How to Start a Class B Cottage Food Business in Texas (2025)

Texas just made wholesale cottage food operations significantly more attractive. Thanks to Senate Bill 541, which took effect September 1, 2025, Class B cottage food producers can now earn up to $150,000 annually — double the previous cap — while selling through wholesale channels, third-party vendors, and online platforms.

If you're ready to scale beyond farmers markets and direct sales, a Class B operation opens doors that Class A simply can't. But the setup process involves more regulatory steps, stricter labeling requirements, and additional business considerations.

Who This Guide Is For

This guide walks through setting up a Class B cottage food operation in Texas, specifically for producers who want to:

• Sell wholesale to restaurants, cafes, or retail stores
• Use third-party platforms like online marketplaces
• Scale beyond the $50,000 Class A limit
• Build a more substantial food business from home

You'll learn the exact registration process, understand the regulatory differences from Class A, and get a practical checklist to launch your wholesale operation legally and efficiently.

Understanding Class B vs Class A Operations

Class B operations differ from Class A in several key ways that affect how you structure your business.

Sales channels: Class A limits you to direct-to-consumer sales at your home, farmers markets, and similar venues. Class B allows wholesale to restaurants, retail stores, and third-party vendor platforms.

Annual revenue cap: Class A caps at $50,000 annually. Class B allows up to $150,000 as of 2025.

Registration requirements: Class A requires basic registration with your county health department. Class B requires registration with the Texas Department of State Health Services (DSHS) plus additional documentation.

Labeling standards: Both classes require specific labeling, but Class B products often need more detailed ingredient lists and allergen warnings for wholesale buyers.

Inspection potential: While neither class requires routine inspections, Class B operations may face more scrutiny if complaints arise, given their broader distribution.

Step 1: Verify Your Products Qualify

Not all cottage food products qualify for Class B operations. Texas allows the same product categories for both classes, but wholesale buyers often have stricter expectations.

Allowed products include baked goods (breads, cookies, cakes), candies, fruit preserves, dried fruits, nuts, popcorn, granola, and similar shelf-stable items.

Prohibited items include anything requiring refrigeration, meat products, dairy (except hard cheeses in some cases), and products with cream fillings or custards.

Before investing in Class B registration, confirm your target wholesale buyers actually want cottage food products. Some restaurants prefer commercial suppliers for consistency, while others specifically seek local cottage food producers for unique items.

Step 2: Complete DSHS Registration

Class B registration happens through the Texas Department of State Health Services, not your local county health department.

Gather required documents:

• Completed cottage food operation registration form
• List of products you plan to produce
• Copy of your driver's license or state ID
• Registration fee (currently $100, but verify current amount)

Submit your application online through the DSHS cottage food portal or by mail. Processing typically takes 2-3 weeks, though it can extend longer during busy periods.

Receive your registration number. Once approved, you'll receive a unique registration number that must appear on all your product labels. Keep this documentation accessible — wholesale buyers often request proof of registration.

Step 3: Design Compliant Labels

Class B labeling requirements are identical to Class A, but wholesale sales often demand more professional presentation.

Required label elements:

• Product name
• Ingredient list in descending order by weight
• Your name and physical address (home address not required as of 2025)
• "Made in a home kitchen that has not been subject to standard inspection"
• Net weight or count
• Allergen warnings if applicable

Professional considerations: While handwritten labels are legally acceptable, wholesale buyers typically expect printed labels. Consider investing in a label printer or professional design service to compete effectively with commercial producers.

Batch coding: Though not legally required, many Class B producers add production dates or batch codes to help with inventory management and quality control.

Step 4: Set Up Business Operations

Wholesale operations require more sophisticated business systems than direct sales.

Business registration: Register your business name with the Texas Secretary of State if using anything other than your legal name. Consider forming an LLC for liability protection, though it's not required for cottage food operations.

Tax considerations: You'll need a Texas sales tax permit for wholesale transactions. Wholesale sales are typically tax-exempt at the point of sale (the retailer collects tax from end consumers), but you must track and report these transactions.

Insurance: While not legally required, consider product liability insurance. Wholesale distribution increases your exposure compared to direct sales, and some buyers require proof of coverage.

Banking: Open a dedicated business account to separate cottage food income from personal finances. This simplifies tax reporting and looks more professional to wholesale buyers.

Step 5: Develop Wholesale Pricing

Wholesale pricing requires different calculations than direct-to-consumer sales.

Cost analysis: Calculate your true cost per unit including ingredients, packaging, labor, and overhead. Many cottage food producers underestimate their actual costs.

Wholesale margins: Wholesale buyers typically expect to pay 40-60% of retail price, allowing them to mark up for profit. If your cookies retail for $12 per dozen, expect wholesale prices around $5-7 per dozen.

Minimum orders: Set minimum order quantities that make deliveries profitable. Many successful Class B operations require $50-100 minimum orders.

Payment terms: Establish clear payment terms upfront. Net 30 is common for established businesses, but consider requiring payment on delivery for new accounts.

Step 6: Find Wholesale Buyers

Wholesale success depends heavily on relationship building and consistent quality.

Local restaurants: Start with cafes, coffee shops, and restaurants that emphasize local sourcing. Bring samples and be prepared to explain your production capacity and delivery schedule.

Retail stores: Independent grocery stores, farm stores, and specialty food shops often welcome local cottage food products. Chain stores typically require extensive certification beyond cottage food registration.

Third-party platforms: Online marketplaces and local food hubs can provide wholesale-like volumes without the relationship management overhead.

Farmers market connections: Many wholesale relationships start with farmers market customers who later open food businesses.

Step 7: Establish Quality Systems

Wholesale buyers expect consistent products and reliable delivery.

Standardized recipes: Document your recipes precisely and follow them exactly. Small variations that customers might overlook at a farmers market can damage wholesale relationships.

Production scheduling: Plan production around wholesale delivery schedules rather than your convenience. Most buyers need regular, predictable deliveries.

Quality control: Implement simple quality checks like visual inspections and taste testing. Keep notes on each batch to identify and correct problems quickly.

Communication systems: Establish clear communication channels with buyers. Respond promptly to orders, delivery changes, and quality concerns.

Class B Checklist

Before you start:

• [ ] Verify your products qualify for cottage food production
• [ ] Confirm wholesale demand for your products
• [ ] Calculate realistic wholesale pricing

Registration and legal:

• [ ] Complete DSHS Class B registration
• [ ] Receive registration number
• [ ] Register business name if needed
• [ ] Obtain sales tax permit
• [ ] Consider business insurance

Operations setup:

• [ ] Design compliant labels
• [ ] Set up business banking
• [ ] Establish production systems
• [ ] Create wholesale pricing structure
• [ ] Develop minimum order policies

Finding buyers:

• [ ] Identify target wholesale customers
• [ ] Prepare product samples
• [ ] Create simple marketing materials
• [ ] Establish delivery logistics

What's Next

Class B cottage food operations offer genuine opportunities to build substantial food businesses from home, but success requires treating wholesale relationships with the professionalism they deserve. Focus on consistent quality, reliable delivery, and clear communication to build lasting partnerships.

Ready to connect with wholesale buyers and manage your cottage food business more effectively? Koti helps cottage food producers streamline operations, track sales across multiple channels, and build customer relationships that drive growth. See how other Texas producers are scaling their businesses on our platform.