How to Start a Bakery: A Step by Step Guide (2020)

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Bakery Business of Wild Wheat

Have you thought about running your own bakery? Have you ever wanted to make people happy with yummy cakes or tasty breads while entering into one of the fastest-growing industries for small businesses? 

Today we’re going to reveal insider information on how to get started with your own baking business! We’ve connected with Puran Deep, a successful bakery owner who runs the wildly popular Wild Wheat Bakery in Kent, Washington. Now, we’re passing his expert advice on to you. 

So, if you’ve been wondering how to start a bakery, you’ve come to the right place! 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 to the steps of how to start a bakery, we’ll give answers to popular questions that you (and so many others) have been wondering about! From business plans to cost factoring, you’ll get straight-forward tips, takeaways, and practical advice so you can get started on developing your bakery ideas right away. 

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 even stepped foot 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–so learn what you can from industry insiders. 

Along those lines, we interviewed Puran Deep (P.D.) from Wild Wheat Bakery in Kent, Washington. P.D. has started four different businesses and now runs Wild Wheat, a cafe bakery that has been featured in The Seattle Times and won numerous Best of Kent awards–with a seven-figure annual revenue. See parts 1 and 2 of the video interviews here and here

Tired of the politics and rat race of working for corporate America, P.D. wanted to branch out on his own. That’s when the opportunity came about to purchase Wild Wheat, an established bakery-cafe with a good reputation. 

While P.D. chose to buy an existing bakery, he still has tons of great 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. 

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

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

Over the past few years, the baked good industry has been a growing business. And several options are available when it comes to starting your own bakery business. 

Bakery Cafe 

Combining the benefit of freshly baked goods with the enjoyment of a small restaurant business, a bakery cafe offers tables where customers can sit down and eat in a dining area. In addition to baked goods, this type of business will likely provide coffee or other beverages and, possibly, an extended menu. 

Wild Wheat Bakery in Kent not only offers baked items but also has an extended breakfast menu featuring omelets and other egg dishes. As an added component, P.D. roasts his own coffee beans freshly on location, which customers may drink in the cafe or take home the beans to brew themselves. 

Wholesale Bakery 

This type of bakery business does not keep a storefront, but acts as a supplier to restaurants, grocery stores, etc. The benefits are that the daily business is predictable and reliable. Customers buy in bulk and there’s no need to worry about the upkeep involved in running retail bakeries. 

Complications of a wholesale bakery can be finding grocers and restaurants to carry your product. This critical part of a wholesale bakery may be difficult, especially for a new business trying to break into the baking market. 

Counter Service Bakery 

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

Part of the larger category of retail bakeries, a counter service bakery may be combined with a wholesale bakery that sells baked goods to grocers or restaurants, providing pick up and/or delivery service for their clients. 

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 How to Start a Food Truck Business blog post. 

Home Bakery 

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

How to start a bakery business from home? 

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 you should make sure to check into local regulations on how to run a bakery from home without a commercial kitchen. 

Step 2: Perform Market Research 

You might be wondering whether starting a bakery business in your area is a viable option. To do this, you must know what’s going on in the industry in order 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 for business projections! 

Even so, you’ll need to find information about demographics, trends, competitors, finances, and target customers in your local area. 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, you need to find out what potential customers might want by doing your research ahead of time. 

When considering which baked good offerings you want to provide, you can see 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 to get the paperwork to go through, it is important to begin understanding business licensing fairly early in the process. Since your business deals with food, the Health Department in your area should be your first contact. They’ll help you move forward from there. 

Licensing and registration may vary between states and even within local jurisdictions. One excellent resource for learning the basics is the Small Business Administration. Not all of these permits will be required for you, depending on the type of bakery you choose and where you are located. 

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

Business Permits documents

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 May be required for playing music. 

Since it can be challenging to keep hearing “it depends on your location”, here’s a link to the US FDA list of regulations and codes for foodservice establishments by state. For county and city information, perform a quick internet search or inquire at your 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

If you’re looking at retail bakery options, make sure to aim for a high traffic area. Ideally, your space will be easily accessible to a large volume of people, with enough space for seating, but not so large that the rent is too high. 

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 Customer) 
  • Business Costs 

Step 5: Get Menu Ideas 

Before you can determine the cost of opening your new business, you need to know what you will be baking to figure out your finances. Nailing down recipes takes time and practice. The good news is that you can enjoy trying out all of the baked goods you make! 

Your business success depends on offering the highest quality products that people want. When it comes to your menu, be unique. Offer something special that makes you stand out from the crowd. Give customers a reason to go out of their way to do business with you!

Take a look at these bakery offerings that offer the most potential to be profitable: 

Profitable products chart

Step 6: Understand the Finances 

While spending time in the kitchen is loads of fun, you also need to spend time crunching the numbers so you have the best chance 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 from the get-go. However, if you are interested in buying into a franchise, you might be looking more toward $400,000. Depending on the scale, you can get by with the bare minimum, or go all out. The choice is yours! 

Learn How to Cost Your Baked Goods

In order to run a profitable business, you must figure out how much it costs to make each one of your baked goods. This will then allow you to price them so that you can make sure to bring the best profit! 

It can be easy to lose money on a product if you don’t know exactly how much you are spending to make it. This includes not only ingredients, labor, and packaging, but also may need to factor in costs such as electricity to run the ovens. Anything that is part of the cost of operating a bakery should be included in your product price. 

Even before you open, you can begin calling local vendors to price their supplies, and then determine what it will cost to produce them. 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

2. 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. 

3. Add together the cost of all ingredients per batch. This will calculate the total cost of ingredients for an entire recipe. 

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 

5. 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 

6. 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

This should be repeated for each piece of equipment you have. 

7. 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. 

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’ll need to increase your per-item cost to $0.80 to account for unsold baked goods. 

9. 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 

10. 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 consider bumping up your price. If your cost is higher, you should reconsider if this is a product you can sell at a profit. 

Plan How to Track Your Finances

Along with determining costs, you’ll need to decide on a way to keep track of your business finances. You may choose to hire a bookkeeper or accountant who excels in that type of work so that you can be freed up to run the business. 

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

Step 7: Create a Business Plan 

Just like with any business, you’ll need a detailed business plan as you exercise the steps of how to start 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?

Sure! Baking can be very profitable if you work hard and provide the best products for customers. Depending on various factors, a bakery owner salary ranges from around $17,000 to around $71,000. Since this includes very small home bakeries, there’s certainly potential for earning much more! 

Step 8: Secure Funding 

Business fundsIf 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 your baking becomes a viable business. 

If you only have around $50,000, but you want to go bigger with $100,000 in startup costs or more, you may be able to get a business loan. However, you’ll need to provide viable financial projections to show that you should be able to pay back the loan over time. 

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

Venture Capital Funding: If you can find an “angel investor” who believes in you and your plans, this type of funding can be effective. It does mean shared ownership, which many entrepreneurs are not super excited about. But it also keeps the risk low and prevents you from needing to borrow money. Consider this video we’ve created about Venture Funding

CrowdFunding: Another way to avoid a loan is to “raise” the money from a large number of people who invest a small amount of money. Typically, investors get something in return, such as advertising credit, a “gift” of your product, or other perks. Several different online platforms are available for crowdfunding. 

Business Loan: The amount and interest rate on business loans can vary significantly. You can try for a loan for your bakery through your local bank, as well through the government-assisted Small Business Administration. In order to get financing, you’ll need a business plan, financial projections (usually for 5 years), and expense sheets. 

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. 

Step 9: Develop a Marketing Plan 

When you’ve invested the best of yourself to start a bakery, you want to make sure customers can find you! 

P.D.’s strategy for getting new customers is strongly based on Social Media Marketing, using an outside marketing company to run their Instagram, Facebook and other profiles. They focus on letting customers know about new product releases as well as 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: 

Advertising: Traditional print advertising, billboards, radio, etc. 

Social Media: Initially free to use, additional social media ad options may be purchased. You may outsource your social media marketing by hiring a professional marketer. Find a professional to help with this through Fiverr or Upwork

Press Releases: In addition to social media, don’t forget about print and online newspapers. Depending on your location, your local paper may print your bakery opening as “news” when you present it to them as a press release. 

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

Is it hard to open a bakery?

Opening a bakery is hard work but it is worth it, to be sure! 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 10: Purchase Equipment 

You’ve found your space and secured funding.! Now your kitchen and dining area need to be ready to bake and serve the best products to your customers. 

What equipment do I need to start a bakery?

Industrial Bakery OvenYou want the baking equipment in your commercial kitchen to be reliable. Equipment may be purchased online or locally. Your bakery equipment list for your commercial kitchen will 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 $100,000 each brand new. Many bakeries just starting out will choose to lease their larger equipment in order 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 ready to be delivered. 

Storage – A place to store your ingredients prior to use, as well as 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. Cash only is a thing of the past, which makes 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 11: Hire Staff 

For a retail or wholesale bakery business, you’ll need qualified people to work in the kitchen. For a cafe bakery, you’ll also need counter help and possibly servers. Indeed is a useful resource to find qualified employees. 

According to P.D., when it comes to 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 12: Build Your Business 

Growing bakeryOnce you’ve started baking, be sure to pursue continuous growth for your business. That means setting goals and making plans to find and retain customers. 

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

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

What will you do differently or better to acquire new customers and retain existing ones? Add new product lines? Create a customer loyalty program? Advertise? 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. This provides a large profit without significantly greater 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, you should cold call restaurants with whom you want to do business and let them try your products. If your product is of good quality, it should sell itself. But you have to get people to try it. 

What are the biggest mistakes when opening a bakery?

According to P.D. of Wild Wheat, one of the biggest mistakes in opening a bakery is not finding and keeping the best employees. With 36 full and part-time staff people 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.

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! 

If you were thinking about starting a bakery, would you start a home bakery, wholesale or food truck bakery?

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