How to Start a Bakery 101

Employees working in a bakery

Are you a force to reckon with when you have a mixer in your hand? Do you bake brownies and cupcakes that earn you rave reviews from family and friends?

Perhaps you have dreamt of starting a bakery. If you have got talent and a unique vision, you could be making money while you pursue your passion. Yet starting a small business is always a bit of a risk, and you will want to make sure you are walking into the market with your eyes wide open.

Here's what you need to know about how to start a bakery.

Benefits of Starting a Bakery

Becoming a bakery owner offers some unique advantages that other businesses do not have. For example, unlike other businesses, you don't need much space. As your business expands, so can your counter and seating space.

Most people will be going in and out of your business quickly. You may only want space to display your bakery treats. It is important that it is spotless and attractive so people will want to patronize your business.

It is also possible to start a bakery business from your own home, so you won't need to pay for retail space until your business is really off and running. Once you have got a faithful following from delivery and pick-up orders, you can think about expanding into a storefront.

Bakers are usually creative people in the kitchen. They love experimenting with new ingredients, decorations, and products.

If you have got a real creative flair, a bakery business will give you an excellent way to express it. You can also have fun with marketing, advertising, and recruiting customers.

In addition, bakeries will never go out of style. There will always be a market for folks who love treats and unique desserts for special occasions.

Starting From Home

If you are one of those creative bakers who plan to start their business at home, you may want to consider specializing in product to set your brand apart. For example, maybe you have special vegan or keto options that will appeal to a niche demographic. Or maybe you are known for a particular recipe.

Other specialties include diabetic-friendly or sugar-free baked goods. Lots of home bakeries offer these along with standard options so folks will see them as their go-to baker for certain specialties. It will set you apart and give you some credibility as you start out.

Here's where it helps to have a target audience. For example, your main customers may be parents with children that often have celebrations and parties or young professionals with extra income to spare. This will give you a lot of clarity when it comes to marketing.

When you are looking to specialize, it can be fun to "taste-test" with your friends. If you are known throughout your neighborhood already for certain recipes, you can start with those. Otherwise, create options and see which ones your friends and family think are the most delicious and marketable.

Your neighborhood may also have certain cottage food laws that you need to abide by. These vary from state to state, so it is important to check with your local municipality. For example, some states may not let you sell goods that require refrigeration.

Cottage food laws may also regulate how much money you make, and who you can sell your products to. You will want to make sure you are complying with local regulations in order to keep your business legit.

Registration and Insurance

Registering your home business is a process that varies depending upon the state you live in. For example, in some states, you will need to register with the Secretary of State and obtain an Employer Identification Number (EIN).

You will then need to open a separate bank account and register with the Department of Taxation. You will also need to report any new employees to the New Hire Reporting Center.

While it may seem complex at first glance, registering your business is a relatively simple process that you can complete online in many cases. And it could end up saving you a number of financial and legal hassles in the long run.

Small business insurance is also important. It can protect you in the event that any bodily harm, property damage, or advertising injuries happen in the course of your business growth. And it could end up saving you money if a claim is filed against you.

The Right Equipment

Whether you are starting your business at home or in a storefront, it is important to have clean, fresh equipment that you can use for regular baking. There is no need to invest in expensive items at first. You should focus on finding equipment and items that are durable and effective.

For example, you may need different types of mixers and a long working table. But when starting out you may only want to purchase the types of mixers you know you are going to use regularly. You will also need bakeware such as cake pans, muffin tins, and mixing bowls.

You may need to invest in a larger refrigerator or freezer if you are going to be storing food items there regularly. You will also want to have hygienic items such as hairnets and gloves.

Many bakers have unique packaging that sets their brand apart. For example, maybe you will be delivering your items in peach-colored boxes with white bows that are easily distinguishable.

It is important to invest in all the packaging you think you will need for your first few weeks in business.

Thinking It Through

If you are only planning on selling a few items on the side, you may be able to get away with taking an order here and there. However, if your business is going to be more serious, you will want to make sure you have enough time blocked for all of your tasks. Writing this down on an electronic form can really help you to stay organized and could help you remember the dates of when orders need to be completed by.

For example, how many orders do you think you can take each day and still do quality work? Is there somewhere you can purchase your ingredients to keep costs down? Will you limit your delivery neighborhood to a certain distance?

If you have a family or another job, you may want to limit the number of orders you can take in a day. If your goal is to take as many orders as possible, you may need to hire additional employees and order additional ingredients.

It is normal for problems to come up at the beginning of a business. Make sure you are ready to pivot and plan so you can be more prepared the next time.

Have a Business Plan

It is important to write down all of your plans for your business someplace. You may want to list your long-term goals, such as how many customers you would like to have in a few months. Or you may plan on getting your own storefront in the future if you start your bakery business from home.

It helps to do a market analysis and see what types of bakeries are already available in your area. Is there any type of product that isn't being offered?

If there are no vegan bakeries around, opening one will only be a good move if folks will want to buy your product. Find out if there is a demographic in your neighborhood that would be interested.

Your packaging and specialties will need to set you apart from the competition, especially if you live in a heavily populated area. Consider what your unique angle will be and do some preliminary research to find out how about possible interest.

For example, it helps to strategically use local ingredients. Making use of local farmers' produce can also give you a new way to advertise and sell your goods.

It is also important to begin financial planning for your future. You will want to create a basic business budget that includes all of your operating costs and earnings. Your employee payroll and ongoing raw materials should also be part of the plan.

Your goals and budgeting may change rapidly when you first begin your business. Make sure you are being realistic and adjust your projections accordingly.

Advertise

Word of mouth and quality baked goods are the best way to sell your products to a local neighborhood. However, you will want to do some extra legwork as you are looking to expand.

For example, you may be able to offer free samples at local PTA events. Or you can offer to provide free desserts for a convention as long as you can hand out business cards. Famers' markets and fairs are also a great way to get your name out there.

Social media is also an effective way to advertise. You can start by simply posting your products and specials on local community groups that allow advertising. It is also possible to purchase low-cost ads that will allow you to choose your target demographic.

Special discounts can entice new customers. If they know they will be getting 20% or 30% off, they may be more likely to make a special purchase.

Knowing your customers personally can also really help set you apart. For example, if you have your new customers let you know family birth dates, you can contact them with a discount offer when you think they may need a cake.

This kind of advertising can be a bit tricky, however. You don't want to annoy your customers. The key is to offer them the right service at the right price at the perfect time.

Getting a Business Loan

When you are ready to move to a storefront, you may have enough capital to invest in rent and equipment. Or you may need someone to invest in your business before you set up shop.

A business loan can provide you with the capital you need as your business expands. Know that a bank may assess your business based on your credit scores, credit history, and cash flow.

Small business loans could help you get lower rates and more favorable repayment terms than a traditional bank loan. Traditional bank loans may have a more stringent criteria, but you may be able to qualify for them more quickly.

Microloans are for smaller amounts. The advantage of these is that you may not have your credit scrutinized as closely.

A business loan could provide you with the money you need to get your business off the ground. You may be able to easily access the funds and could even receive a tax deduction.

It is important to have a solid plan for paying off your business loan as your business expands. You should consider how to use your profits to help your business grow.

You can apply with different lenders based on your business needs, credit history, and estimated chances of getting approved. It is also recommended that you discuss what financial products would best suit your business needs with a financial expert.

Purchasing Insurance

Many small business owners need Business Owners Policy (BOP) or HomeHQ^SM coverage. These coverages can helps cover your business in the event of an unexpected incident.

A BOP can also help cover claims that arise while your business operates. It includes multiple commercial insurance policies such as general liability, property, and cyber risk insurance into one package.

HomeHQ coverage by PolicySweet® is designed exclusively for home-based businesses. If you operate a bakery from your home, your homeowners policy may not cover business liabilities. HomeHQ could help to protect your business equipment and inventory. It can even protect your business from lawsuits involving customer injury claims at your home.

In addition, you should consider Workers’ Compensation coverage if you have employees. Workers’ Comp coverage can help pay for employee medical expenses due to work-related injuries. Your company itself may be held liable for employee injuries if you do not have this type of insurance.