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If you have a love of baked goods and have always enjoyed preparing them, then opening a bakery might be the perfect business for you. Owning a bakery is hard work, but it can also be rewarding to see your foods bring joy to others. Before opening a bakery, though, it’s important to understand everything that will go into this type of business.
Bakeries offer freshly baked goods directly to consumers, or they may sell these goods to retailers. Some bakeries include a cafe design, allowing consumers to sit and enjoy the goods right in the stores. Others may adapt a catering model, selling their goods to people who are hosting events.
Bakeries can specialize in many different areas. A business might specialize in offering tasty yet healthy baked goods, while others might focus on elaborately decorated cakes, or even in offering wedding cakes, exclusively.
From 2015 to 2019, the bakery industry underwent significant growth. According to IBIS World, during that five-year period, the number of businesses grew to 11,533 and industry employment increased to 180,291. The industry experienced 2.9 percent annual growth, and in 2019 the bakery industry brought in $11 billion in revenue.
The growth of the bakery industry is partially the result of the increase in per capita disposable income during that time, leaving consumers with more money to spend on luxuries like baked goods. The bakery cafe industry also combines the convenience of fast food with the quality of the food you would expect from a restaurant, making it a desirable option for consumers.
Numerous trends are shaping the bakery industry, and understanding these trends can help an owner to position their bakery for success. According to Harvest Food Solutions, one of the major bakery industry trends is an increasing demand for healthier food options. In addition to moving away from high-fructose corn syrup and artificial dyes, consumers are looking for foods that blend both taste and health. Many bakery owners are meeting this demand by using grains, fruits, cocoa, and natural sweeteners to create tasty foods that are still health-conscious.
Closely linked to the demand for healthy food is a demand for fresh foods that are baked using fresh ingredients. Consumers are paying more attention to when products were baked and how fresh they are when they’re put up for sale.
Bakery owners also need to be aware of the focus on taste, texture, and appearance of baked goods. A bakery owner needs to make sure that the foods they’re presenting match their audience’s demand for flavors, whether those are traditional or more creative, adventurous tastes.
Bakeries will have different target markets depending on their business models. A bakery that includes a cafe might market to consumers with a love of fresh-baked breakfast foods and snacks. A bakery that offers strictly breads will have a different audience, marketing to consumers who value quality, fresh food and who are willing to surpass the grocery store and make a special trip for fresh-baked bread.
Bakeries may also develop other target markets. Some may offer catering services and specialize in cakes and foods for weddings and parties. Others may focus strictly on cakes, creating highly detailed and beautifully decorated cakes at premium prices. All of these factors will affect a bakery’s target market.
Skills, experience, and education useful in running a bakery
While you won’t need a business degree to start a bakery, certain skills and experiences are useful and can increase the chances of your business being a success.
Baking experience. Experience working in a bakery is highly valuable in starting a new business. A knowledge of baking and decorating practices will help ensure that a business starts off by offering a quality, consistent product.
Attention to detail. Attention to detail might be one of the most important elements in running a bakery, since detail is everywhere in this setting. From creating aesthetically pleasing displays to ensuring that every product represents the bakery well, a natural eye for detail goes a long way in this industry.
Food service experience. Baking is only one part of the equation in running a bakery, and if a bakery offers eat-in options and seating, then some food service experience is helpful in taking orders, preparing drinks, and serving customers.
Customer service skills. Great customer service skills can help a bakery owner to establish an excellent reputation for their business. The ability to listen to and address customer concerns in an understanding way is important.
Management experience. Many bakeries require at least a few employees. Experience in hiring, training, and managing staff can help an owner to navigate this process.
Networking skills. Networking talents can be helpful in this industry, especially for businesses that offer catering options. Establishing and maintaining relationships with local event venue owners can lead to increased referrals and future business.
Marketing skills. The more marketing that a business owner can do on their own, the more they can save over hiring a professional marketer, which can be important in the early stages of the business. In particular, some basic photography skills and knowledge of social media marketing techniques can help to get a business off the ground.
Costs to Start a Bakery
Starting a bakery can require a significant financial investment, but there are also ways to start your business on a tighter budget. Beginning the bakery out of your home kitchen can help you to save on expenses, and you can start a home-based bakery for about $5,000. Expect to spend closer to $40,000 or $50,000 to start a larger-scale bakery with storefront space.
Common startup costs include:
- Inventory (The ingredients used to make baked goods)
- Equipment, including baking supplies, mixers, and ovens
- Renovations to the store
- Display equipment
- Furniture (for a sit-down bakery)
- Delivery truck
Steps to Starting a Bakery
Step 1. Write the Business Plan
After coming up with the idea, the next step in starting your business should be to write a business plan. Not only will a bank require you to have a business plan, but multiple studies have shown that a business plan helps increase the odds of starting a successful business.
Step 2. Form a Business Entity
A business entity refers to how a business is legally organized to operate. There are four primary business entities to choose from which include the sole proprietorship, partnership, corporation and LLC. Each type of entity has its own pros and cons such as liability exposure, costs and administrative requirements.
Related: Comparison of Business Entities
Step 3. Select your Location
While it may be possible to start a small-scale bakery out of the home, eventually a larger kitchen and possibly a storefront for sales will be necessary. It’s ideal to find a rental property that’s already equipped with a commercial kitchen, which can save on renovation costs. Rental costs will depend on the size of the building and its location. For a bakery with a storefront or a cafe-style business with seating, rental property in a high-traffic retail area can bring in walk-in traffic, but will come at a more expensive rental cost.
Related: Choosing a business location
Step 4. Apply for Business Licenses and Permits
There are some bakery specific licenses, that will vary by location. Some of these include food handling certification, food service license and approval from the Health Department.
In addition, there are some general licensing and registrations that will vary depending on where the business is located such as a sales tax permit, Employer Identification Number, and Occupancy Permit among others.
Step 5. 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 bakery is another. Funding to start a bakery can be difficult due to the costs of renovations, inventory and equipment. In order to get a loan, the borrower(s) will need to have good credit and be able invest 15-25% of their money towards the total start-up costs.
Step 6. Get your Marketing Plan in Place
Marketing is essential to a bakery’s success, important in the early startup days of the business. Common bakery marketing activities include maintaining active social media pages, establishing a website, participating in local print advertising, and even incorporating online advertising methods into the plan. Exact expenses will vary according to the type of marketing being performed.
Step 7. Get Insurance
Bakeries need several types of insurance to be fully covered:
- General liability insurance protects the business if customers are injured while on the business’ property. This insurance can cover costs like legal fees.
- Commercial property insurance protects the bakery against the financial loss of inventory and property after an event, like a fire.
- Commercial auto insurance covers the expenses, like legal fees and medical bills, that can result if a company-owned vehicle is ever in an accident.
- Workman’s comp insurance helps to cover expenses like medical bills or lost wages if an employee is ever injured while on the job.
Insurance policy cost can vary depending on factors like the bakery’s location, the value of its equipment and the building, as well as the number of employees on staff. To get an accurate idea of what insurance will cost, request quotes from multiple insurance providers. Then, compare the quotes, paying attention to factors like coverage limits and exclusions, premiums, and deductibles.
Step 8. Hire Employees
Depending on a bakery’s size, it may be necessary to hire one or more additional employees. According to PayScale, average hourly salaries for common bakery staff positions are as follows:
- Baker: $12
- Cake decorator: $12
- Pasty chef: $13
- Cashier: $9
- Barista: $11
Employee salaries aren’t the only expense that comes with hiring staff. A bakery’s budget also needs to include expenses like worker’s comp insurance, paid time off, and health insurance contributions.
Related: Hiring your first employee
Amazon has several books that go into detail on starting and running a bakery:
Bakery Business Startup: How to Start, Run & Grow a Trendy Bakery Business (Free of Amazon Kindle Unlimited)
The Business of Baking: The book that inspires, motivates and educates bakers and decorators to achieve sweet business success.
Homemade for Sale: How to Set Up and Market a Food Business from Your Home Kitchen
How to Start Your Own Cupcake Business: A Book on Making a Success of Your Home Based Business (Free on Kindle Unlimited)
Cakes, Bakes and Business: The Practical Guide To Starting Your Home Baking Enterprise
How much can you potentially make owning a bakery?
According to BizFluent, the annual income for a bakery general manager, who is often the owner of the business, ranges from $25,000 to $52,000 per year. Many factors can affect this income, including the number of years the bakery has been in business, the size and location of the bakery, its specializations, and even how efficiently the bakery is run. For instance, a manager who has an excellent idea of how much product the bakery will sell each day can customize production to meet demand more precisely. This minimizes inventory waste and helps to maximize profit.
Things to consider before starting a bakery
Expect to face some unique challenges when starting a bakery. The first will be to find out about food preparation regulations in your town. Some towns may allow you to prepare baked goods in a home kitchen with certification, while others will require a commercial facility.
Sales of coffee can be a big percentage of revenues for a bakery. Be sure to find a great product to offer in your store to encourage additional sales.
It’s also important to carefully consider how to price baked goods. The price needs to be competitive among other local businesses, but it also needs to be profitable for the bakery. Sourcing bulk-purchased ingredients at a discount will allow a bakery to balance these factors, but finding a quality, reliable source can be a challenge, especially when just starting up. Budget time for plenty of phone calls to potential suppliers during this part of the process.
Allied Trades of America
American Bakers Association
American Culinary Federation
American Pie Council
Bread Bakers Guild of America
Cookie & Snack Bakers Association
Independent Bakers Association
Retail Bakers of America