The US baked foods market is worth around $36.5 billion and demand for bakery products is continuing to rise. With more and more customers seeking healthier, organic or specialist baked foods, the future of independent retail and wholesale bakeries has seldom looked so good.
However, although bakeries can be great businesses – typically delivering profit margins of 15% and giving owners a personal income of $30,000 to $100,000 per year – starting your own bakery is not without its challenges. You’ll need premises to work from, employees, funding, permits and licenses, plus a good marketing angle and an enticing range of products.
So how to do this? How can you get the bakery you’ve always dreamt of owning up and running? Let’s find out. Read on to discover all you need to know about starting a bakery business.
The first thing you need to decide is what kind of bakery to operate. There are two basic models – retail bakeries and wholesale bakeries. Retail bakeries sell direct to consumers, usually as a storefront, but more often in a café environment where customers can sit down to eat a light meal or drink a cup of coffee. Wholesale bakeries sell to businesses – such as grocery stores, restaurants and hotels. In the US, wholesale bakeries represent 25% of all bakery businesses, but they capture 88% of industry revenues.
Retail bakeries may be best for entrepreneurs who want to sell more creative, bespoke and artisan products, while wholesale businesses may be best for those who want to sell core products – such as bread – in high volumes and from an industrial type of setting.
Retail bakeries typically sell cakes, pastries and bread in lower volumes and to specific types of customer. There are several types of retail bakery, but they all need a front and back of house operation.
Because they’re making baked goods in high volumes and selling to businesses such as cafes and delis, wholesale bakeries tend to be larger and have more equipment and employees than retail bakeries. Wholesale businesses do not need a front-of-house operation and they can be located away from busy shopping streets. This can reduce location costs. However, the extra size of a wholesale bakery usually makes them more expensive to start than a retail operation.
If you’re seeking external investment or a commercial business loan to open your bakery, you’ll need a detailed business plan to support your pitch or application. Investors and lenders will want to know why you need their funds and what the money will do for your bakery. Business plans should do more than paint a rosy picture – explain the risks involved, what the downsides could be – and how you intend to overcome them.
Even if you don’t need investment or a loan, a business plan can still be an extremely useful tool. Use it as your business manual, referring to the contents to guide your strategy and manage your financials.
Find out more about creating your business plan here.
Owning your own bakery may be your passion, but at the end of the day, the business has to make money. Getting your financial plans in shape is critical to success. If you don’t have a great head for numbers you should hire an accountant or bookkeeper to help you with this task.
A key consideration is calculating your potential profits before you take the plunge. Proving your business can make money is important to you, your investors/lenders and major suppliers. How do you do this? Follow these simple steps:
Add up the cost of all the raw ingredients you need to buy – and don’t forget to factor in delivery charges or any local taxes you cannot claim back. Break the total costs down into individual products until you know exactly what the raw ingredient cost per unit is.
Now total all your labor costs – employees, casual workers etc. This cost will include any benefits you may provide and should also include a contingency of at least 10% to cover costs like absenteeism and sickness. Don’t forget to add your own costs – what you pay yourself – into the mix.
Once again, break the labor costs down into the unit costs of the food you make. (For example, if two employees take a whole day each to make 500 cupcakes, you can divide their total labor costs by 500 to get a labor cost per cupcake).
Lastly there are your overhead costs – rent, energy, insurance, licenses and permits, delivery costs, vehicle costs, equipment costs, wear and tear on fixtures and fittings, etc. Because these costs are more general than ingredients and labor expenses it may not be possible to allocate them to individual baked goods. In such a case, take your total monthly overhead cost and divide it by the total number of products you make per month. This will give you a baseline overhead cost that can be attached to every product. (For example, $5,000 monthly overhead costs to make 10,000 products per month = 50 cents per product per month baseline cost),
This means working out the total cost to produce all your baked goods – ingredients, labor, overhead. By combining your per unit ingredient and labor costs with your baseline overhead costs you can calculate how much it costs you to make each product. This information will support your pricing policy – allowing you to work out how much you can charge per product – and, most importantly, if you can generate a profit.
Like all businesses that sell food and drinks, bakeries need licenses and permits to operate. Your bakery must comply with local, state and possibly federal laws, but the types of permits you need will vary depending on your location.
If you thinking of starting a home bakery, your business will generally be covered by a section of law called cottage food. This classification can separate home-based bakeries from commercial or retail operations that have designated storefronts or production kitchens. Commercial bakeries have to meet certain requirements for equipment and sanitation while cottage-food operations have their own set of rules. (Cottage food is regulated on a state-by-state basis, but it’s often limited to shelf-stable products that don’t require refrigeration).
You’ll need to register your bakery with local and state authorities. But before you do that, you’ll need a name for the business. You’ll want a name that is not taken by another organization, as infringing on someone else’s brand name and copyright could end up in a costly lawsuit. Check the official trademark database with the US Patent and Trademark Office to make sure your business name is available.
You will also want a website and branded email addresses for your bakery. Check to see if your preferred company name is also available as a domain name– such as: www.mynewbakery.com. You can do this at the global domain name database – WhatsmyDNS.net. If your domain name is available, you should be able to buy it via any of the advertised web hosting services.
Once you’ve settled on a name, you must decide if you want to run the business as a sole proprietorship, an LLC or a corporation. Although it involves more paperwork, operating as a corporation can protect you if the business does not succeed, as you are not personally responsible for the company’s debts. If you choose this route, you must submit your articles of incorporation to the secretary of state’s office in the state where you register. You can do this in-person, online, or by mail. You will have to pay a registration fee at the time of filing – typically $100.
Once your bakery is registered for business, you can apply for your operating licenses and permits. Retail bakeries are governed by different laws than commercial bakeries, especially if they offer a café style experience to their customers. Check with your local and state licensing agencies to discover which permits apply to your business.
If you don’t have enough cash on hand to launch your bakery on your own, you’ll need funds from investors or lenders. Many new businesses get started using financial support from friends and family, but if that’s not an option, there are networks of venture capitalists and angel investors readily available online. Bringing in external investment can give you the cash you need to get your bakery started but be aware that investors will usually want a piece of the action in exchange for their money. This means you will need to give up a share of your ownership and you may lose overall control of the business.
With a business loan you don’t have to surrender a share of your store to get the funds. Although it’s never easy for new businesses to borrow money, some lenders have special products and programs for startups and entrepreneurs. These types of financing include:
To get these types of loan you can approach banks, credit unions and online lenders one by one, or you can use the services of a loan marketplace that will immediately introduce you to a choice of startup loans from different lenders. Some marketplace platforms can also give you advice and help you with the application process. This can be especially useful for borrowers who have never taken out a startup loan before.
If you’re not buying an existing bakery, you’ll need to lease a commercial space to work from. Keep in mind that strict hygiene laws extend to bakeries, so if you intend to operate a wholesale bakery and are considering leasing an industrial unit, you’ll need a location without any potential contamination hazards nearby.
For retail bakeries, your store’s location can have a major impact on the success of your business. Take the time to research different locations, measuring the competition and the size of the local population. You want a site in an area with good foot traffic and local incomes that can support your store and the kind of baked goods you sell.
Once you’ve secured your operating premises, you can plan the way your bakery works. If you’re operating a wholesale bakery, you will need to factor in large storage and product cooling areas, bigger ovens, an employee break room, distribution area, maybe even a loading dock for truck delivery. If you choose a retail bakery you will have a kitchen and front-of-house area – which can be a simple shop front where customers order at the counter, or it can be a café style area where you will also need a dining area, serving stations, and customer rest rooms.
All bakery kitchens have four basic sections – cleaning, storage, food preparation, meal cooking. Plan your kitchen based on the logical flow of food through the baking process. This starts with the storage area and then goes to the food preparation and meal cooking sections. Once you’ve prepared your baked goods, you can serve them to your customers, package them for display, or ship them to online customers. Finally, your dirty dishes, pots, and pans will end up at the cleaning station.
Make sure you can fit all the major equipment – ovens, racking, refrigerators, etc. – into the available floor space without disturbing the operating flow.
Retail bakeries need to optimize their front-of-house floorplan to make it pleasing for customers as well as presenting your baked goods in an attractive fashion. There are four basic layouts for a retail operation:
After your premises, your bakery equipment is the next major item on your ‘to do’ list. Key items you need include:
You will need to hire and train staff to produce the type of baked goods you sell. For example, if you intend to produce high-quality wedding cakes, you will need to hire experienced cake decorators and designers. If you are going for a high-volume, wholesale operation, you will need key staff who know their way around an industrialized bakery and understand the oversized equipment. You will also need workers to clean the kitchens, handle deliveries and perform general tasks. These employees need not have prior bakery experience. Lastly, if you’re operating a café style bakery with full-service wait staff, you’ll want some front-of-house workers with experience in hospitality.
As the old saying goes, advertising pays – and you’ll need to market your new bakery to establish a solid customer base. Experts suggest allocating up to 20% of your operating budget to marketing activities in the first year of operation.
Before you start any kind of marketing activity, conduct some basic research – what are your competitors selling? What kind of loyalty programs do they offer? Are there any successful promotional tactics that you can mimic? Create a plan that promotes your brand and sets your business apart from the rest. Utilize a range of marketing actions to get your story across:
Running your own bakery can be lucrative and a lot of fun, but you’ll need a lot of dough to get you there. Funding is where Swoop can really help. No matter if you’re launching a brand-new bakery, or you’re buying an established business, chances are you’ll need finance to make the operation grow. Many types of business loans are suitable for bakeries, but working with finance experts can make all the difference when applying for funding. Contact us to discuss your borrowing needs, get help with loan applications and to compare high-quality business loans from a choice of lenders. Make your new bakery the toast of the town. Register with Swoop today.
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Written by
Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Wells Fargo Bank, Visa, Experian, Ebay, Flywire, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of US consumer and business finance.
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