Did you know that you can turn your baking skills into a money-making venture? Yes, you read it right. Baked goods businesses have grown in popularity over the last few years, but actually, they’ve been around for awhile. If you are looking to start your own baking business, investing in baking equipment such as a baking quality analyser can help take your bakery to new heights.

More recently, many entrepreneurs have started selling their cakes, cupcakes, and cookies from home and have grown into regular retail bakeries and even franchises. Also, this article will show you how to start a baking business and make a consistent profit from it. All of this will be discussed under the following points.

• Advantages And Disadvantages of Starting a Baking Business
• Things Needed to Start a Baking Business
• How to Start a Baking Business
• Is Owning a Bakery Profitable
• How to Increase Your Bakery Revenue
• How to Start a Bakery From Your Home

When it comes to home baking, there are many different treats you can make including:

• Cakes and cupcakes
• Cookies
• Brownies and bars
• Pies
• Muffins
• Breads
• Pastries
• Biscotti
• Dog treats

Starting a home-based bakery might sound fun and easy to do – after all, you’re already baking. But there are a few cons to running a home-based baking business that you’ll need to consider before baking your first batch of goodies.

Advantages And Disadvantages of Starting a Baking Business

Advantages

You automatically create a loyal customer base

If people try your baked goods and they enjoy them, then you’ll be creating brand loyalty automatically. Any time that customer is near your bakery and they smell what you’re baking, they’ll be ringing through your door. Over time, as more customers give your bakery a try, you’ll be able to establish a base of local customers that will frequent your business when they have a need for your goods.

High traffic locations can make for easy profits

Bakeries create a temptation for people like no other business. The odors of baked goods can make anyone feel hungry and make them stop in for some browsing. If you have a location that offers easy street access, good visibility, and a fair lease that can help to limit your costs, then you’ve got a chance to beat the odds of having a successful business. New bakeries fail 14 out of 15 times.

You may be able to start a bakery out of your home

Although your home will still face the licensing requirements and health and safety inspections, it is possible to create a catering or delivery service with a home bakery. This allows you to save some money on your capital costs and that savings can be passed along to your customers.

There is a need for niche bakeries

Celiac disease and gluten intolerance is a growing problem in the developed world. Many individuals must avoid gluten-contained products at all costs and that means they can’t eat regular bread. The average grocery store might offer one or two selections for bread at most. With a bakery, you can meet local niche needs like serving gluten-free products to establish an instant business relationship.

Disadvantages

You’ve got multiple levels of compliance that must be met consistently

Because you’re selling food products, there will be regular health and safety inspections at your business. You’ll need to have the standard business license. You may also be required to collect sales taxes or meet other specific licensing needs in your community. Specific certifications regarding your skills as a baker may even be required. Not every business faces such scrutiny, so be aware of this before you begin the process of starting your business plan.

The profit margins are often quite small

When you consider the labor and utility costs of baking your preferred goods, there is a good chance that your profit margins on some products could be under 5%. In the food industry, a standard calculation for pricing is to set prices at 4x what your cost per product happens to be. If it costs you $1.50 to make a loaf of bread, that means you’d be charging $6 per loaf and that just isn’t in the budget of many households today.

The cost of ingredients is high, even if they can be sourced at wholesale rates

Just look at the prices of butter or olive oil at the grocery store and you’ll have an idea of the ingredient costs that you’ll be facing. You’ve got to purchase these ingredients before any baked goods are sold, which means you need cash on-hand every day. There’s also no guarantee that you’ll sell all of your baked goods every day, which means you could be out a lot of inventory without revenues and still need cash to pay for more.

The working hours are not always so friendly

Let’s face it: if you want to serve fresh baked goods for the morning commute that begins at 6:30am, then you’ve got to be baking by 2:30am. This means you’ve got to get into bed the night before at a time when everyone else is spending time with their family and friends. You can’t always mix your dough the night before for certain products, so there’s no getting around this fact.

The pros and cons of starting a bakery show that it can be a difficult proposition to create success. The best solution is to see if your community could benefit from having a bakery. It is their support that will keep you in business. If there isn’t a high demand, then the risks may be too great. Otherwise, you may just find that the advantages to outweigh the risks involved.

Things Needed to Start a Baking Business

It goes without saying that you should know how to bake and that your concoctions are very tasty. There are several other things to know or obtain when starting a baking business, including:

• Sufficient skill and knowledge of safe food preparation and potential dietary issues. For example, you’ll want to disclose if you have peanuts in your kitchen to warn consumers who are allergic to the nut.
• A retail or food service background would be helpful.
• A supply of ingredients plus room to store them, a regular shopping regimen, and good suppliers. Remember, you may need to store your equipment and ingredients separately from your personal ones.
• Any licenses or inspections required by your state, county, and/or city. A health inspector may visit your home.
• An understanding of your competition and how your baked goods will stand out in the crowd.

Other Items

Ovens

Having a specific type of oven seems like an obvious first item because different bakeries have different energy needs. The first decision about buying an oven is that you will need to decide if your oven should be gas or electric.

This may be the most expensive item on your list when starting a small bakery because a good, reliable oven that’s airtight, with even heating costs a bit more. Check with local restaurant supply stores for used commercial ovens. If you are baking at home, you can get great deals on high-end ovens by comparison shopping.

Bakeware in Quantity

You can also find high-quality bakeware at restaurant supply stores. Learn about the differences between glass and aluminum pans, so you can determine which better suits your needs. You will need baking sheets, cake pans, muffin tins of regular size, mini and large size, for muffins and cupcakes of different sizes, plus pie pans, cheesecake tins, and several sizes of cooling racks. Buy at least two of each of these, with an eye toward buying more when needed.

Proof Boxes for Bread Items

Yeast-risen bakery items need to rise effectively. A proof box is a humidity- and temperature-controlled sealed environment to enable that to happen. Some bakers use their ovens as a makeshift proof box, but if your oven is expected to be in use, then this won’t work. It’s also easier to dictate the rise with a proof box.

Mixers, Supplies and the Rest

The type of mixers you need depends on the focus of the bakery, but chances are that you will need more than one type. Commercial-grade mixers are key here. Look into a planetary mixer and a dough mixer.

For people to bring home magical sweets, you will need containers. Paper or light-weight cardboard boxes are traditional and are far more environmentally friendly than plastic. Paper bags for a nosh or two are also necessary. Cupcake liners or tissue paper to wrap around goodies are needed, as well.

Sinks: Think About Hygiene

A triple-sink is what’s usually mandated for most food and beverage businesses. To keep equipment at its cleanest, you will use one basin for washing, the second for rinsing, and the third for sanitizing.

Keeping It Legal

Remember that for you to sell baked goods out of your home, you will need to contact your Secretary of State website to see if a business license is necessary. Most states have what are called “cottage laws” which allow for certain crafts to be created out of private homes with no issue; however, some states like new jersey will not let you run a commercial kitchen from your own home. Be sure to check with your local and state regulatory boards for the various standards for small bakeries.

Although bakeries, even small bakeries, cost at least several thousand dollars from the start, many bakers have tremendous success in their confectionary talents, because so many people crave desserts to celebrate an occasion, or even for a simple every day event. After all, it’s like Julia Child has said: “A party without cake is just a meeting.”

How to Start a Baking Business

Select the kind of bakery you’d like to open

One of the first decisions you’ll have to make is the kind of shop you want to open. To do this, you’ll want to assess your talents, budget, and goals. Be sure you’re not making this decision in a bubble—you will want to have your ear to the ground on national trends in the industry—remember the cupcake shop craze (and the cupcake-focused reality TV shows) a few years back?

But don’t simply take your findings at face value either. It’s equally important to do local market research to figure out how national currents will affect your particular location and demographic. From there: take a look at the list below and decide which one is right for you.

• Online. You don’t need a storefront to open a bakery. You can start out online. With a killer website, pictures of your work, and a way to place an order, you can run it from your home.
• Counter service. With a small commercial space, customers can walk in and pick up baked goods from an employee-managed counter.
• Specialty service. If you plan to specialize in a certain kind of baked good, a specialty service is your best option. Whether you run the business from your home or rent a space is up to you.
• Sit down. More owners are trying to capitalize on the sit-down and dine option. It’s a growing trend in the bakery industry right now. Picture a space that has both an area to order baked goods and spot to sit and enjoy them.

Decide on the goods to bake

You probably already have a good idea about what you want to bake and sell in your business, but it’s a good idea to figure out exactly what you are planning to market.

You will need this information when you register as a food provider and, under cottage food laws, you may sell:

• Baked goods – breads, biscuits, churros, cookies, pastries and tortillas (excluding fillings with custard, cream and meat)
• Dry baking mixes
• Candies
• Dried Fruit
• Chocolate covered fruits and nuts
• Herb blends and dried mole paste
• Honey and sweet sorghum syrup
• Jams, Jellies and Preserves
• Nut mixes, nut butter and fruit butter
• Dried pasta
• Popcorn
• Vinegar and mustards
• Roasted coffee
• Dried tea
• Waffle cones

It’s your choice as to which of these products you would like to sell. Think about what you enjoy baking the most, as well as who would want to buy the products and what the competition in your area is like.

Write a business plan

Once you know what kind of bakery you want to open, you need to create a business plan. This will force you to look at the business from every angle. It will help you define your business, set goals, find ways to generate revenue, list expenses, identify your customer base, and examine your competition.

Assess your startup funds

As part of your business plan, you’ll dive into finances. One of the numbers you’ll need to generate is startup cost. You’ll need to compile a list of equipment, from appliances like ovens and refrigerators to smaller items like utensils and pans. Make sure you create a full list of tools. The equipment will be a one-time hit, but you’ll also need money to live on while the business gets established.

You won’t make profits overnight, so you need to sit down and figure out when you’ll break even and how much money you’ll need to survive until that time.

Shop for space

If you’re running a bakery from your home, you’ve already got your space figured out. If you plan to invite customers into your shop, you’ll need a formal spot with a kitchen and an area for the public. Some bakers decide to rent out commercial kitchen space only. It’s a good option if you don’t want customers to walk through your shop, and just need a bigger, more equipped kitchen.

Whatever your needs, be picky. Shop around, compare prices, talk with neighboring businesses, and research the area to make sure you find the right space. It’s never a bad idea to look into small business incubator programs that might offer space and business training or mentorship at a reduced rate. Do not forget to consider the legal necessaries—which will vary state to state—such as obtaining a license to bake out of your own kitchen.

Roe says that following some simple guidelines laid out by the USDA lets her earn an income, develop wholesale relationships with local restaurants, independent hotels, and coffee shops, but still enjoy the benefits of being a stay at home mother. “Baking from home at sometimes can be a challenge, Mainly in the realm of time management and little fingers wanting to try all the frosting. I am also limited on certain ingredients that I am allowed to use depending on their acidity ratio and their storability because I am not a commercial kitchen,” she says.

Wherever you decide to run your bakery, be sure to think through the pros and cons and their related costs.

Price your baked goods

Most bakers base their retail price points on the cost of supplies and the time it takes to make the goods, but Green says this formula is flawed.

“Your prices should include things like clean up time, packaging, and time spent promoting your business on social media,” she says. “The biggest hidden cost in a bakery is time. It’s easy to forget the time you spent making flowers because you were watching TV while you did it. There is nothing worse than realizing afterward that you earned 50 cents an hour on a fabulous creation.”

Find support

Speaking of friends and family, a support system is crucial in the baking business, Batiste says. Opening a business is time-consuming. Time spent baking is only half the commitment. You’ll need to market your business, take orders, help customers, and do an array of administrative tasks.

If you don’t have someone cheering you on, it can be hard. Whether it’s your spouse, a colleague, or business mentor, you need someone in your corner. Roe says, “To say it is just me would be a lie. Though I do all the baking, my husband helps me tremendously, from delivering to running out late for some organic butter.”

Prepare to Serve Your Customers

What’s the one ingredient every successful small business needs? Customers. This tips will help you find and retain customers.

1. Be the best, the first, or the only one

Be original. These two words might seem like generic advice, but to survive, you can’t be a carbon copy of your competitors. “Be the best, the first, or the only one baking the kind of treats you make,” Green says. “If you can be all three of those things, that’s even better.”

Know what kind of competition you have in your area and work to set yourself apart. Green’s bakery, for example, is the only one in the area that sells nut-free cupcakes.

Roe’s focus is on gluten-free and vegan baked goods made with organic and local ingredients. “I really find happiness in seeing any child be able to have a decadent cupcake or piece of cake on their birthday that otherwise would not be able to because of food allergies. I have experimented relentlessly to create recipes that taste amazing, even know they are free of animal by products, gluten, pesky preservatives and all that other nasty stuff.” It’s an approach that resonates in her community where so many people value natural and locally sourced food.

One of Batiste’s original twists is a food truck. You know the food trucks that sell sandwiches and pizza to folks during the lunch hour? Well, Batiste has her own dessert trucks that travel the streets of Los Angeles selling all kinds of tasty treats. The trucks even have their own Twitter handle, so customers can locate them at any time.

2. Be prepared to market your product

You can spend all day and night in the kitchen creating the next best cake, but if no one knows about it, it doesn’t matter. That’s why you have to set aside time and money to market your business.

“Being a fabulous baker doesn’t guarantee success,” Green says. “You also have to be a fabulous marketer too.” Too many bakers get wrapped up in technique, but “perfect ganached edges mean nothing if you have no actual orders on which to have perfect ganached edges.”

Here are a few low cost or free marketing ideas:

• Write a blog: To promote her business, Green devotes some of her time to blogging. Recently, she wrote a post about delivering cakes long distance.
• Use social media: Social media is a great way to promote your business. If you’re short on time, pick one social media site and post consistently.
• Join groups: As with any business, networking can bring in more customers. Join local business groups like your chamber of commerce or small business association and forge relationships.

3. Focus on your customers

Your customers are your key to success. Happy customers become repeat customers, so work to make each customer experience memorable, Batiste says.

Ask your customers for feedback, talk with them at the counter, and ask for product suggestions once in awhile. Green agrees. “Make the customer experience count,” she says. “That’s the best way to get repeat customers and money in the register.”

Grow Your Bakery

Once the bakery is up and running, you can start thinking about growth. We’ve got a few tips to make sure it continues to thrive.

1. Diversify

Most bakeries are busy during the warm months. Shoppers that are out and about are likely to wander into your shop on sunny summer days. Plus, summer is full of parties like graduations and weddings. The end of the year will be busy too, Batiste says, as the holidays are always a hectic time for bakers.

To even out your revenue stream, you might consider diversifying your business. Batiste offers catering, for example. Her corporate clients keep a steady stream of orders coming through year round. Of course, adding products could increase your expenses and change your workflow, so make sure you weigh all of your options if you plan to branch out.

2. Hire help

When the orders pile up and you need more hands in the kitchen, you’ll have to make your first hire. Batiste says she had a hard time hiring help because she didn’t want the quality of her products to suffer.

She did bring several employees on board, but she did so cautiously. “Don’t hire anyone immediately and put new hires on a probation period. You want to make sure they are trustworthy and have the capability to learn,” she says. “Really delegate the way you want your business [to run] and how you want your food cooked and baked. Set the bar really high.”

3. Don’t forget about marketing

Your initial marketing strategies will hopefully result in a steady stream of repeat customers, but that doesn’t mean you should let up on your marketing efforts.

Try new marketing tactics. Buy ads on social media, participate in charity events, and hand out business cards as often as possible. You should always be looking for new ways to get your name out there, Green says.

4. Plan for retirement

When you’re first starting out, you’re thinking about breaking even. Putting away money for retirement is usually pretty far down the list of things to accomplish, but you shouldn’t let it linger.

Once the business is functioning, you should sit down with a financial advisor and talk about saving for retirement. As a business owner, it’s your responsibility to make long-term financial plans.

Starting a baking business can be a fun project to get up and running. From planning the product list to getting the logistics sorted and setting your prices, it doesn’t have to take long and, realistically, you can be opening up your business within a few weeks.

Is Owning a Bakery Profitable

There are about 6700 retail bakeries in the United States, that have a combined revenue of about $3,000,000,000. That puts the average revenue per bakery at about $450,000. The 50 largest players, however, earn about 20 percent of this income, so if you open a small retail bakery, you’ll probably take in less than the industry average – especially, while you’re getting your enterprise off the ground.

How to Increase Your Bakery Revenue

There’s no such thing as an average revenue for a bakery, because not all bakeries are the same. Some items your bakery sells will yield much higher profit margins than others, so it really comes down to your size, location and product mix.

How to Increase Revenue

You can increase revenue at your bakery by selling more baked goods or by charging more for the baked goods you sell. It’s tough to start charging dramatically more once customers have grown accustomed to your prices, so develop a clear understanding of your expenses right away. You can increase sales by offering a broader selection of breads and pastries, or by surveying your customers to develop a more focused understanding of what they want.

Understanding Revenue vs. Profit

Even if your bakery does take in $450,000 per year, you’ll take home considerably less than that. Your profit, or owner’s income, is the amount left over after subtracting operating costs such as materials, labor, rent, utilities, office supplies, equipment repairs and all the other expenses necessary to keep your bakery running. It’s better to have lower revenue and a higher profit than higher revenue and lower profit.

In the former case, you’re running a tight, efficient operation, earning more money relative to your sales volume. In the former case, you’re probably doing extra work without achieving economies of scale, producing more product without earning netting extra at the end of the day.

Understanding Profitability

Some items your bakery sells will yield much higher profit margins than others. It is good to keep your food costs under 35 percent and your total cost of goods sold under 50 percent. The cost of goods sold includes materials such as ingredients and packaging and the direct costs that go into producing the physical product you sell, such as hands-on baking time.

The cost of counter service help should be calculated separately, and should also be contained as much as possible by scheduling fewer employees during slow times and by teaching workers to multi-task. However, don’t cut back your service payroll to the point where customers wait so long that they decide to go elsewhere for their pastries.

Track the costs of producing different offerings so you understand the labor and food expenses that go into making a wedding cake versus a batch of cookies. This information will help you target your personnel and marketing resources toward the items that cost the least to make and yield the highest profit. Adding higher margin items such as coffee to your menu can also help make your bakery more profitable.

How to Start a Bakery From Your Home

Before you start a home-based food business in California, you need to consider some basic legal issues. For example, you must know which foods you are allowed to prepare in your home kitchen, choose a business structure, apply for permits and licenses, learn about food safety, and obtain insurance. If you want to hire an employee, you need to know the rules about that, too.

Allowed Foods

In the US, you may register your home kitchen to make the following food products for sale:

• baked goods without custard, cream, or meat fillings (including breads, biscuits, churros, cookies, pastries, and tortillas)
• dry baking mixes
• candy, such as toffee or nut brittle
• dried fruit
• chocolate-covered nonperishable foods, such as nuts and dried fruit
• fruit pies, fruit empanadas, and fruit tamales
• granola, cereals, and trail mixes
• herb blends and dried mole paste
• honey and sweet sorghum syrup
• jams, jellies, preserves, and fruit butter that comply with the standard described in Part 150 of Title 21 of the Code of Federal Regulations
• nut mixes and nut butters
• dried pasta
• popcorn
• vinegar and mustard
• roasted coffee and dried tea, and
• waffle cones and pizelles.

You can find this list and more information about the foods you can legally prepare in a home kitchen by visiting the website of the California Department of Public Health.

Choosing a Business Structure

Many home-based food businesses are intended to be small. California restricts cottage food businesses to an individual operator with no more than one full-time employee. The state also limits the amount of money a home-based food business can earn each year. In 2013, the limit for gross annual revenue is $35,000. In 2014, it is $45,000. After that, the limit will be set at $50,000. (California Health and Safety Code § 113758.)

If your business is very small, running it as a sole proprietorship may be the only economically viable option. Keep in mind, however, that as a sole proprietor, you are personally responsible for every aspect of the business – from paying taxes to absorbing the risks of a lawsuit if your food products cause illness or injury to a customer. If you operate as a sole proprietor, you should purchase liability insurance to protect your personal assets (see below).

If you can afford it, consider choosing a business entity that protects you from personal liability, such as a limited liability company or corporation. These business structures ensure that your food business, not you personally, would be responsible for any damage if someone were sickened or otherwise harmed by your product.

Licenses and Permits

You must get a permit from the county health department to operate a home-based food business. You can choose from two types of permits, depending on whether you want to sell products directly to customers or through other local businesses like shops or restaurants.

Class A permit. You can get a Class A permit if you want to sell only directly to customers within the state of California. With a Class A permit, you can sell at farmers markets, festivals, from your home, or in other ways that allow individuals to purchase products directly from you. To get a Class A permit, you must complete a self-certification checklist, but there will be no physical inspection of your kitchen.

Class B permit. You need a Class B permit if you want to sell indirectly to customers – for example, through stores, restaurants, or other venues that will sell your products for you. In California, you may not sell indirectly outside of your own county, unless the county where you want to sell has specifically stated that they will allow indirect sales of cottage food products. To get a Class B permit, your kitchen must pass an annual physical inspection.

Required information. When you apply for a Class A or Class B permit, you will be asked to provide information such as the following:

• ingredients or recipes for all of your products
• a list of sources for your ingredients
• copies of labels for each product
• a description of your packaging
• a floor plan of your kitchen
• a list of your equipment, utensils, and food contact surfaces, and
• a certificate showing you have completed a food processor course approved by the California Department of Public Health.

You must also obtain the licenses and permits required of all businesses, such as a local business license and – if your business uses a name other than your own – a fictitious business name registration.

Food Safety

To operate a home-based food business, you must complete a Department of Public Health food processor course within three months of obtaining your cottage food permit. In addition, your business must comply with extensive health and safety rules, including the following:

• You may not conduct domestic activities in your home kitchen – such as family meal preparation, dishwasing, clothes washing, or entertaining guests – while you are preparing cottage foods.
• No infants, small children, or pets may be in the kitchen while you are preparing cottage foods.
• All kitchen equipment and utensils used to prepare cottage food must be kept clean and in good repair.
• All food contact surfaces and equipment must be washed, rinsed, and sanitized before each use.
• All food preparation and storage areas must be free of rodents and insects.
• No smoking is allowed in the kitchen during the preparation or processing of cottage foods.
• No person with a contagious illness may participate in the preparation or packaging of cottage foods.
• Hands must be properly washed before food preparation or packaging.
• Water used to prepare cottage foods must be potable. This includes water used for washing hands and equipment as well as water used as an ingredient.

Conclusion

Starting a bakery presents many unique situations, and it is different than starting a traditional restaurant or other food service establishment. One of the best ways to ensure that opening your bakery goes smoothly is to stay organized and ensure you’re being thorough. Creating a detailed business plan, following it precisely, and keeping your documents organized will help get your business off to a good start.