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Starting Your Own Cake Business – Steps to Start a Bakery

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Are you one of those who is frequently asked to bake cakes for birthdays, anniversaries, get-togethers by family and friends, then you should seriously consider starting your own cake business. The thought might be intimidating the moment you hear about it, but bakery business can indeed be a profitable and soothing side business or fulltime career that you can pursue.

The restaurant industry is booming today, with so many start-ups hitting the market. The industry has encouraged a lot of home cooks and professional chefs to open their own business. The bakery is one of the food businesses that have been seen spreading its wings like fire. So, if you are an aspiring baker, you could stand a chance to become a successful baker in your city or location and earn a good profit. Desserts are part of every occasion, and with a child being born each minute, we are sure you will never run out of customers.

So, all of the aspiring bakers, you will find here what you need to know about starting a successful and profitable bakery business.

Step 1: Plan Your Bakery Business

Planning can make any process simple and easy to accomplish. A business plan is a must before climbing the next hundreds of steps in opening a bakery. You have to first decide the kind of bakery you would like to start. You need to evaluate your skill and expert level to determine this. Your budget and business goals should also take part in the decision making.

To figure out your profitable niche, you need to do local market research. Current market trend, location, economy, and demographics play a huge role in your start-up venture.

For instance, if you live in a traditional city, highly expensive cakes may not work for you. On the other hand, if you plan to serve the Uptown, you will have to beat the competition and produce stunning cakes, such as wedding cakes and those that look like miniatures.

You have to determine the way to serve your customers as well. Some of the popular choices are:

  • Online Cake Business: You don’t need to set up a store to open an online bakery. You can start this at home. You just need a place for your customers to place your orders. A website and app are the most recommended options.
  • Specialty Service: This is a good option if you plan to start a certain kind of baked products line. You could choose a particular product and offer a specialty service. For instance, you can choose Irish coffee cakes as your specialty. You can operate this business from home or rent a space. You can either provide online delivery or counter service.
  • Counter service: You just need a small commercial space to sell your cake. Customers can place their order on phone, via email, text or on the website, walk in, and pick up the cake at the delivery time. You can hire an assistant to manage the counter.
  • Sit Down Bakery: It is a space that has both, a seating area where customers can relish your baked foods and a counter where people can place takeaway orders. It is a common business model that most bakers are trying to establish.

Step 2: Create Your Business Plan

Once you have developed an idea about the kind of bakery you plan to open, it is time to document your business plan. A business plan will help you to look at the business from several angles. You have to categorize your business plan into several divisions and write down the statistical and research analysis for each. If you plan to open a bakery on a large scale, a solid business plan will help you get bank loan easily. Here is a list of things you need to consider in your business plan:

  • Bakery type
  • Competition analysis
  • Market value and the current trend
  • Target customer base
  • Business location
  • Business goals (long-term and short-term)
  • List of expenses (equipment and crockeries, raw material, rent or lease, bills, internet, furniture, employees and miscellaneous)
  • List of manufacturers, distributors, and retailers
  • Ideas on how you can differentiate from your competitors
  • Start-up cost estimation
  • Start-up cost generation (how and from where will you fund your business until break-even)
  • Financial projection
  • Marketing and advertising strategies

Step 3: Choose Your Business Location

Most home cooks turned bakers start their business from home. You could too if you have the right equipment and space to bake goods in huge quantities. Starting from home keeps your cost low and fair. You can start the business as part-time in the beginning without cutting back on your day job. Once you start getting enough orders should you consider this full time.

Alternatively, you can rent a space for your business. The ideal location for a bakery is a food market and shopping streets, especially places that are easily accessible. You should aim for a 500 sq. ft. shop space, if you plan to set your kitchen inside your bakery. You can also bake at home and sell it in your shop, whichever you see fit.

Make sure the place is properly ventilated and have proper water and electricity supply. Continuous flow of electricity is must for a cake business as goods are baked in oven and ovens are powered by electricity.

You could either buy the space or rent it based on your budget. Leasing is another option that you can consider. Make sure everything is legally approved between you and the property owner.

Step 4: Make Your Business Legal

Before you even start baking your first order, make sure your business is properly registered and licensed under the legal framework.

You need to register your business as a legal entity. That should be your first step. Hire an attorney and ask him about the various types of business structures that bakeries establish. You could establish your bakery as a sole proprietorship, as Limited Liability Company, a partnership or a corporation. Each structure has pros and cons, and different tax liabilities. Your attorney will recommend the one that best compliments your personal liabilities, financial condition, and of course, your business type.

Select a good bakery name before you register your business. The name should talk about your business, should be catchy and definitely not cheesy. Once you have applied for registration, find from your State and Local Corporation about the licenses and permits you need to acquire for running your business.

The food industry is a highly regulated industry. So, you will have to be careful in obtaining the various permits and licenses. Failure to do so may lead to heavy fines and even complete business shut down. 

Health license, Food and Drug Administration License, Tax license, Fire license, manufacturer and distributor license, and other permits are mandatory for this business. You will also have to find out the label laws and requirements from FDA for labeling your packaged goods.

Furthermore, you will need to apply for an Employee Identification Number from your state IRS for banking and staffing purpose.

Step 5: Apply for Insurance

Once the licenses are obtained, you have to think about buying insurance coverage for your business. You may probably have to buy more than one insurance policies to secure your personal liabilities.

Limited liability insurance, worker compensation insurance, fire insurance etc. are a few types of insurance that you have to consider getting. Insurance is extremely crucial for businesses. They protect the business owner from legal issues and claims. And, if at all your business is sued, your insurance will cover the cost, while protecting your personal assets.

Based on your business structure, employees and other operations, your attorney or a reliable insurance agent will determine the required type and number of insurance.

Step 6: Buy Your Equipment and Utensils

You cannot run a food business without equipment, crockeries and cutleries, and packaging materials. And, it is not going to be any different for a bakery. The most important equipment for baking is ovens (OTG and Convention), molds, commercial dough mixers, and frostings. You have to remember that from now you will not be baking for your friends and family only. Therefore, you will need everything in double or in large quantity.

If you choose to bake and deliver expensive and complicated goods, your list of equipment will increase. Here is a list of equipment you need to buy for your business.

  • Ovens for baking and grilling
  • Mixers
  • Shelving racks to store & display your baked products
  • Puff and pastry baking sheets, trays, and pan
  • Dough scrapper
  • Rolling pins
  • Storage containers
  • Display case
  • Pans
  • Fryers
  • Refrigerators
  • Baking and measuring utensils
  • Serving plates and cutleries

Apart from the above, you also need gift boxes and card boxes for packing and delivering cakes. Equipment for baking is expensive in comparison to other food businesses because baking equipment are completely made out of steel. So, you may have to invest a good amount for your tools.

Step 7: Generate Funds

The next step is gathering funds to commence the business. You need funds to cover up the start-up cost and survive the first six to eight months until breakeven. Calculate your funds from A – Z without omitting any aspect in between. Right from equipment, rent, business registration to marketing costs, staffs and bills, everything needs to be included in start-up cost calculation.

You can gather funds for your bakery using several mediums. If you are starting small, from your home, you can use your savings to open your bakery business. However, if your vision is big, you could apply for an SBA loan or a bank loan, seek help from credit unions or community banks, or initiate crowdfunding. You can also let a partner join and invest in the capital fund.

Step 8: Set Price for Your Products

Once everything is set and you are just a few steps from pre-launch, it is time to price your baked goods. Pricing products in the food industry is a very tricky affair. Look up your competitive prices and set your price based on it. Time is the biggest factor in the baking business. You may forget the service time you put forth in making flowers, making fondants, cutting layers, and applying the cream on the sponge. Thus, your price should include clean up time, packaging, and time spent on marketing.

You cannot change the price once is it fixed and out in the market. So, think twice before you fix the rate.

Step 9: Hire Help

For home-based bakery business, you may not need assistance in your baking process. But as and when you grow, you will need people to support you in packaging and delivery, accounting, procuring raw materials, and baking goods itself.

Bakery definitely requires expert and qualified people. Taste as well as presentation, both play a huge role in baking business. You may need a head chef, pastry maker or chef de parties, helpers, service boys and cashier for your high-end bakery.

On the other hand, if you are supplying to limited customers, you will need help with packaging and on-time delivery. Depending upon the size and type of the business, your required manpower size will vary from 2 to 15.

Step 10: Market Your Business

It’s time to take your business off the ground. For that, you need to have exceptional marketing and promotional strategy in place – two important aspects no business of today can operate without. You have to define your brand first and make people understand how your brand is different from other bakeries. Your price, your packaging, your taste, the delivery time and other promotional and seasonal offers will determine your brand value.

Don’t forget to launch your website to establish an online presence. Make it SEO friendly too. Also, make sure you are active on social media, especially on Instagram and Facebook and promote your services through videos, pics, and offers regularly.

Baking is a labor of love. Open your dream bakery and do send us links to your website, so that we can savor some of your goodies too. All the best!