ON THIS PAGE
- How to Open a Bakery
- 15 Steps To Start a Bakery Business
- How Big is the Bakery industry?
- What are the Key Segments of the Bakery Industry?
- What External Factors Affect the Bakery Industry?
- Who are the Key Competitors in the Bakery Industry?
- What are the Key Customer Segments in the Bakery Industry?
- What are the Key Costs in the Bakery Industry?
- What are the Typical Startup Costs for a New Bakery?
- Additional resources in the Bakery Industry
How to Open a Bakery
If you’re looking to open or start a Bakery, you’ve come to the right place. Since we’re going to show you exactly how to do it.
We’ll start with key Bakery industry fundamentals like how big the industry is, what the key segments are, and how revenues and profits are generated.
Then we’ll discuss keys to not only starting a Bakery, but succeeding in it!
Before we continue, here’s where you can access your bakery business plan template since having a plan will be key to your success.
15 Steps To Start a Bakery Business:
Starting a bakery 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 bakery.
1. Choose the Name for Your Bakery Business
The first step to starting a bakery 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 bakery:
- 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 bakery.
2. Determine the Type of Bakery Business You Will Launch
When determining the type of bakery to launch, consider your passion, skills, market demand, and your target audience.
Here are several types of bakeries you can consider:
- Retail Bakery: A retail bakery sells baked goods directly to consumers. It can offer a variety of items such as bread, cakes, pastries, cookies, and cupcakes. You may operate a storefront or kiosk in a mall.
- Wholesale Bakery: Wholesale bakeries supply baked goods to restaurants, cafes, hotels, and grocery stores. This type of bakery requires larger production capabilities to meet wholesale demands.
- Specialty Bakery: Focus on a specific niche within baking, such as gluten-free, organic, vegan, or keto bakery products. Specializing can help you stand out in a competitive market.
- Cupcake Shop: Specialize in cupcakes with a wide range of flavors and designs. Cupcake shops are popular for events and celebrations.
- Bread Bakery: Concentrate on crafting artisanal and specialty bread. Bread bakeries can be known for their sourdough, baguettes, or unique grain blends.
- Cake Decorating Studio: Offer custom-designed cakes for special occasions like weddings, birthdays, and anniversaries. Cake decorators can showcase their creativity and artistry.
- Doughnut Shop: Specialize in making and selling doughnuts, including traditional varieties and gourmet flavors.
3. Develop Your Bakery Business Plan
One of the most important steps in starting a bakery is to develop your business plan. 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 bakery.
- Company Overview – this section tells the reader about the history of your bakery and what type of bakery you operate. For example, are you a retail bakery, wholesale bakery or bread bakery.
- Industry Analysis – here you will document key information about the bakery 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 plan 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 bakery? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization and/or social media marketing.
- What startup costs will you incur?
- How will your bakery make money?
- What are your projected sales and expenses for the next five years?
- Do you need to raise funding to launch your business?
You can download our bakery business plan PDF template here. This is a business plan template you can use in PDF format.
4. Choose the Legal Structure for Your Bakery Business
Next you need to choose a legal structure for your bakery 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 bakery 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.
A partnership is a legal structure that is popular among small businesses. It is an agreement between two or more people who want to start a bakery 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 bakery 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 bakery 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 bakery, 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.
5. Secure Startup Funding for Your Bakery Business (If Needed)
In developing your bakery 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 bakery 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 bakery that they believe has high potential for growth.
6. Secure a Location for Your Business
When searching for the right space for your bakery, consider the following factors to ensure it aligns with your business goals and caters to your target market:
- Demographics: Research the demographics of the area, including age, income levels, and lifestyle preferences. Choose a location where there is a strong demand for your bakery products.
- Foot Traffic: Assess the volume of foot traffic in the area. High foot traffic can increase your visibility and attract potential customers.
- Accessibility: Ensure that the location is easily accessible by both pedestrians and vehicles. Convenient parking and proximity to public transportation can be major advantages.
- Competition: Analyze the competition in the vicinity. Consider the types of bakeries or dessert shops already present and evaluate how your bakery can differentiate itself.
- Local Attractions: Determine if there are local attractions, schools, offices, or event venues nearby that can bring in potential customers.
- Zoning Regulations: Check local zoning regulations to confirm that the location is zoned for a bakery. Some areas may have specific zoning requirements for food establishments.
7. Register Your Bakery 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.
8. Open a Business Bank Account
It is important to establish a bank account in your bakery’s 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
9. Get a Business Credit Card
You should get a business credit card for your bakery 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.
10. Get the Required Business Licenses and Permits
Starting a bakery requires obtaining several licenses and permits to operate legally and ensure food safety. The specific requirements can vary depending on your location and the scope of your bakery, but here are some common licenses and permits you may need:
- Business License: You’ll typically need a general business license from your city or county government to legally operate any type of business, including a bakery.
- Food Service License: This license, often issued by your local health department, is specifically for businesses that handle and prepare food. It ensures compliance with food safety regulations.
- Sales Tax Permit: In most states, you’ll need a sales tax permit to collect and remit sales tax on the baked goods you sell. Check with your state’s revenue or taxation department for details.
- EIN (Employer Identification Number): If you have employees or plan to form a legal entity like an LLC or corporation, you’ll need an EIN from the IRS for tax purposes.
- Food Handler’s Permit: Some states or localities may require individuals who handle food, such as bakers, to obtain a food handler’s permit or certification.
- Food Establishment Permit: In addition to the food service license, you may need a specific food establishment permit that certifies your bakery as a safe and sanitary place to prepare food.
- Fire Department Permit: If your bakery uses commercial-grade ovens or other equipment that generates heat, you may need a fire department permit to ensure safety compliance.
- Signage Permit: If you plan to display signs or banners advertising your bakery, check if you need a signage permit from your local government.
Depending on the type of bakery you launch, you will have to obtain the necessary state, county and/or city licenses.
11. Get Business Insurance for Your Bakery Business
Operating a bakery involves various risks, and having the right insurance coverage is crucial to protect your business, assets, and reputation.
Here are the key types of insurance you may need for your bakery:
- General Liability Insurance: General liability insurance provides coverage for bodily injury, property damage, or personal injury claims that occur on your bakery premises. It protects you if a customer slips and falls in your bakery or if someone claims your products caused them harm.
- Product Liability Insurance: Product liability insurance specifically covers claims related to injuries or property damage caused by your bakery’s products. This is important because food products can lead to allergies, illnesses, or other health issues.
- Property Insurance: Property insurance covers damage to your bakery’s physical assets, including your building, equipment, ovens, and inventory. It typically includes coverage for events such as fire, theft, vandalism, or natural disasters.
- Business Interruption Insurance: Business interruption insurance provides coverage for lost income and ongoing expenses if your bakery is forced to close temporarily due to a covered event, such as a fire or storm.
- Workers’ Compensation Insurance: If you have employees, workers’ compensation insurance is usually required by law. It provides coverage for medical expenses and lost wages if an employee is injured on the job.
- Food Contamination Insurance: If you sell products that could potentially become contaminated, such as bakery items, consider food contamination insurance to protect against financial losses and reputation damage.
Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.
12. Buy or Lease the Right Bakery Business Equipment
Running a bakery requires a range of equipment to produce high-quality baked goods efficiently.
Here’s a list of essential equipment you’ll need for your bakery:
- Ovens: Commercial ovens are the heart of any bakery. Convection ovens, deck ovens, and rack ovens are common types used for baking various products.
- Mixers: Planetary mixers, spiral mixers, and dough sheeters are essential for kneading and mixing dough and batter.
- Proofing Equipment: Proofers, retarders, or dough fermentation cabinets are used to control the fermentation and rising of dough.
- Refrigerators and Freezers: Walk-in coolers and freezers, as well as reach-in refrigerators, are necessary for storing ingredients and finished products.
- Worktables and Counters: Stainless steel worktables and counters provide ample workspace for dough preparation and shaping.
- Baking Sheets and Pans: Various types and sizes of baking sheets, pans, and molds are needed for baking different products.
- Dough Dividers and Rounders: These machines divide and round dough portions uniformly, making them ready for shaping.
- Bread Slicers: Automatic or manual bread slicers are used for slicing bread loaves.
13. Develop Your Bakery Business Marketing Materials
Marketing materials will be required to attract and retain customers to your bakery.
The key marketing materials you will need are as follows:
- Logo: Spend some time developing a good logo for your bakery. 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 bakery 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 bakery.
14. Purchase and Setup the Software Needed to Run Your Bakery Business
Running a bakery efficiently and effectively often involves using various software tools and platforms to manage orders, inventory, customer relationships, and finances.
Here are some essential software types for your bakery:
- Point of Sale (POS) Software: POS software helps you manage in-store and online sales, process payments, and track transactions. It can also generate sales reports for analysis.
- Inventory Management Software: This software helps you track ingredient and product stock levels, manage purchase orders, and ensure you have the right ingredients on hand to meet customer demand.
- Recipe Management Software: Recipe management tools allow you to standardize recipes, calculate ingredient quantities, and adjust batch sizes. They help maintain consistency in your product offerings.
- Order Management System: An order management system streamlines online and in-store orders, manages customer requests, and tracks order status, ensuring efficient order processing.
- Customer Relationship Management (CRM) Software: CRM software helps you manage customer data, track interactions, and build relationships. It’s valuable for customer communication and loyalty programs.
- Bakery Management Software: Specialized bakery management software provides features like production scheduling, batch tracking, and costing to optimize bakery operations.
- Accounting Software: Accounting software like QuickBooks or Xero helps you manage finances, track expenses, and prepare for taxes.
15. Open for Business
You are now ready to open your bakery. 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.
How Big is the Bakery Industry?
IBISWorld reports the Bakery industry has had relatively flat growth over the past five years, only growing at an average annual rate of 0.8%. In 2016, the industry’s 26,570 businesses are forecast to see $40.1 billion in collective revenue.
What are the Key Segments of the Bakery Industry?
Bread accounts for over half of industry revenue. This includes fresh, packaged, refrigerated and frozen loaf breads; dinner rolls; bagels; and savory pastries.
The remainder of industry revenue is generated from desserts such as pies, cakes, cupcakes, brownies, and sweet pastries.
What External Factors Affect the Bakery Industry?
A number of factors affect the performance of the Bakery industry. These drivers include:
Per capita wheat flour consumption – Fad diets and health concerns typically result in consumers cutting down on bread consumption. And since wheat flour is the principle ingredient in bread, wheat flour consumption is a good proxy for bread consumption.
Healthy eating index – Fad diets aside, Americans are becoming more and more conscious of the ingredients found in their food. Consumers are gravitating toward more natural and healthy foods, which results in avoiding foods that are high in fats, sugars, and carbohydrates.
Per capita disposable income – When income rises, consumers are more likely to purchase premium products such as freshly-made bread and pastries.
World price of wheat – When wheat prices go up, bakeries must choose between raising prices to compensate for the rise in cost and potentially losing customers to lower-priced competitors.
Who are the Key Competitors in the Bakery Industry?
The Bakery industry includes both large commercial bakeries and smaller retail bakeries. Therefore, only two companies have any significant market share: Grupo Bimbo (Entenmann’s, Bimbo, Tia Rosa, Oroweat, Brownberry, and Sara Lee brands) has a 16.5% marketshare; and Flowers Foods (Nature’s Own, ButterKrust, Cobblestone Mill, Mrs. Freshley’s, Tasty, Dandee, and Country Hearth brands) has a 9.8% marketshare.
What are the Key Customer Segments in the Bakery Industry?
The largest customer segment in the Bakery industry is Supermarkets and Grocery Stores, followed by Food Service, Hospitality, and Institutional Customers. Other segments include cafes, coffee shops, convenience stores, and exports
What are the Key Costs in the Bakery Industry?
Purchases are the greatest expense for Bakeries, and account for over 40% of revenue. In addition to rising basic ingredient prices, consumers are demanding more premium and expensive ingredients.
Wages are also a major expense, due to the labor-intensive nature of the industry.
Transportation and distribution costs can be significant for commercial bakeries. Retail bakeries, however, typically do not have these costs.
What are the typical startup costs for a new Bakery?
Initial startup costs:
- Building lease or purchase and renovation
- Equipment and professional installation
- Store fixtures and office equipment and supplies
- Leases for building and/or equipment
- Equipment and building maintenance
Additional resources in the Bakery Industry
For additional information on the Bakery industry, consider these industry resources:
- American Bakers Association: www.americanbakers.org
- Grocery Headquarters Magazine: www.groceryheadquarters.com
- Baking Business: www.bakingbusiness.com
- Packaged Facts: www.packagedfacts.com
- Allied Trades of the Baking Industry: www.atbi.org
- The American Institute of Food Distribution: www.foodinstitute.com
- Bakery Mavericks: www.bakerymavericks.com
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