Contact;Contact;

Jill GiffordJill Gifford Food Entrepreneur Assistance Program Food Entrepreneur Assistance Program Manager.Manager. 402/472-2832402/472-2832 jgifford1@unl.edujgifford1@unl.edu

5858Photo from University of

Nebraska

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CONCLUSIONSCONCLUSIONS

Having a solid idea for starting a food processing Having a solid idea for starting a food processing business is a good start, but knowledge of the business is a good start, but knowledge of the regulatory, production, marketing and financial regulatory, production, marketing and financial aspects of starting such a business is an integral aspects of starting such a business is an integral part of the overall process.part of the overall process.

This module has covered some of the highlights This module has covered some of the highlights and available resources you can use to get and available resources you can use to get started.started.

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