How to Start a Bakery: A Step-by-Step Guide (2021)

  • by Jake Pool
  • 7 months ago
  • Blog
  • 1

Have you ever wanted to make people happy with yummy cakes or tasty breads? Ever thought about entering one of the fastest-growing industries for small businesses? It may be time to start a bakery!

Today we’re revealing insider information on how to start your own baking business.

We connected with Puran Deep, a successful bakery owner who runs the wildly popular Wild Wheat Bakery in Kent, Washington. In 2019, his bakery exceeded over $1 million in revenue!

Now, we’re passing his expert advice on to you. We’ll show you step-by-step how to plan, start, and grow a thriving bakery business in this $30 billion per year industry.

In addition, we’re giving answers to popular questions regarding business plans and cost factoring. You’ll get straight-forward tips, takeaways, and practical advice to help you get started on developing your bakery ideas.

How Do I Start My Own Bakery?

You’ll find everything you need to know in this step-by-step guide for starting a bakery!

If you are new to the bakery world—or haven’t stepped in a kitchen—it’s a good idea to visit some bakery businesses to glean information and practical experience. Small business owners are often happy to share what they know.

We interviewed Puran Deep (P.D.) from Wild Wheat Bakery in Kent, Washington. P.D. started four different businesses in the past and now runs Wild Wheat, a cafe bakery often featured in The Seattle Times and the winner of many “Best of Kent” awards.

See parts 1 and 2 of the video interviews here and here.

 

Tired of the politics and rat race of corporate America, P.D. wanted to branch out on his own. That’s when the opportunity to purchase Wild Wheat, an established bakery-cafe with an excellent reputation, landed on his desk.

P.D. bought an existing bakery, but he still has tons of advice to offer to someone starting from scratch. We’ll share his expert tips and other practical advice as we proceed through the steps for starting a bakery as a new business.

You have to treat everybody that walks in this door with great customer service. Make sure they are getting what they need. Make sure you’re giving them quality food. Over 50% of our customers on a daily basis are our regular customers.

Another alternative is to buy an existing bakery, feel free to browse for some here.

Step 1: Decide What Type of Bakery You Want to Run

When considering the details on starting a bakery, you first need to know what type of bakery you’re interested in. Retail bakeries, home bakeries, and wholesale bakeries are viable options.

Recently, the baked goods industry has grown. And several options are available for starting your own bakery business.

Bakery Cafe

Slice of cake with a cup of coffee

A bakery cafe offers tables where customers can sit down and eat in a dining area. It combines the benefit of freshly baked goods with the enjoyment of a small restaurant business.

Like a small restaurant, this type of business also provides coffee, other beverages, and an extended menu. Wild Wheat Bakery offers an extended breakfast menu featuring omelets and other egg dishes.

As an added component, P.D. roasts his own coffee beans on location. Customers can enjoy a cup in the cafe or take home the beans to brew themselves.

A perfect example of a Bakery Cafe is the world famous Ferrara Bakery in New York City.

Wholesale Bakery

This type of bakery business does not keep a storefront and acts as a supplier to restaurants, grocery stores, etc.

The benefit is that the daily business is predictable and reliable. Customers buy in bulk. And there’s no worry about the upkeep of a retail bakery.

Finding grocers and restaurants to carry your product is the key challenge of a wholesale bakery. This critical aspect may be difficult for a new business trying to break into the baking market.

However, it is very important for any bakery. We asked P.D. why wholesale is so important for a bakery and here’s what he told us:

You have your staff; you have your employees that are producing a certain number of breads or whatever they’re making. It’s not a huge cost for them to produce a little bit more with the same employees and the same equipment, but you can increase your sales significantly.

Marsee Baking is a wholesale bakery that operates in Seattle and Portland.

Counter Service Bakery

Baker holding a cake for bakery business

Typically, a small, no-frills offering, this type of bakery expects customers to pick up their orders and go. One benefit is that it limits the time and energy spent on customer service.

Part of the larger category of retail bakeries, it’s possible to combine a counter service bakery with a wholesale bakery. Meaning the bakery would sell baked goods to grocers or restaurants and provide pick up and/or delivery service to retail clients.

Clark Street Bakery in Los Angeles started out of an apartment and has four counter service locations as of this writing.

Food Truck Bakery

One of the most affordable ways to open a bakery, food trucks have become a viable option for running your own business. For more information on how to get started, check out our blog post on How to Start a Food Truck Business.

The Teal House Coffee and Bakery food truck is one of the most well known around Austin, Texas!

Home Bakery

Cottage industry businesses can be a simple way to dip into opening a bakery without a large investment. To start a home bakery, simply alter the steps in this business guide to meet your home baking needs.

Baking can be done with a few simple ingredients, so it’s about simplicity and nostalgia – people are reminded of their childhood.

– Paul Hollywood – Celebrity Chef and Judge on The Great British Bake Off

How to Start a Bakery Business From Home?

Woman putting icing on pastry

Many people start a bakery from home simply by selling their baked goods to friends and family. You might not need a formal business plan, but check into local regulations on how to run a bakery from home without a commercial kitchen.

Step 2: Perform Market Research

You might wonder whether starting a bakery business in your area is viable.

It’s important to know what’s going on in the industry to meet customer needs. This market research report provides tons of information and industry data about Bakery Cafes in the US.

The good news? Bakeries are on the upswing!

Even so, it’s important to research your local business environment for things like:

  • Demographics
  • Local Market Trends
  • Competition
  • Budget
  • Target Audience

All of this information will be vital later when you build your business plan.

According to P.D., knowing what customers need is critical to running a business. He says:

…you have to have the right mindset, you have to take care of the customers and know their needs.

So, before you even get started in business, find out what potential customers want by doing your research ahead of time.

When considering which baked good offerings to provide, know that certain segments of the market are larger than others, as seen below:

  • Bread: 32%
  • Rolls: 19%
  • Cakes: 15%
  • Retail bakery products: 10%
  • Soft cakes: 8%
  • Pies: 2%

Step 3: Understand Your Local Business Laws

Because it can take time for agencies to process paperwork, it’s important to understand business licensing early in the process. The bakery industry deals with food, so the Health Department in your area should be your first contact.

Licensing and registration varies between states and even within local jurisdictions. One excellent resource for learning the basics is the Small Business Administration. The required permits depend on the type of bakery and location.

Run through this list for a cost estimate of your licenses and permits:

Business permit needed for business start-up

Business License and Permits Estimated Cost Info

  • Business License – Around $50 Based on location/type/size. Renewable.
  • Food Service License: $100-1000 Based on size, # of employees. Renewable.
  • Employer ID Number (EIN) – Free Issued by IRS for tax purposes. Takes time.
  • Certificate of Occupancy – Around $100 Proof of final inspection. Locally issued.
  • Fire Department Permit – $50-200 Inspection of ovens, etc. Locally issued.
  • Food Handler’s Permit – $100-500 for each employee. Renewable.
  • Sign Permit – $20-50+ Allows a permanent sign. Locally issued.
  • Music License – $250-500 to play music.

Here’s a link to the U.S. FDA list of regulations and codes for foodservice establishments by state. It clarifies the differences in regulations between states.

For county and city information, perform a quick internet search or inquire at your local health department.

How Long Does It Take to Start a Bakery?

Starting a bakery can take from a few weeks to a few months, depending on the scale of the operation.

A bakery at home can be fairly quick when your customers are people you know. A retail or wholesale bakery may take a few months or even a year, depending on your location, funding, and other circumstances.

Step 4: Consider Locations

Man checking for the right location on iPad

If you’re looking at retail bakery options, aim for a high traffic area. Ideally, your space will be easily accessible to a large volume of people, have enough space for seating, and reasonable rent for the square footage.

For example, the world famous Ferrara Bakery is located in New York City in the heart of Little Italy on the corner of Grand and Mulberry Street. 

It may not be the most spacious cafe, but the foot traffic more than makes up for the lack of seating. Try to find this balance with your location!

In any business, location is key. If someone is planning to open up a new location, pay a lot of attention to the foot traffic, where you are opening it. Location can be something that can make or break your business. It’s very important.

Consider these factors when choosing your business location:

  • Accessibility
  • Competition
  • Foot Traffic
  • Parking
  • Growth Potential
  • Demographics (fits Target Audience)
  • Cost

Step 5: Get Menu Ideas

Before determining the cost of opening your new business, you must have a rough idea of your menu. Mastering recipes takes time and practice. The good news is that you can enjoy tasting the test-recipes!

Business success hinges on offering the highest quality products that people want. It’s important to create an eye-catching menu.

Offer special items that make you stand out from the crowd. Give customers a reason to do business with you!

If you need some inspiration, here are some recipe sites to review:

Look at the bakery offerings that offer the highest profit potential.

Step 6: Understand the Finances

Calculating funds for business use

While spending time in the kitchen is loads of fun, you also need to crunch numbers to open a successful bakery.

How Much Does It Cost to Start a Bakery?

According to Entrepreneur, starting a bakery can cost anywhere from $10,000 to $50,000. And a franchise can cost over $400k. Depending on the scale, you can get by with the minimum, or go all out.

Learn How to Cost Your Baked Goods

To run a profitable business, you must figure out how much it costs to make each one of your baked goods. This allows you to price items for the highest profit margin.

It’s easy to lose money on a product if you don’t know exactly how much it costs to make it. This includes ingredients, labor, packaging, and even cooking time to account for the electricity (or gas) running the oven.

Before you open, call local vendors to price their supplies, and then determine the cost of production. Consider this costing guide based on information from the Houston Chronicle.

COSTING GUIDE FOR BAKED GOODS:

  1. Calculate the number of batches you can get from a bulk ingredient.

For instance, if the recipe calls for 8 ounces of milk and you buy your milk in gallons, here is the formula:

128 oz / 8 oz = 16 batches

  1. Divide the cost of each ingredient by the number of batches.

If a gallon of milk costs $4, this is the formula:

$4 / 16 batches = $0.25 per batch for milk

Complete this step for each ingredient in a recipe.

  1. 3. Add together the cost of all ingredients per batch. This will calculate the total cost of ingredients for an entire recipe.
  2. 4. Divide the cost per batch by servings per recipe. So, if the total cost per recipe is $5 and makes 10 servings:

$5 batch / 10 servings = $0.50 per serving

  1. Add in other items (cupcake liners, packaging, etc.) For example, cupcake liners cost $5 per 100, so each cupcake liner costs $0.05.

$0.50 per serving + $0.05 liner = $0.55 per serving

  1. Add in the cost of equipment usage. Here, divide the cost of equipment by the number of days of its expected usage and then divide that number by the average number of servings you will produce per day.

For instance, for an oven that costs $10,000 and lasts for ten years (1825 days) should and bakes 500 servings per day, this would be the formula:

$10,000 / 1825 days = $5.48

$5.48 / 500 servings = $0.01

Repeat for each piece of equipment.

  1. Figure operating costs.

Do the same as above to include all operating costs. This includes utilities, storage space, rent, advertising, printer ink, labor, etc. For instance, if your monthly electricity bill is $500, then divide that by 30 days and the estimated 500 servings per day:

$500 / 30 days / 500 servings = $0.03

Again, do this with all of your operating costs and add all of that in.

  1. 8. Divide your per serving cost by the number of expected items sold. Bakeries must be honest about the fact that they will not sell out of everything in their shops. And perishable items must be counted into the cost of doing business.

If you think that you can sell 75% of your items, and your per serving cost is $0.50, then your formula is this:

$0.60 / 0.75 = $0.80

You must increase your per-item cost to $0.80 to account for unsold baked goods.

  1. Add in your profit margin. Here, you must add 100 to your desired profit margin and then divide that number by 100. For instance, if you need a 200% profit margin:

200% + 100 = 300 / 100 = 3.0

Then multiply the cost by your profit margin to determine the per-serving price like this:

$0.80 cost x 3.0 profit margin = $2.40 per serving price

  1. Compare prices.

If this per-serving cost is similar to what other local bakeries are charging, then you’re on the right track. If it’s under, then you should up your price. If your cost is higher, reconsider if this is a product you can sell at a profit.

Track Your Finances

Along with determining costs, you need to decide on a way to keep track of your business finances. One option is to hire a trusted bookkeeper or accountant to free up your time to run the business.

There are also several options available for small business accounting software including Quickbooks, Freshbooks, Wave, Xero, and more.

Step 7: Create a Business Plan

Business plan creation

You must have a detailed business plan as you exercise the steps of starting a bakery.

Consider these components when writing your business plan:

  • Executive Summary — contains the most important points from each of the following categories
  • Company Overview–a description of your business.
  • Market Analysis–includes pertinent information from your market research
  • Business Offering — a list of the products you will sell to your customers
  • Management — includes business partnerships, number of employees, who will run the various areas
  • Marketing Plan — information on how you plan to reach customers, advertise, etc.
  • Financial Projections – predictions for the financial success of your business

The Small Business Administration offers this guide to writing a business plan.

Is a Bakery a Profitable Business?

Baking can be very profitable if you work hard and provide the best products for customers. Depending on various factors, a bakery owner salaries range from around $17k to $71k per year.

These statistics include tiny home bakeries, so there’s potential for earning much more!

Step 8: Create a Business Entity

With a business plan in place, it’s time to create a legal company. Register your business at the federal and state levels and establish a legal structure. It’s possible to register online.

Choosing a business structure (Limited Liability Corporation, Sole Proprietorship, Corporation, S Corporation, or Partnership) can be complicated if you’re not familiar with the process.

The SBA and IRS have extensive resources on business structures. But work with an accountant and/or business attorney to maximize your legal and tax benefits.

Typically, a bakery will be set up as a Limited Liability Corporation (LLC) to avoid exposing the owner’s personal assets to legal action (like a slip and fall in the bakery).

Step 9: Secure Funding

Group of people discussing funds

If you have personal savings available to start your business, that’s fantastic! But you may need to borrow a portion of your startup costs until it becomes a viable business.

If you only have around $50,000, but want a larger cushion at $100,000, you may get a business loan. However, you must provide viable financial projections that show your ability to pay back the loan.

As P.D. said,

If you make a good business plan and the lenders buy into that, you can get funding.

Consider these different options to secure funding for your business, as suggested by the Small Business Association:

Venture Capital Funding

Raising venture capital is the easiest thing a startup founder is ever going to do.

– Marc Andreessen of Venture Capital Firm Andreessen Horowitz

If you can find an angel investor who believes in you and your plan, this type of funding can be effective.

However, it means shared ownership, which many entrepreneurs are not super excited about. But it also lowers risk and prevents borrowing money.

Consider this video we’ve created about Venture Funding.

CrowdFunding

Another way to avoid a loan is to raise the money from many people who invest a small amount of money.

Typically, investors get something in return, such as advertising credit, or gifts and other perks. Several online platforms host crowdfunding campaigns.

Business Loan

The amount and interest rate on business loans varies significantly. You can try for a loan through a local bank, as well through the government-assisted loan programs with the SBA.

Securing this type of funding requires a business plan, financial projections (usually for 5 years), and expense sheets.

Evaluating business and finances

Friends and Family

If your friends or family are interested in your project, you may find you can borrow the funds from someone you know.

How to Start a Bakery Business With No Money?

If you want to start your bakery on a shoestring budget, that’s great! As mentioned above, you can save a ton of money by starting in your own home, selling to friends and family.

Another option, with good credit, is to leverage a zero-interest rate period on a credit card. It’s risky but possible to use the zero-interest period to start your business and then pay the card off before the interest kicks in.

Note: Have a solid business plan in place if you’re thinking about this option.

Step 10: Develop a Marketing Plan

marketing plan in the making

When you invest in starting a bakery, make sure customers can find you!

P.D.’s strategy for getting new customers is based on Social Media Marketing. He outsources a marketing company to run his Instagram, Facebook and other profiles.

They focus on letting customers know about new product releases and any interesting news.

These days everyone is on their phone!

You can get your name out there and draw in customers in a variety of ways, including these options:

Traditional Advertising

This includes print ads, billboards, radio, flyers, and knocking door-to-door.

Social Media

Initially free to use, you can also purchase additional social media ad options. It’s possible to outsource your social media marketing by hiring a professional marketer. Find a professional to help with this through Fiverr or Upwork.

Press Releases

Besides social media, don’t forget about print and online newspapers. Depending on your location, your local paper may print your bakery opening as business news when you present it to them as a press release.

Coupons

Consider placing coupon ads in a local paper. To offer bounce-back coupons (used on a return visit), use an online tool like Canva, then have them printed locally. Many bakeries or coffee shops have loyalty cards designed and printed this way.

Is It Hard to Open a Bakery?

Opening a bakery is hard work, but it is worth it! According to P.D.:

There’s nothing you can’t learn if you have the right mindset and the right attitude. You need to be open-minded. Keep the right mindset. Stay the course, do what you have to do, keep at it. Eventually, things smooth out and you come out on top.

Step 11: Purchase Equipment

Baking equipments needed for cupcake business

You’ve found your space and secured funding. Now you must prepare your kitchen and dining area to bake and serve the best products.

What Equipment Do I Need to Start a Bakery?

Reliable equipment is essential for any commercial kitchen. Purchase your equipment online or locally. Your bakery equipment list for your commercial kitchen should include:

  • Ovens – Commercial-grade ovens can be extremely pricey but are a vital piece of equipment for your business. P.D. says his ovens would cost around $100k each brand new. Many bakeries choose to lease larger equipment to save on startup costs.
  • Mixers – Large capacity stand mixers, with special dough hooks for kneading bread.
  • Refrigeration – For storing your perishable ingredients such as milk and cream.
  • Tables/Workspace – Depending on the type of baking, tables may be necessary for decorating cakes or for packaging products.
  • Storage – A place to store your ingredients prior to use, and for storage of packaging, or other items. Carts with shelves may be useful for cooling baked goods fresh out of the oven.
  • Dining Area – Tables, chairs, and a counter for the retail area are all important aspects of your bakery.

 

  • POS System – One critical point for any business is how to let your customers pay. A Point-of-Sale system vital to your business. When you can choose one that links well with your accounting software (mentioned above), it’s even better!

Step 12: Hire Staff

For a retail or wholesale bakery business, qualified employees working in the kitchen are the backbone of the business. Bakeries open very early, and it is essential to have reliable employees willing to bake bread at four in the morning.

If you’re running a cafe bakery, counter help and possibly servers are a necessity. They act as the front line for providing great customer service that ensures return business.

Here are some sites where you can post jobs and find qualified candidates:

Finding top talent in food service is no simple task, so go beyond traditional job hiring sites like Indeed. Instead, reach out to local culinary schools and food programs (community college) to secure reliable talent with interest in the industry.

According to P.D., in taking care of your staff, you don’t want to skimp:

I tell them to make sure that your people are taken care of and the rest will be fine. You only have so many hours in a day. You’ll burn out if you’re not careful. It’s not worth stressing yourself out.

Step 13: Build Your Business

Ideas for additional service to offer to customers

Once you’ve started baking, pursue continuous growth for your business. That means setting goals and making plans to find and keep customers.

P.D. says you should ask yourself a simple question:

I want to grow 10% every year. What do I have to do?

Here are some other questions to ponder on growth:

  • What should I do differently or better to gain new customers and keep existing ones?
  • Is there room to add new products?
  • Would a customer loyalty program help our bottom line?
  • What does our marketing data show?

Brainstorm and research ways to please your customers and then execute the best ideas.

According to P.D., wholesale products are one of the best ways to grow a bakery business. They provide large profit margins without a large investment.

It may mean running the ovens a bit longer or arranging for more deliveries, but it’s a steady way to increase revenue without a lot more work.

P.D. says that with samples in hand, cold call restaurants with whom you want to do business and let them try your products. If your product is of outstanding quality, it should sell itself. But you must get people to try it.

I would throw a bunch of samples in my car and just go to a bunch of different restaurants and drop off samples and ask them. Look at their menu, whether they’re serving, hamburgers or if they’re a sub shop. Give them hamburger buns or baguettes for their sandwiches. And when they like the product, they call and they’re ready to order.

What Are the Biggest Mistakes When Opening a Bakery?

P.D. stated that one of the biggest mistakes in opening a bakery is not finding and keeping the best employees. With 36 full and part-time staff, P.D. offers this insight:

Employees are what you need for your business. You can’t be everywhere, so you have to put trust in your people and take care of them, then they’ll take care of your business.

Conclusion

If you can already smell the heavenly croissants baking in your oven, then it might be time to get started with your steps on how to start a bakery! Follow our guide to leap over many of the hurdles beginning entrepreneurs and bakers face. 

With planning and perseverance, you’ll be serving customers and raking in dough (get it?) like P.D.

If you were thinking about starting a bakery, would you start a home bakery, wholesale or food truck bakery? Let us know in the comments below!

 

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One thought on “How to Start a Bakery: A Step-by-Step Guide (2021)”

  • Archana

    Your article is an excellent piece. I have a doubt. If I want to start a bakery business at a low cost, which type would be more affordable and very effective?

    Reply

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