Starting a cake business can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn the keys to launching a successful cake business.
Importantly, a critical step in starting a cake business is to complete your business plan. To help you out, you should download Growthink’s Ultimate Business Plan Template here.
14 Steps To Start a Cake Business:
- Choose the Name for Your Cake Business
- Develop Your Cake Business Plan
- Choose the Legal Structure for Your Cake Business
- Secure Startup Funding for Your Cake Business (If Needed)
- Secure a Location for Your Business
- Register Your Cake Business with the IRS
- Open a Business Bank Account
- Get a Business Credit Card
- Get the Required Business Licenses and Permits
- Get Business Insurance for Your Cake Business
- Buy or Lease the Right Cake Business Equipment
- Develop Your Cake Business Marketing Materials
- Purchase and Setup the Software Needed to Run Your Cake Business
- Open for Business
1. Choose the Name for Your Cake Business
The first step to starting a cake business is to choose your business’ name.
This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your cake business:
- Make sure the name is available. Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also check to see if a suitable domain name is available.
- Keep it simple. The best names are usually ones that are easy to remember, pronounce and spell.
- Think about marketing. Come up with a name that reflects the desired brand and/or focus of your cake business.
2. Develop Your Cake Business Plan
One of the most important steps in starting a baking business is to develop your simple business plan template. The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.
Your business plan should include the following sections:
- Executive Summary – this section should summarize your entire business plan so readers can quickly understand the key details of your new cake business.
- Company Overview – this section tells the reader about the history of your cake business and what type of cake business you operate. For example, are you a custom cake business, catering company, retail cake shop, or an online cake shop?
- Industry Analysis – here you will document key information about the cake industry. Conduct market research and document how big the industry is and what trends are affecting it.
- Customer Analysis – in this section, you will document who your ideal or target customers are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing products like the ones you will offer?
- Competitive Analysis – here you will document the key direct and indirect competitors you will face and how you will build competitive advantage.
- Marketing Plan – your marketing strategy should address the 4Ps: Product, Price, Promotions and Place.
- Product: Determine and document what products/services you will offer
- Prices: Document the prices of your products/services
- Place: Where will your business be located and how will that location help you increase sales?
- Promotions: What promotional methods will you use to attract customers to your cake business? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization and/or social media marketing.
- Operations Plan – here you will determine the key processes you will need to run your day-to-day operations. You will also determine your staffing needs. Finally, in this section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
- Management Team – this section details the background of your company’s management team.
- Financial Plan – finally, the financial plan answers questions including the following:
- What startup costs will you incur?
- How will your cake business make money?
- What are your projected sales and expenses for the next five years?
- Do you need to raise funding to launch your business?
3. Choose the Legal Structure for Your Cake Business
Next you need to choose a legal business structure for your cake baking business and register it and your business name with the Secretary of State in each state where you operate your business.
Below are the five most common legal structures:
1) Sole proprietorship
A sole proprietorship is a business entity in which the owner of the home baking business and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.
2) Partnerships
A partnership is a legal structure that is popular among small business owners. It is an agreement between two or more people who want to start a cake business together. The partners share in the profits and losses of the business.
The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.
3) Limited Liability Company (LLC)
A limited liability company, or LLC, is a type of business entity that provides limited liability to its owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for a cake business include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.
4) C Corporation
A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for a cake business is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.
5) S Corporation
An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.
Once you register your cake business, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.
4. Secure Startup Funding for Your Cake Business (If Needed)
In developing your cake business plan, you might have determined that you need to raise funding to launch your business.
If so, the main sources of funding for a cake business to consider are personal savings, family and friends, credit card financing, bank loans, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in a cake business that they believe has high potential for growth.
5. Secure a Location for Your Business
There are a few things to consider when looking for a location for your cake business. You’ll want to find a space that is accessible and visible to your target customers, and that has the necessary facilities to accommodate your baking equipment and supplies.
6. Register Your Cake Business with the IRS
Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).
Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.
Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.
7. Open a Business Bank Account
It is important to establish a bank account in your cake business’ name. This process is fairly simple and involves the following steps:
- Identify and contact the bank you want to use
- Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address)
- Complete the bank’s application form and provide all relevant information
- Meet with a banker to discuss your business needs and establish a relationship with them
8. Get a Business Credit Card
You should get a business credit card for your cake business to help you separate personal and business expenses.
You can either apply for a business credit card through your bank or apply for one through a credit card company.
When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.
Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.
9. Get the Required Business Licenses and Permits
The licenses and permits you need to start a cake business will vary depending on your location. You may need a business license, a food handler’s permit, and a vendor’s license. Contact your local licensing agency to find out what you need and how to apply.
10. Get Business Insurance for Your Cake Business
The type of insurance you need to operate a cake business will depend on the type of cake business you are running.
Some business insurance policies you should consider for your cake business include:
- General liability insurance: This covers accidents and injuries that occur on your property. It also covers damages caused by your employees or products.
- Workers’ compensation insurance: If you have employees, this type of policy works with your general liability policy to protect against workplace injuries and accidents. It also covers medical expenses and lost wages.
- Commercial property insurance: This covers damage to your property caused by fire, theft, or vandalism.
- Business interruption insurance: This covers lost income and expenses if your business is forced to close due to a covered event.
- Professional liability insurance: This protects your business against claims of professional negligence.
Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.
11. Buy or Lease the Right Cake Business Equipment
You will need some basic baking equipment to start your own cake business. This equipment includes an oven, mixer, measuring cups and spoons, a rolling pin, and a pastry brush. You may also want to invest in a cake turntable to make frosting your cakes easier.
In addition to baking equipment, you will also need some tools and supplies for packaging and presenting your cakes. These supplies include cake boxes, ribbons, and cake boards. You may also want to purchase a cake stand to show off your creations.
12. Develop Your Cake Business Marketing Materials
Marketing materials will be required to attract and retain customers to your cake business.
The key marketing materials you will need are as follows:
- Logo: Spend some time developing a good logo for your cake business. Your logo will be printed on company stationery, business cards, marketing materials and so forth. The right logo can increase customer trust and awareness of your brand.
- Website: Likewise, a professional cake business website provides potential customers with information about the products you offer, your company’s history, and contact information. Importantly, remember that the look and feel of your website will affect how customers perceive you.
- Social Media Accounts: establish social media accounts in your company’s name. Accounts on Facebook, Twitter, LinkedIn and/or other social media networks will help customers and others find and interact with your cake business.
13. Purchase and Setup the Software Needed to Run Your Cake Business
To start a cake business, you will need some baking software to help with your recipes and measurements. You may also want to invest in some cake decorating software to help with the design of your cakes. There are many different software packages available on the market, so do some research to find the one that is right for you.
14. Open for Business
You are now ready to open your cake business. If you followed the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you.
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How to Start a Cake Business FAQs
Is it hard to start a cake business?
No, it is not hard to start a cake business. The most important thing you need to have is the passion for baking and decorating cakes along with the essential tools and recipes.
How can I start a cake business with no experience?
There are things you can do to start a successful baking business with no experience. One is to look online for resources or attend workshops offered in your area. Another is to find a mentor who has experience in the industry and can help guide you through the process. Finally, make sure to do some research and develop a business plan before investing in any equipment or supplies.
What type of cake business is most profitable?
The most profitable cake businesses are those that offer custom wedding cakes. These businesses can charge a higher price for their cakes because they are made to order and cater to the specific needs of their customers.
How much does it cost to start a cake business?
There are a few different factors that will determine the cost of starting a cake business. These include the type of cake business you want to start, the location of your business, and the amount of equipment you need. Generally, the cost of starting a cake business will be between $1,000 and $10,000.
What are the ongoing expenses for a cake business?
The most common expenses for a cake business are the ingredients, packaging, and advertising. The ingredients are usually the most expensive part of running a cake business, so it's important to find recipes that are both tasty and affordable. The packaging is important for protecting the cakes during transport, and the advertising can help you attract new customers.
How does a cake business make money?
A cake business can make money by selling cakes and other baked goods to customers, either through a storefront or online. They may also sell other items such as cake decorations, baking tools, or ingredients.
Is owning a cake business profitable?
Yes, owning a bakery business can be profitable. Cakes are popular dessert items and there is a large demand for them. Cakes can be sold through a variety of venues, such as grocery stores, restaurants, bakeries, and special events. Additionally, cakes are relatively affordable and can be priced to fit most budgets.
Why do cake businesses fail?
Cake businesses can fail for a number of reasons, but the most common are a lack of planning, poor marketing, and an inability to stay competitive. Cake businesses often fail because the owners do not have a clear idea of what they want their business to achieve or how they plan to make a profit.
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