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How to Start a Bagel Shop

How to Start a Bagel Shop

Who doesn’t love bagels? Bagels have become a popular breakfast staple and are also great for sandwiches or just as a snack. If you have learned to make your own bagels and think you have a knack for it, you might have thought of turning your skill into a business. Having your own bagel shop can be a great way to use your talent, make a living, and have the benefits of being your own boss.

Business Overview

A bagel shop typically offers a variety of different bagels with cream cheese or other spread options, plus beverages such as coffee. Some offer breakfast or lunch bagel sandwich options and other breakfast items and desserts or salads. Some bagel shops are designed mainly for takeout, but most have seating and other amenities to create a relaxed community-focused eating experience.

Successful bagel shops are generally located in high foot traffic or vehicle traffic spots and have little direct competition in the immediate vicinity. The bagel business is a competitive industry, so quality food and branding are important to attract customers and keep them coming back.

Industry Summary

According to IBIS World, the bagel industry is expected to grow 3% in 2021 and continue to grow through 2025. It is currently a $1.7 billion industry in the United States. Bagels are generally not vulnerable to economic fluctuations since they are inexpensive and convenient, so economic downturns should not have a major impact on the market.

The largest risk in the bagel store industry is competition. Bagel shops are very popular, and other types of gourmet coffee shops and food shops offer bagels as well, so having a distinct, appealing brand is critical. Coffee sales are an important part of the business as well. According to Statista, in 2020, people in the U.S. drank 1.87 cups of coffee per day.

Industry Trends

The bagel industry has been relatively stable, even during the pandemic, indicating that people are still attached to bagels as a comfort food breakfast staple. The industry outlook is positive, and as discussed, because bagels are inexpensive, they are not sensitive to market volatility.

Health consciousness is driving demand for whole grain, healthy bagel options, so it is important to have these options on your menu. The same is true for sandwiches, with healthy ingredients like avocadoes becoming more and more popular. Artisan bagels are also popular, and communities often also look for products made with local ingredients.

Target Market

The target customer for bagels is not income specific because they are inexpensive, so the market is broad. Healthy and artisan bagels will attract millennials and a generally younger market. Bagels are also popular with business people for meetings, and bagel shops are a common choice for breakfast appointments.

Skills Needed to Run

You don’t need a culinary background or a degree in business to run a bagel shop, but there are specific skills that can help.

  • Bagel making experience. Even if you only have experience making your own bagels at home, you’ll have an advantage as long as you are good at it. If you’ve worked in a bagel shop before, that’s an extra bonus.
  • Knowledge of trends. If you are a bagel consumer, you follow what creative new flavors are trending, and you can create your own bagels that are in line with those trends.
  • Business knowledge and experience. While a bagel shop is not overly complicated to run, it’s good to have some knowledge of marketing, contracts, finance/accounting, and human resources.
  • Customer service. You’ll need to be able to build rapport with your customers and make your shop an inviting place to dine.
  • Food service experience. If you have experience in any type of food service, you’ll have knowledge of what customers expect.

Checklist for Starting a Bagel Shop

If you’re thinking about starting your own bagel shop, there are a few things you should keep in mind. Here is a checklist of the essentials to get started.

Step 1: Write a Business Plan

After coming up with the idea, the next step in starting your bagel shop should be to write a business plan. The business plan will make you focus on some important aspects of the business, such as who your customers are, how you plan to reach them, projecting sales and expenses, your value proposition to use for marketing, and more. You’ll also need to do some research to calculate exactly what your startup expenses will be.

Not only will a bank require you to have a business plan if you need financing, but multiple studies have shown that having a good business plan increases the odds of starting a successful business. Writing the plan helps you think through all the aspects of the business and then serves as a guide as you begin.

Related: How to write a business plan

Step 2: Choose a Legal Business Entity

A business entity (also referred to as a business structure) refers to how a business is legally organized to operate. There are four primary business structures to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.

When deciding on which business entity is best for a bagel shop, it normally comes down to the sole proprietorship and Limited Liability Company.

A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay.
 
The corporation can be a good choice to minimize liability risk because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.

That leaves the sole proprietorship and LLC.

The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.

Related: Guide to forming your LLC
 

Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.


Some popular LLC formation services include:


IncFile - $0 plus state fees & free registered agent for 1 year!

IncAuthority - $0 plus state fees & free registered agent the first year!

ZenBusiness - $49 plus state fees & free registered agent for 1 year!

Step 3: Name the Business

Finding the perfect bagel shop business name can be challenging. Not only does the name have to reflect what you do and be appealing to customers, but it also has to be available to use. You can check your state’s website to see if the name is available and register your name. Your name should make you stand out, reflect your brand, and tell potential customers exactly what you do.

Related: Tips & ideas for naming a bagel shop

Step 4: Select your Location

A shop in a high-traffic area will cost more to rent, but it can also generate walk-in business and increase your brand exposure. You also want to avoid direct competition in the area.

Related: Choosing a business location

Step 5: Apply for Business Licenses and Permits

You will need to obtain certain business licenses and permits. These permits and licenses can vary based on the state and town where the business is located.

Some common local, state, and federal registrations a bagel shop may need include a business license, sales tax permit, and an Employer Identification Number.

Related: Common business licenses, permits, and registrations by state

Step 6: Find Financing

Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a bagel shop is another. In order to get a loan, the borrower(s) will need to have good credit and be able to invest 15-25% of their money towards the total start-up costs. Startup costs for a bagel shop are significant.

Related: Finding the money to start a business

Step 7: Open a Business Bank Account

Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
 
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.

Step 8: Get your Marketing Plan in Place

A bagel will need to set aside a budget to cover marketing costs on a continuous basis. Common marketing techniques for a bagel shop include social media marketing, online advertising, print advertising, direct mail advertising, and coupons or special promotions. Visiting businesses located close to your shop and providing free bagels is a great way to initially get the word out too.

Related: Low-cost ideas to market a new business

Every business is going to need a logo. Make a professional logo in no time with the free logo makers from BrandCrowd and Canva.

Step 9: Get Business Insurance

There are several types of insurance to consider when starting a bagel shop. A few of these include:
– General liability insurance can help protect you from third-party claims of bodily injury and property damage.
– Worker’s compensation insurance covers expenses like medical bills and legal fees that a business might face if an employee were ever hurt while working.
– Property and casualty insurance protects you if your shop is damaged.

The cost to insure a bagel shop will vary depending on several factors. To get the most accurate idea of what to budget for insurance, request quotes from multiple providers. When comparing the quotes, consider not only the premiums but also how the plan exclusions, coverage limitations, and deductibles compare.
Related: Common types of insurance a business may need

Step 10: Hire Employees

You will need employees to help you run the bagel shop, both in the kitchen and on the customer service side. Salaries vary for various jobs and the skills required.

In addition to salary costs, your budget will also need to include other employee-related expenses. Workman’s comp insurance, unemployment insurance, and paid time off are common expenses that a business will need to cover when hiring staff.

Related: Hiring your first employee

Step 11: Set up an Accounting System

Setting up an accounting system for your bagel shop is critical to the long-term success of your business.

Staying on top of taxes not only keeps the business out of trouble with the government but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.

Related: Setting up the accounting for your business

The thought of accounting can be intimidating for a lot of new entrepreneurs. There are a number of ways of handling bookkeeping, from DIY to hiring a bookkeeper. These include:

- Pen and paper - Low expense, but difficult to track.
- Spreadsheet - Low expense, but easy to make errors.
- Accounting software - Medium expense, but owner typically inputs expenses. Some great accounting software programs include Freshbooks or Wave Accounting.
- Hire a bookkeeper - Higher expense, though very affordable at $100-$200 per month in most cases. A dedicated bookkeeper will probably save money because, in addition to handling all of the bookkeeping (so you can focus on the business), they also provide personalized tax advice and ensure the business is in compliance.

Find bookkeepers in your local area or use a service like 800Accountant.

How much does it cost to start a bagel shop?

The costs to start a bagel shop are significant. Here are the startup expenses you should plan for.

– Deposits for renting a space $2,000 – $6,000
– Bagel making supplies $500 – $1,000
– Workspace items such as prep tables, 3 compartment sink for rinsing, and refrigeration $20,000+
– Renovating the space to meet your needs, including display cases and signs, cash registers, and POS systems $40,000+
– Startup bagel ingredients and beverage inventory $10,000+
– Initial liability insurance, worker’s comp, property, and casualty insurance $600-$1,000
– Initial marketing such as Facebook ads or search engine optimization for your website, plus marketing for your grand opening $1,000-$2,000
– Costs to hire initial employees $4,500+ for the first three months

How much can a bagel shop owner make?

The average bagel costs $1.80 -$3.00. Other food item prices will vary. Your annual revenue will depend on the number of sales you have per day and the average amount spent per customer. If you have 100 sales per day with an average sale of $6.00 for a bagel and coffee and you’re open 7 days a week, your revenue per year will be $219,000. The key is to upsell products and get a lot of walk-in business and repeat customers.

Are there grants to start a bagel shop?

It’s extremely rare to find a grant to start a bagel shop. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.

Legitimate federal grants can be found at Grants.gov, and you can check on your state’s economic development office to see if they have any grants available.

What is the NAICS code for a bagel shop?

The NAICS code for a bagel shop is 722515, which is categorized under Snack and Nonalcoholic Beverage Bars.

The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.

Related: What is a NAICS code?