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How to Start a Baking Business in 10 Simple Steps

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Do you dream of owning a bakery business, but you’re not sure how to start?

Don’t worry; you’ll learn everything you need in this guide!

Baking is a talent that, once excelled, can bring a lot of earnings into your house.

However, talent isn’t enough to start a business. It also takes planning, dedication, and commitment to succeed.

We’ll help you with the planning part by showing you how to start a baking business in 10 simple steps, so keep reading!

How Profitable Is Owning a Baking Business?

Baking businesses aren’t the most profitable type out there.

You’ll have to spend on expensive ingredients and pay high employee salaries.

Unfortunately, product prices might not be that high, depending on the shop’s specialty and popularity.

According to BLS, the average annual salary for a baker employee is nearly $30,000 as of the last two years.

Divided by 12, you’ll need to pay your baker employee about 2,500 monthly.

Even if you go solo and don’t hire other bakers, you’d have to pay for ingredients, permits, rentals, bills, and more.

While these expenses exist for most businesses, the product cost usually covers them.

Unfortunately, this isn’t always the case for baking.

Because the field is highly competitive, prices tend to go low instead of high.

In short, maintaining a regular revenue stream and competitive prices that appeal to customers can be a tall order.

According to ZenBusiness, a bakery’s average profit margin is anywhere between 4% and 9%.

What You’ll Need to Start a Baking Business [& Associated Costs]

Before building your baking business from scratch, you’ll need to account for a few things.

Here’s a list of what you’ll need and their average costs.

  • Location: First, you must decide whether you’ll run an online business or rent space and set up a physical store. Renting a bakery will cost you an average of $1,500-$10,000 monthly, depending on the place you choose, its size, the neighborhood, and more.
  • Labor: Hiring a single baker to help you in your business will cost you an average monthly salary of $2,500. If you go bigger and hire more employees, you can expect the number to reach $10,000 per month.
  • Insurance: The most common type of insurance for bakeries is a Business Owner’s Policy Insurance (BOP). It costs about $500-$2,000 per year and offers protection against injuries and property damage claims.
  • Permits: To open a bakery, you’ll need a business license, a resale permit, a food handler’s permit, a building health permit, a sales tax permit, and a food service license. These will cost you anywhere from $200-$2,000.
  • Equipment and Ingredients: To supply your bakery with the needed ingredients and equipment for cooking, you’ll need to have a minimum of $20,000.
  • Utilities: Paying gas, electricity, water, and internet bills will cost you an average of $1,000 per month.
  • Marketing: No business is complete without marketing. To spread your brand name around and reach your target audience online and offline, you might need to pay about $500-$5,000 monthly.

Do I Need a License or Certificates to Start a Baking Business?

You don’t need certificates to start a baking business, but you do need a few licenses.

The most important one is the food service license because bakeries are considered food establishments.

You’ll also need a business license (LLC and Sole Proprietorship are the most common for small businesses).

Why You Should Consider Starting a Baking Business As a Side Hustle

Starting a baking business is among the top side hustles. Here are its benefits:

  • Stay in control: Starting a business means you’re in control of your working conditions, operating hours, prices, and more. It’s more rewarding and freeing than working for someone.
  • Connect with your community: Everybody loves a little, cozy bakery on the corner of their neighborhood. Opening a bakery will help you connect with your community, meet new people, and interact with different personalities, which can be eye-opening and enjoyable.
  • Fulfill your passion: Most businesses related to culinary skills are passion-driven, bakeries included. Opening a bakery will allow you to fulfill your passion by working using your hands, coming up with new recipes, and honoring your family’s recipes.
  • Get reasonable startup costs: Compared to other businesses, opening a bakery comes at a reasonable price, more so if you make it an online business.

How to Start a Baking Business in 10 Simple Steps

Now that you’re familiar with the startup costs and requirements for opening a bakery, it’s time to make your dream applicable.

Here are the steps you need to follow to start your business.

1. Settle on the Bakery Type

Before going into the deep details of planning, you need to establish the type of bakery you’re opening.

Do you want to start an online business where you cook at home and sell on a platform?

Or do you want to go classic and build a counter-style bakery?

2. Write a Bakery Business Plan

Writing a business plan isn’t only crucial for potential investors in your business, but it’ll also be your guide when you open the bakery.

A solid business plan should include your business’s purpose, an accurate analysis of the industry and what it lacks, the products you’ll sell, financial projections, and more.

3. Choose a Business Structure

The most common business structures for small establishments like bakeries are Limited Liability Companies (LLCs) and Sole Proprietorships.

The former allows for more than one business owner and protects your personal assets in case of debts or accidents.

Meanwhile, being a sole proprietor allows for only one owner and makes you and your personal assets responsible for any issues regarding the business.

If you don’t have enough experience to choose between the two, it’s better to consult a lawyer or a fellow business owner.

4. Obtain the Necessary Licenses and Permits

After settling on a business entity and making it legal, you’ll need to start obtaining the licenses and permits required for your business.

Aside from the ones we mentioned, you should check with your state’s regulations and health department to ensure you don’t miss anything.

5. Research Your Target Audience

Whether you target Class A, B, or C, you must thoroughly research your target audience.

Find them on social media platforms and communicate with small local businesses.

Determine the average money they’re willing to pay for bakeries, the quality standards they accept, and whether they prioritize aesthetics or affordability.

6. Build Your Brand

Building your brand involves the following:

  • Designing a logo and name
  • Deciding on an aesthetic for your online platforms
  • Choosing packaging styles
  • Establishing your bakery’s design if you have a physical shop

Most of the tasks involved in this step depend on your target customers. For instance, if you target the younger generations on their way to school and college, you’ll need to come up with a creative name and catchy logo.

On the other hand, if you target older people like homemakers and working fathers, you’ll need to go calmer with the colors.

Choosing a heartwarming and nostalgic name would also help.

7. Find a Place

Now, you need to find a place suitable for your vision and brand. You can skip this test if you plan to bake and sell from home.

If you go with a cool brand that appeals to the younger audience, then choose a rental near a school, university, stadium, and similar locations.

Meanwhile, if you target families, you’ll need to find a visible place in a crowded neighborhood.

Also, don’t forget to look for competition.

8. Write Your Menu and Price the Bakery Products

To write your menu, you should choose the products you’re most talented at making—better if your competition doesn’t offer them.

Then, you can price the products by calculating all the startup and fixed costs and adding a profit margin.

9. Buy the Equipment

Here’s a quick list of the essential equipment every bakery business owner needs:

  • Oven
  • Refrigerator and freezer
  • Gas and flat ranges
  • Mixing bowl
  • Blender
  • Food processor
  • First aid kit
  • Serviceware and utensils
  • Pans
  • Pots
  • Ventilation

10. Market Your Business

The final step is to market your business to reach your target market. Your two choices are online marketing and offline marketing.

Online marketing includes creating accounts on popular platforms like Instagram and Facebook and paying for promotional ads.

Meanwhile, offline marketing includes handing out flyers and business cards, face-to-face conversations with potential customers, and printing ads in the neighborhood.

Things to Consider When Building a Baking Business

Other than finances and planning, there are things you should consider before building a baking business.

Here’s a brief roundup of them.

Can You Run a Baking Business By Yourself?

Running a business alone is challenging and requires a great deal of commitment.

So before getting dazzled by the potential success and flexibility of starting a bakery business, you should assess yourself.

Determine whether you’ll be ready to handle all of the financial and managerial challenges on your own.

Are You Financially Ready for Unexpected Expenses?

Businesses require more than startup and operating costs.

You might have to manage unexpected expenses like accidents, expired products, transportation, and more.

So other than the fixed costs, you need to set aside a budget for such factors.

Frequently Asked Questions

Can I Start a Baking Business at Home?

Yes, you can. Building a home-based bakery is one of the most famous side jobs from home, as it’s easier and more affordable than renting a place.

In addition, you’ll have to operate on a lower scale and serve fewer customers, so it’ll also be less stressful.

What Mistakes Do Startup Bakeries Make?

The most famous mistakes in the bakery industry are miscalculating food costs, not marketing products enough, not hiring any extra help as the business grows, and forgetting to account for the shelf life of each baked item.

The last one is impactful because it can drive away loyal customers.

Similar Businesses to Consider Starting

If you’re on the fence due to the challenges of building a bakery business, here’s a list of similar alternatives you can try:

  • Food Truck Business: Food trucks are more affordable to start than bakeries. Plus, they give you more flexibility regarding product choices.
  • Catering Business From Home: Catering businesses have a higher profit margin than bakery businesses, and they’re easy to run from the comfort of your home.
  • Coffee Business: Coffee businesses have low startup costs and high-profit margins. Although the competition is high, you have a good chance of succeeding.

Wrapping Up

Having a list of steps to follow when starting a business is a privilege that should never be taken for granted.

It gives you a headstart on the planning part so that you don’t overthink what you should do.

Also, it gives you a checklist to go through in order, which will help you feel more organized.

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