The bakery business is evolving and booming, and there are plenty of opportunities to share your delectables and make money. Whether you open a traditional counter-style shop or a mobile bakery that’s stocked with goodies you bake at home, you can follow our 10-step guide for inspiration and help to open your shop. Find startup resources throughout our guide, and order a business package online to save time, money, and headaches. Since 2001, MyCompanyWorks has been helping entrepreneurs build their dream businesses. See why new companies choose our services and find everything you need to start your business fast.
You may already have your recipes perfected, but there are several other important steps to consider when opening a bakery. You’ll want to develop your style, write a business plan with pricing and financial forecasting, find the best space, and register your business. The following 10 steps will walk you through the process.
Most people are familiar with the traditional counter-style bakery. There are usually a few places to sit and a glass case full of tasty pastries and other baked goodies. Customers can walk up to the counter to place custom orders and pick them up when ready (you can also add delivery to make some extra cash). The traditional bakery format is a great way to start with limited space. You’ll need room for your kitchen, but you can make the front of your store smaller to accommodate more baking room in the back.
A traditional bakery can also double as a ghost bakery (below) that provides delivery-only options, which means you can maximize profits beyond your brick-and-mortar shop.
Bakery and Deli or Cafe
If your skillset includes other food preparation, you could open a cafe and bakery under one roof. Not all customers may purchase baked goods and cafe items, but you can expand business exposure and draw referrals from your existing clients. And who knows, you may even become your neighborhood’s next best bakery and deli. Obviously, a cafe requires more room for seating, but the added expense may be worth the profits. You’ll learn more about working these details out in a business plan in Step 2.
If you haven’t heard of a ghost kitchen, it’s a new concept that’s gaining popularity as food outlets look for ways to cut costs and increase profits. If you’re interested in this concept, you can reduce overhead costs. Contact existing local bakeries to ask about renting space in their off hours. This idea may be a challenge since many bakeries use their kitchen early in the morning and throughout the day. But if you and another business are willing, you can work together to maximize profits for everyone involved.
Food trucks aren’t just for lunch on construction sites anymore. The food truck industry is very profitable and shows promising growth in the coming years. Running a mobile bakery means you can park at events, job sites, car dealerships, parks, and anywhere else people enjoy fresh baked goods. Most food trucks aren’t equipped with baking equipment, so you would still need space to create your goodies (check out Home Bakery below).
Building a mobile bakery from scratch can cost up to about $60,000, but you can find used trucks online. A quick internet search for used bakery trucks returns lots of results for food truck manufacturers and dealers who sell used mobile kitchens. UsedVending.com offers used mobile bakery trucks for sale. You may be able to save some money and startup time with a used mobile bakery.
Bake at Home
If you’re starting with small-batch baking, you can save a ton of money by starting a bakery in your own kitchen. There are regulations around making food at home and selling to the public, so make sure you know your local laws and health codes. Once your business is registered, you can apply for licenses and permits to run a home baking business. If your state allows you to sell online, you can set up a website and start promoting your treats fast.
You can also check out local farmers’ markets, coffee shops, and cafes to ask about selling your products in their locations.
The purpose of a business plan is to help you see if your business model is profitable and to scale your business. A business plan operates as a roadmap for your company. This is especially important if you plan to borrow funds from investors or bring on partners. Your bakery business may require added details, but you can start with a basic business plan and update it to suit your needs.
Every good business plan includes the following components:
NOTE: It may take some time to project what your business will be making financially in three years, but it’s key to include pricing and forecasting if you’re going to attract partners or investors (or both).
According to bakemag.com, the most profitable baked item is the cake, making up 24% of a bakery’s total sales. Donuts are actually at the low end at 5% of sales but are valuable for attracting business for other items. Obviously, these numbers will be different for your shop, but the list in the link shows where you can make the most money.
The price of a product has to cover everything that goes into each baked item, such as rent, equipment, labor, food costs, packaging, and advertising. If you included a financial section in your business plan, you can refer to it to figure out your operating costs and price items to cover expenses and turn a profit.
Now that you can see how much it costs to offer your products, it’s time to price your products. Lightspeed offers a comprehensive pricing list to help you get started.
Business Planning Resources
Online businesses may not need physical locations, but bakeries depend on storefronts to offer their goods to the public. If you’re going to open a brick-and-mortar bakery, the right location is critical to your success.
Consider these factors when you’re thinking about potential spaces.
High foot traffic: even if you advertise, traditional bakeries depend heavily on foot traffic. Look for shops in busy shopping centers near you.
Potential for growth: If you can afford it, look for a place where you can start and grow your business. Moving costs a lot of money, so it may make sense to invest in a store where you can stay and expand.
Parking options: customers want easy access, so make sure your bakery has plenty of available parking.
TIP: If your landlord allows it, you can turn one or two of your parking spots into curbside spaces for quick pick-ups.
Target audience: As part of your business plan, you probably worked out the demographics for your target market. If your average customer makes $50k a year, you’ll want to position your shop in an area where people in that income bracket shop. You also want to find a spot where the surrounding businesses complement yours. So for instance, a trendy cupcake shop may not do well next to an auto-wrecking yard. A commercial real estate broker can help you shop for spaces in your target market.
Existing spaces: You can hire a commercial real estate agent to find spaces that already have equipment to save on startup costs. Even if you have to modify or add equipment, you can also save on build-out time if you can find a space with an existing kitchen.
Staffing availability: Is there a considerable talent pool where you live? Or do you have to pull from a nearby larger city to find good staff? Employees generally like to live near where they work, so make sure your location is easy to reach and not too far from residential areas.
Internet availability: Much of modern business is managed over the Internet, so it’s ideal to find a shop with high-speed internet access. These days, everything from your cash register to the security system depends on web connectivity.
Food truck: You may not be able to fit an entire bakery on a truck, but you can use one to set up shop and sell your products. With the proper permits, you can park near playgrounds, community events, and more. You can also save some setup time and money with a used bakery truck.
Pop-up bakeries: If you’re not ready to open a commercial space, you may be able to start a pop-up bakery with the goods you bake at home or in a leased cloud kitchen. It will take some work, but you can contact local shops and department stores to get your foot in the door. Farmer’s markets, festivals, and craft shows are also venues worth considering for a pop-up bakery. You can run an internet search for “local farmers markets”, etc. to find venues near you.
In the US, businesses are required to register in the state where they operate. You’ll need to choose an appropriate business name and structure, then file paperwork to be recognized as a company. Forming either a Limited Liability Company (LLC) or Corporation (Corp, S-Corp) separates your bakery from personal assets and provides limited liability protection in the event of lawsuits or tax issues.
Every successful business is known for more than its products and services. Before consumers know anything about your bakery, they’re going to know your name. Taking the time to create a unique name that stands out and doesn’t conflict with other businesses will both help with branding and also separate you from other companies’ legal and tax matters.
Make a list of words that describe your style, locale, products, and mission. You’ll want to pick a short name that is just a few syllables and easy to pronounce, so mix and match words until you find the best combination. Once you have one, or even a few different names, search the Internet and your state’s business sites (Secretary of State, Division of Corporations, or something similar) to make sure your name is available. You’ll also want to check the US Patent and Trademark Office for potential trademark conflicts.
If your bakery name passes Internet, State, and trademark checks, you’re ready to choose a business structure and register your business.
TIP: You can get a good idea of how consumers will respond to your name by trying it out with family and friends. Pretend to answer the phone with your potential names and ask others to say the names out loud so you can hear how they’re pronounced.
How you organize your business has a big impact on taxation and management. If you need help deciding, our accountant partners can advise which business structure is best for your company.
Corporation (S-Corp, C-Corp): The traditional corporate entity is separate from its owners (shareholders) and is managed by directors and/or officers. There are regulations that limit the number and citizenship of owners, and in general, this business type is reserved for large companies with a lot of employees and businesses with complex infrastructures. Corporations file separate tax returns and are taxed at corporate rates.
Owners also report earnings on personal tax returns and pay income tax. “Double-taxation” is the term for this type of tax flow in a business. Because owners are essentially taxed twice as a Corporation, it could cost more to run this type of entity. If you do organize as a Corporation, you can benefit from “Small Business” status with the IRS if you file form 2553 to be recognized as an S-Corp.
Limited Liability Company (LLC): The LLC has become the most popular business type with entrepreneurs. It’s a separate entity from its owners, who are members and/or managers. This entity type does not file company tax returns. Instead, owners report profits, losses, and expenses on a form attached to their personal tax returns. Because the LLC doesn’t file tax returns, there’s no taxation at the corporate level.
When costs and management flexibility are compared with the Corporate structure, the LLC costs less to maintain and is easier to add and remove owners. LLCs can register as an S-Corp with the IRS to benefit from lower taxation as a small business.
Doing Business As (DBA): You can apply for a trade name, known by names like “Doing Business As”, “DBA”, “Assumed Name”, and others. But a trade name doesn’t provide any asset protection if you’re involved in a lawsuit or tax issue with the IRS. If you do want to use a DBA, we recommend registering an LLC or Corporation so your personal assets are excluded from potential business lawsuits and tax issues.
If you have registered your bakery, you’re ready to apply for an Employer ID Number and get permits and licenses.
Also called a federal tax ID, all employers are required to have an EIN. DBAs with no employees aren’t required to get this number, but you’ll have to use your personal social security number in its place if you don’t have one. US citizens can apply online, by fax, or by mail, and International clients can apply by phone.
The best way to keep business and personal funds separate is to run a separate bank account for your bakery. Requirements vary by bank, but you can check local banks and the Internet to find business banking solutions. In order to open a business account, you’ll likely need the following documents:
If you’re self-funded, you can skip this step and come back when you need funding.
Believe it or not, most small businesses get some kind of startup funding from family and friends. According to a national survey, 38% of all startups borrowed money from friends and relatives. If your business is well-planned and you can show your plan to grow, you might consider starting a fundraising campaign with your closest people. Check out this article from Debt.org to learn how to ask for startup funding from friends and family.
You can reach investors quickly through online platforms if you have a solid business plan. Sites like Ask For Funding, Gust, and SeedInvest are great networks to find investors and request funding.
Crowdfunding has become extremely popular in the startup space, and it’s easy to start raising capital. Kickstarter and HoneyComb are just two of many platforms where you can raise business funding from individual and professional investors.
TIP: Add fees to your funding requests to cover investing and crowdfunding costs.
Baking Business Coach Allyson Grant says the following components are necessary for a successful bakery menu.
Price for profit: Make sure your pricing covers costs for labor, products, rent, marketing, packaging, etc.
Limit offerings: As a baker, you may want to offer a little of everything, but limiting menu items saves on inventory and helps customers make purchasing decisions faster. You can offer seasonal items and change featured items at times, but make sure your list doesn’t grow as you bring in new products.
Highlight and center high-profit items: If your highest profit margin is in the cakes you sell, highlight and position them in the center of your menu. If you look at a Starbucks menu, you’ll be able to tell which drinks bring in the most profit by the pictures.
Upsell and cross-sell: You can bring in additional cash with add-ons and pairings for baked goods. Cake toppers, candles, and subscriptions are just a few items that do well in bakeries. You can also do things like offer cake decorating classes, bread slicing, and host private events if you have the space.
You can cross-sell or cross-promote additional products in pairings or seasonal/occasion packages. Put together kits for birthdays, such as a cake, cupcakes, and cake pops with a matching theme. Offer rolls with holiday pies and seasonal baked goods. Mix and match cookie varieties and package for easy purchase. The opportunity to cross-market your goods is almost endless.
Equipment varies, depending on what kind of bakery you open. You may be able to save some cash with used baking equipment. Here’s a list of common equipment in most bakeries.
Branding is critical to any new business. Everything from your name, to the color scheme, and packaging should tell the story of your bakery. Make sure your theme is displayed across all your printed materials, menus, website, and social media accounts to increase brand awareness for your bake shop. Your location should also reflect your theme and mission, so incorporate colors, words, and accents that enforce your brand.
Depending on your advertising budget, you may be able to purchase TV commercials in your area, but costs can run high. Since 70% of all consumers look for businesses with websites, you can launch your site and start social media accounts to get the word out for a lot less money. If you haven’t already set up a website, we offer a simple and affordable business website package to get started fast. Choose from dozens of customizable templates, connect social media and merchant accounts (if you’re selling online), and start taking orders right away.
Use social media and your website to announce promotions, contests, sales, and featured goodies. You can also run a blog on your website to entice customers with a few recipes, baking ideas, and tips to attract new customers.
If you’re considering the bakery business, there are almost countless ways to start and run a successful shop. Traditional counter-style bakeries are a staple in the US, but mobile and ghost bakeries are popping up in department stores and public spaces everywhere. With the right licensing, you may even qualify to run a bakery from home to save on overhead costs. Whichever model you choose, the baking business can be very profitable with a solid business plan, the right location, a high-profit menu, and the right marketing tools.
If you decide the baking biz is right for your passion and interests, we can help you form an LLC or Corporation in as little as one business day.
Order any business formation package to register your bakery in the state where you operate. We can apply for your EIN and our business license partners can order the proper licenses and permits to run your bake shop. Join tens of thousands of satisfied customers when you start and manage your company with MyCompanyWorks. Visit our FAQs page or contact our support team to get started today.
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