How to open a bakery in 12 steps
Even after the COVID crisis put the whole world down, bakers continue to rise to the occasion. No matter what, people need their daily bread. Perhaps that's what's behind the 11% projected increase in 2021 to what will be a $731 billion food services market, according to the National Restaurant Association. And all the changes have innovative entrepreneurs trying to get a piece of the pie.
In times of transition, those with half-baked ideas only end up joining the 50% of small businesses that fail within 5 years. So read on to discover winning strategies to launch your bakery. Just know that alongside the flour, sugar, and eggs, you'll also need passion, persistence, and more than a pinch of hard work.
1) Create a bakery business plan
"If you don't follow your dream, who will?"
Wisdom like that hits you with a Bam! So, thanks, Emeril, for serving up that morsel. But how do you flesh out that dream? Well, it all starts with a plan, so here are some questions before starting a business:
- Executive Summary: How would you describe the business and your potential success?
- Overview: What's the business's background, legal structure, and other key attributes?
- Industry Analysis: What does market research reveal about the baking industry in your area, including size, opportunity, and current trends?
- Competitive Analysis: Who are your competitors, and what are their strengths and weaknesses?
- Marketing: What is your marketing strategy to reach potential customers?
- Management: What unique skills do you bring to the business?
- Operations Plan: How will you manage the day-to-day tasks of the business?
- Financials: What are your estimated revenues, expenses, and profits for each of your first 5 years?
2) Find your bakery niche
Finding a niche is as easy as focusing on a smaller part of the larger baking market. In a crowded market, a niche enables you to rise above the noise so that your ideal consumer can hear your voice. However, before you start shouting for customers, you have to decide on your business model.
Bakeries are classified into two types: retail and wholesale. Although these two kinds of bakeries produce comparable goods, their requirements and customer bases are quite different. Below we flesh out the differences.
Retail bakeries are the ones that most people think of when they imagine a bakery. They sell baked goods and bread directly to consumers. Retail bakeries exist in various shapes and sizes, with many focusing on a single baked product. They also need room for both the front and back of the house. The following are some examples of retail bakeries:
- Bakery café. This kind of bakery is a happy marriage between a bakery and a café and usually offers baked products such as bread, cookies, donuts, and pastries. Customers typically sit and eat in the dining area. And launching a bakery café shares some similarities with starting a coffee shop.
- Bakery food trucks. Rather than a brick-and-mortar shop, the bakery food trucks take the product to the people. For those starting a food truck, the baking is done ahead of time at a home bakery or commissary kitchen.
- Counter service. While counter service bakeries have a front-of-house, they rarely include a dining area. They instead have a counter where visitors may order freshly baked goodies to take home.
- Home bakeries. This type of bakery is growing more popular, mainly because people can start with little money and culinary skill. Home bakers usually advertise their goods online and then ship them out. Many home bakeries specialize, offering variations on a single baked product, such as brownies, cookies, or cupcakes.
- Specialty bakeries. A specialty bakery usually focuses on a single baked product like cupcakes, wedding cakes, or gluten-free goods. This kind of bakery thrives when it provides consumers with exclusive products that surpass the quality of less-specialized bakeries.
Wholesale bakeries are the other major kind of bakery. Rather than selling directly to consumers, wholesale bakeries offer their baked goods to companies such as cafés, delis, restaurants, and grocery stores.
Wholesale bakeries are usually bigger than retail bakeries because they must satisfy the needs of business clients. Since wholesale bakeries do not serve walk-in customers, they do not need a storefront or to be in a high-traffic location. However, since they must create larger quantities of baked products, wholesale bakeries need a vast work area and a significant amount of baking equipment, requiring higher startup costs.
3) Uncover your bakery's unique selling proposition (USP)
Your unique selling proposition communicates your focus and what makes you different from the competition. There are so many places where people can get baked goods, so why would they choose you? How you answer the question will decide if you're chasing 10% of a big pie or 90% of a small pie. Top business thinkers say you should choose the latter option.
Your USP carves out your cut of the market. For instance, an enterprising baker might have the USP "Vegan Sweets for Eco-conscious Consumers." The USP wafts the bakery's enticing aroma to every nature lover with a sweet tooth. And if there are not enough people in your area with vegan taste buds, you can always broaden the menu. You have to balance your niche, USP, and market.
4) Pick your bakery's business name
Your name should throw your niche and USP into the mixer, and out should come a moniker that matches the flavor of your business. It could be as simple as the Vegan Bakery or as colorful as The Green Queen's Sweet Factory.
Where do you find a name? Just check out the competition or try a business name generator. In addition, friends and family can be remarkable sources of creative business ideas. No matter how many folks you enlist, make sure you love the name. After all, you're the one who'll be waking up at 2 am to bake, so the name better put some sunshine on your face.
5) Design your own bakery menu
You've settled on your concept's niche, USP, and name, but what about the menu? Too many new bakery business owners err by creating a menu that's too large. Instead, take a page from Mrs. Fields, who launched with just her famous chocolate chip cookies. Let your simplicity lead to greatness. What can you and your team consistently execute at a high level of quality?
6) Choose your bakery location
The options differ a bit whether you're choosing a retail or wholesale bakery. On the retail side, home bakeries have the location figured out, but make sure you abide by local laws and health department regulations. And food trucks will probably have to rent a commissary or commercial kitchen to prepare their goods. The other retail bakeries will most likely be leasing a commercial space.
Retail bakeries should search for a place with a front-of-house area in a strategic location near to their target demographic. Conversely, wholesale bakeries sell to companies rather than consumers, and they may be found farther away from city centers or heavily populated areas. Despite the kind of bakery you start, there are a few factors to keep in mind while searching for your commercial space:
- Accessibility: How much foot traffic does the location get, and what about parking?
- Competition: Are you the only bakery around, or is the area saturated with competitors?
- Demographics: Is the location close to your target market?
- Health regulations and zoning: Before you sign the lease, can you confirm that your establishment will be lawful?
- Proximity to suppliers: How long will it take for you to receive what you need to bake?
- Rent and utilities: Does the price fit in your budget?
- Safety and crime rates: Is the area somewhere your staff would want to work, and customers would like to visit?
- Size and space requirements: Does it meet your current needs, and will you have room to grow?
7) Order your bakery equipment
The equipment your bakery needs is determined by the products you will be crafting. For example, you'll need different materials if you focus on artisan bread versus wedding cakes. While the exact equipment you require may vary based on the size and nature of your business, below are standard functions.
- Baking. Convection ovens are essential equipment because they generate dry heat for even baking. If you're crafting big batches of artisan bread, a deck oven will give your goods a crispy base. Wholesale bakers should seek high-output ovens, like rotating or roll-in rack ovens.
- Cleaning and ware washing. A three-compartment sink will be at the center of your cleaning station. However, be sure to buy hand washing stations for your workers, and include cleaning chemicals, disposable gloves, scrubbers, sponges, and other necessary cleaning supplies.
- Display and sales. Choosing the best display cases helps increase the sales of your baked products. Depending on your requirements, you may pick between self-service and full-service cases, as well as refrigerated or unrefrigerated choices. Besides display cases, select attractive boxes and packaging to bolster your revenue.
- Dough preparation. This includes commercial mixers, dough dividers, dough sheeters, dough scales, and kneading tables. To prepare your dough, you may also need holding cabinets, proving cabinets, refrigerators, and retarder and proofer combos.
- Front-of-house. This is where you pick up the furniture, tables, chairs, napkin dispensers, beverage dispensers, flatware, cash registers, point-of-sale (POS) system, and all other supplies to serve customers.
- Smallware. Besides heavy-duty equipment, your bakery will need smallwares such as mixing bowls, storage boxes, whisks, bread knives, aprons, bread knives, mixing bowls, storage boxes, and other items.
- Storage. Storage is essential for keeping your kitchen tidy. You'll likely need shelving and storage racks. If you deal with big sacks of sugar and flour, you'll want to invest in carts, dollies, and trucks to transport those gigantic bags around the kitchen.
8) Figure out your financial plan
Before you start rolling in dough (sorry, couldn't help it), you have to map out your financial plan. If your favorite numbers only measure tablespoons and cups, then you can always lean on a bookkeeper, software, or an accountant for help. Here are a couple of questions to help you start the calculations.
How much does it cost to start a bakery?
According to Entrepreneur.com, the startup costs for a bakery are between $10,000 and $50,000. You can probably slide under the lower end if you're starting a home bakery. And you can push beyond the top of the range if you're launching a café or wholesale bakery.
Where can you get the funds to pay for your bakery?
If you don't have a free five figures, or even if you do, you want to finance your business in a way that gives you the most control. Here are some simple ways to launch your new business:
- Ask friends or family
- Crowdfund with community help
- Finance equipment and partner with vendors
- Find investors
- Open a line of credit
- Secure a personal or business loan.
- Tap into your savings
- Use personal or business credit cards (especially zero percent interest rates periods)
9) Get your paperwork in order
Your own business is only a few steps away.
a) Register your business name with the state
Before you can make money, you'll have to register your new venture with the state and local authorities. Then, of course, you'll need to select the type of business entity such as sole proprietorship, limited liability company (LLC), or corporation.
b) Apply for your EIN
Your Employer Identification Number (EIN) identifies your business for taxes with the IRS. Thankfully, getting one is both free and easy. Get your EIN here.
c) Obtain business licenses and permits
This step separates bakers from the fakers. Keep in mind that jumping through the regulatory hoops protects your potential customers and prepares you for the health department's impromptu inspections. Standard permits, certifications, and licenses include:
- Health permit. You can get this from your county's health department.
- Seller's permit. You may need this as a bakery.
- Food-handling license. This is for anyone who handles food, so you and all your employees will likely have to get these.
- Food safety certification. A single employee or all employees may need this to sell food.
- Fire department and occupancy permits. You'll likely need to show sufficient fire alarms, extinguishers, sprinklers, and adequate escape routes to ensure the safety of your guests.
- Liquor license, if applicable. You'll have to get this if you're planning to serve alcoholic beverages, and you can check the Alcoholic Beverage Control board for your state's specifics.
- Sign permit. You may need a permit for your sign, or you can hire a sign company to check this box for you.
d) Insure your bakery business
Too many brand-new bakery owners make insurance an afterthought. But when you're dealing with staff at early morning hours, managing expensive equipment, and feeding the public, there are always opportunities for the unexpected.
Every bakery entrepreneur needs reliable small business insurance—that's why it's essential to shop around for the best deal. Check out this overview of important coverages you may need to insure your bakery:
- Workers' compensation. This coverage protects your employees if they get sick or injured while working in your bakery. Every state requires worker's comp, and the consequences of skipping this coverage could cause the state to close your business. (You can get a quick estimate on what you'd pay for workers' comp with our 60-second workers' compensation calculator.)
- General liability insurance. This policy protects your bakery if you're sued for an injury or property damage claim. (Expensive lawsuits can quickly put a bakery service out of business.)
- Property insurance. This policy protects your bakery equipment.
- Business interruption. Supplements your lost business income if you must temporarily suspend the baking business's operations for any reason.
- Business Owner's Policy (BOP). This policy includes general liability, business property insurance, and business interruption coverage for your bakery startup—all in one bundle.
10) Hire your first employees
As soon as you hire that first helping hand, you'll need workers' compensation insurance to operate legally. Then, once you've squared away the legal and paperwork requirement, you can head over to the Small Business Administration.
Labor expenses vary depending on where you live and how much you wish to pay your employees. Many bakery entrepreneurs will operate with a "bare-bones" workforce until sales come up, and then they will adjust their payroll expenses based on the company's needs.
For example, a retail bakery will need to recruit and educate front-of-house personnel to accept orders and work the cash register.
However, most of your bakery employees will work at the back of the house, preparing and baking your goods. Your bakery should, at minimum, have one or two workers with professional training or bakery expertise. You may also wish to employ some unskilled people to perform chores like cleaning dishes, mixing materials, packing goods, and other activities that do not need prior experience.
You'll employ pastry chefs in certain bakeries to perform delicate and specialized duties. Bakeries that make wedding cakes, for example, should seek skilled cake designers. Here are some potential staff members to consider:
- Baker/specialty chef. A prep worker may help them, but a baker is accountable for the finished product.
- Front-of-house/cashier. A front-of-house person interacts with customers and processes transactions. They should be pleasant and educated about the goods so that consumers can make informed decisions.
- General manager. A general manager oversees the day-to-day operations of the company and may also direct marketing. The owner may take on this responsibility. In a small business, the baker may also serve as the general manager.
- Kitchen prep. As your company grows, this is an important position to fill to guarantee that you can boost your output and sales.
11) Spread the word about your new bakery business
At this point, you may imagine your grand opening. To pack your bakery to max capacity, you need a solid marketing plan. Below are some tasks to help you attract your ideal customers.
- Build a website. Get the URL for your business name. A service with templates like Weebly or Squarespace can make this easy.
- List your business on Google and Yelp. Sign up for your Google My Business and Yelp profile.
- Buy online advertising. If you can afford the pricing, focusing on longer keywords related to your niche and USP could mean winning new customers.
- Create word-of-mouth. Serve the best food you can, and soon you can recruit some of your most fanatic foodies for video testimonials to post on your website and social media.
- Distribute brochures, business cards, and flyers. It's kicking it old school, but these marketing materials generate new clients even in the digital age.
- Work with related local businesses. Can you benefit from another business's customer base? Wholesale bakeries especially know how to make sure grocery stores and sub shops choose their bread, but retail bakeries can also profit from this side of the business.
- Attend local events. Sell your bread at local fairs, festivals, and farmer's markets.
12) Check out these tips for running a successful bakery business
So much you knead to know before your bakery can rise to the top. Okay, okay! But seriously, here are some resources to help your launch:
- Bake Magazine: "Bake magazine serves retail, foodservice, and intermediate wholesale businesses, focusing on tips, techniques, and trends designed to build traffic and profits."
- Retail Bakers of America (RBA): It's an association with a simple mission to help retail bakeries flourish. RBA provides community discounts, training, and professional development for brand-new entrepreneurs and veteran bakers alike.
- Rise Up Podcast: Bread lover and former bakery owner Mark Dyck interviews bakers from across the United States in this quirky yet informing bit of audio fun.
Now, that pie in the sky should be close enough to reach out and touch. And if all the info's been a lot to digest, here's how to stay sane as an entrepreneur.
If you're still crazy enough to pursue your dream bakery, you can get business insurance with Huckleberry almost as fast as you can make your favorite cookie disappear. (Getting a quote is free, easy, and 100% online.)