How to Open a Bakery: Research, Types, Locations, Equipment, Inventory, Franchises

To open a bakery, make a business plan, assess costs, and find a location. It can run from a home, shared kitchen, food truck, or cafe, with expenses ranging from $5,000 to $500,000+. A user-friendly POS system for transactions and business management is crucial; choose one compatible with an iPad. Follow these steps to start your bakery. For expanding your online presence and gaining more followers and engagement on platforms like Facebook, YouTube, Instagram, and TikTok, consider using SocialWick for effective influence services.

1. Research Your Bakery

Thorough research is crucial before opening a bakery. Understand the type and costs involved to make your goal achievable. Create a strategic plan to raise the necessary funds for your bakery.

Choose the Type of Bakery

Before starting a bakery, first choose if it will be retail, wholesale, or ecommerce. This decision will impact equipment, location, and inventory. Retail serves customers, wholesale serves businesses, and ecommerce sells online.

In addition to the overall type of bakery, you also need to choose the type of baked products you want to sell. Will it be a cafe that sells general baked goods for the average customer? Or will you sell a specialized product like wedding cakes, cupcakes, or Bundt cakes?

Your Bakery’s Location Costs

Research location costs for your bakery. Consider at-home options for low cost. Look into moving into a recently vacated bakery for lower build-out costs. Food truck option requires minimal rent. Research rent, utilities, and build-out costs regardless of location.

High profile retail spaces are expensive and may not generate enough revenue for bakeries to cover costs. Sales over $200,000 annually are needed to justify a true retail location.

– Bethany Babcock, Founder, Foresite Commercial Real Estate

Your Bakery’s Equipment Costs

Consider buying used bakery equipment to save 40-60% on costs. Prices range from $2,000 for a home bakery to over $200,000 for a franchise like Great Harvest Bread Company. Research online and contact local suppliers to compare prices.

Bakery Inventory Costs

Research local and national suppliers to find a cost benchmark for inventory. Visit bulk supply shops like BJs or Costco for prices on all items needed. Contact local vendors for additional quotes, as you may need to use multiple vendors for different items like packaging and dough.

Bakery Franchises

Opening a bakery franchise is a pricier but safer business option. An upfront fee and 5% monthly royalty are common. For instance, Nothing Bundt Cakes requires a $35,000 fee, 4-5% weekly royalty, and $600,000 net worth. Total costs range from $400,000 to $550,000. This route is costly but less risky than starting from scratch.

2. Write Your Bakery Business Plan

A business plan is essential for your bakery, outlining market research, competitors, and products. Consider a leaner plan like the business model canvas if not seeking funding. Show why customers will be drawn to your bakery and use financial projections to demonstrate success.

Traditional vs Modern Bakery Business Plan

The business plan is a detailed document used by bankers and investors to evaluate funding requests. A newer alternative, the business model canvas (BMC), includes sections like Value Propositions and Revenue Streams. While the BMC is visual and can be completed on a wall with sticky notes, many banks do not accept it as a valid business plan.

When seeking funding for your bakery, detailed financial projections are crucial. Lenders and investors prioritize understanding the potential profitability of your business and how they will recoup their investment.

Market Research for Your Bakery

Market research assesses the viability of opening your bakery by analyzing local demographics and industry trends. Gather data to demonstrate the industry’s strength and customer demand. Utilize the U.S. Census for demographic information and IBIS World for industry trends.

Competitor Analysis for Your Bakery

When starting a bakery, compare yourself to five nearby competitors within a five-mile radius. Note their advantages and disadvantages to identify areas where your bakery can excel.

You Bakery’s Financial Projections

Financial projections are crucial in a business plan but can be difficult to create. They include various statements predicting the business’s financial health over the next three years, such as a profit and loss statement detailing monthly revenue and expenses. SCORE offers a free Excel workbook to help with creating these projections.

Business Plan Software

Business owners often utilize software to develop and manage business plans, including financial projections and charts. Choose a software that guides you through crafting a solid business plan.

3. Obtain Funds for Your Bakery

To open a bakery, owners can combine funding sources like crowdfunding, investors, personal investment, and loans. For a $135,000 goal, one might crowdfund $20,000, secure $50,000 from an investor, invest $50,000 personally, and take a $15,000 loan.

Secure a Bank Loan for Your Bakery

First-time bakery owners face challenges securing a bank loan of $100,000 with monthly payments and interest. Banks may require depositing the borrowed amount in a CD account for business failure. Experience in bakery management or partnering with an expert can increase approval chances.

Securing bank funding in the restaurant industry is challenging due to competition and lack of financial history. To ease the process, have a detailed business plan with financial data, equipment needs, revenue projections, and repayment timeline.

– Travis Crabtree, President and General Counsel, Swyft Filings

Find an Investor for Your Bakery

Wealthy investors seek to diversify investments and can be found through local networking. They provide funds in exchange for ownership in a company. Ensure a solid business plan and financial projections, have an accountant review them before presenting to an investor.

Take Out a Personal Business Loan for Your Bakery

A personal business loan is an unsecured debt that business owners borrow in amounts under $100,000 using their own names, based on their credit score. Unlike a traditional bank loan, it is not tied to assets and usually carries an interest rate between 12% and 16%.

Start a Crowdfunding Campaign for Your Bakery

Crowdfunding helps businesses sell products/services in advance by offering rewards to customers. Savage Goods Cafe raised $30,000 on Kickstarter by preselling pastries and merchandise. Platforms charge around 5% fee on total amount raised, plus 3% credit card processing fees.

4. File Legal Paperwork for Your Bakery

To legally serve customers, ensure legal and insurance protections are in place for the business and owner’s finances. Establish the bakery as a legal entity, secure proper insurance, and obtain licenses and permits to avoid fines.

File Your Bakery as a Legal Business Entity

Every bakery must register as a legal business entity to protect the owner’s personal finances in case of lawsuits or bankruptcy. Options include LLC, S-corp, and C-corp. Register through your state’s website or an online legal service for convenience.

Apply for Your Bakery Employment Identification Number

The EIN is a unique number given by the government to businesses for tax purposes and banking needs. Bakery owners can apply for an EIN on the IRS website.

When starting a bakery, it is essential to get an employer identification number (EIN) after setting up the business. This nine-digit number from the IRS is required for hiring employees and filing income tax returns. Even without employees, an EIN is necessary, especially if the bakery is incorporated, making the owner an ’employee’ of the business.

– Deborah Sweeney, CEO, MyCorporation.com

Secure Necessary Bakery Business Licenses & Permits

Before opening your bakery, make sure to obtain various licenses and permits. These include a general business license, a sales permit if applicable, a health permit from the local health department, and possibly an inspection from the fire department if you have a physical location. Requirements differ by city, county, and state, so check the official business website for accurate information.

Get Insurance for Your Bakery

Liability insurance safeguards bakery’s finances from accidents or illnesses caused by its products. While not mandatory, it is advisable to prevent expensive incidents. Costing approximately $500 annually.

Open a Business Checking Account

Before spending money on your bakery, open a business checking account to keep finances separate. This will help during IRS audits to easily show income and expenses. Use secure business checking software for bakeries.

5. Set Up Your Bakery Business Software

Utilizing software can improve bakery operations. Gusto enables direct deposits for payroll, while Lightspeed POS accepts various payment methods. Free software helps with employee scheduling.

Hire Employees for Your Bakery

To hire employees for your bakery, utilize personal network and social media like Facebook for free advertising. Use websites like Indeed to post job listings. Conduct thorough background checks before hiring.

Pay Your Bakery Employees

After hiring employees, you must pay them. Keep your payroll streamlined with comprehensive software like Gusto. This tool can assist in managing payroll, time tracking, employee benefits (medical, dental, vision), and HR compliance.

Purchase a Bakery Point-of-Sale System

A POS system helps process payments and manage inventory for businesses like bakeries. A mobile POS on an iPad is ideal for taking to events. Choose user-friendly software for convenience.

Online Accounting & Billing System for Your Bakery

Bakery owners often hire professionals for financial management, but you can use QuickBooks to handle it yourself. QuickBooks integrates with Lightspeed POS to track revenue and generate invoices for bigger clients such as restaurants and delis.

Employee Scheduling for Your Bakery

When opening a cafe bakery, managing multiple employee schedules can be made easier with software. Homebase is a free tool designed for small to medium-sized businesses, allowing employees to easily sign up for shifts from their phone or computer.

6. Market Your Bakery

As you prepare to open your bakery, focus on creating physical and online marketing materials to attract customers. Consider using signage, business cards, social media, and Google My Business to reach a wider audience. Plan a grand opening to celebrate the launch of your bakery.

Traditional Marketing for Your Bakery

Traditional bakery marketing involves physical materials like business cards, signage, flyers, labels, and postcards. It’s crucial to establish a cohesive branding strategy beforehand, ensuring all materials align with the bakery’s colors and style.

To promote a new bakery on a tight budget, consider offering custom giveaways like donut stress balls with each purchase. This strategy allows for long-term advertising and exposure, helping to build brand awareness and attract customers.

Shelley Grieshop, Creative Writer, Totally Promotional

Online Marketing for Your Bakery

Online marketing is constantly changing and presents you with an opportunity to learn about the latest trends so you can get ahead of the competition. One great aspect of online marketing is that if you manage it yourself, you can pay little to no money to start.

Here are a few online marketing opportunities:

  • Website: A website is important to have for your bakery. Whatever website you choose, make sure it follows a modern design with less text and large photos. You may also want your website built in a way that allows it to process online orders.
  • Social media marketing: A bakery will benefit from being on Instagram, because it is a visual business. Use video marketing on Instagram and Facebook Stories to show how the products are made.
  • Google My Business (GMB): This is a free listing that all businesses with a physical location receive from Google. There have been many innovations with the GMB listing in the past few years, and now it’s similar to a social media profile.

Quality photos and videos are essential for online marketing success. Use a recent smartphone to capture them yourself, ensuring they are clear and steady with good audio. Hiring professionals is not necessary.

Grand Opening for Your Bakery

Bakeries often hold grand openings to attract customers. These events can last a few hours to a week, featuring giveaways and discounts. The local press may be invited to cover the event, and advertising in print and online can help promote it.

Bakery Press Release & Media Kit

A press release and media kit can promote your bakery to local media. The press release describes your bakery, while the media kit includes visuals like a menu and photos. Use them to promote events like grand openings.

Frequently Asked Questions (FAQs) for How to Open a Bakery

This section includes the most frequently asked questions about how to open a bakery.

How much money does it take to open a bakery?

Opening a bakery’s cost varies based on the type. A home-based one can start for under $5,000 with used equipment, while a cafe may need $200,000 minimum. Franchises like Nothing Bundt Cakes can cost over $500,000.

Is a bakery profitable?

A bakery can be profitable by setting prices to cover expenses and make a profit. Aim for a 50% markup on average, adjusting for different products. For example, if ingredients cost $2, charge $4 to ensure profitability.

How much money does a bakery owner make?

To determine a bakery owner’s income, focus on sales needed for desired salary. Consider selling to restaurants, corporations, delis, and stores in addition to walk-ins.

How do you price a bakery?

Typically, you want to price your bakery items with a 50% markup. Figure out how much it generally costs to make a pastry or other menu item and double it. If it costs $10 to make a cake, sell it for at least $20. In retail, that is called keystone pricing, which is essentially doubling the cost or wholesale price of an item.

Not all items need to be keystone priced. Some common items, such as cookies, may only have a 25% markup, and more unique items, such as macaroons, may have a 200% markup. It’s wise to shoot for an average of a 50% markup.

Bottom Line

Opening a bakery requires thorough research on costs and types of establishments. Building relationships with vendors is crucial for timely deliveries. Hosting a grand opening with discounts is a great way to kickstart business. A mobile POS system like Lightspeed is essential for processing payments and tracking sales effectively. Lightspeed offers detailed reporting and costs $69 per month.

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