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Start a Bakery Business

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Need help figuring the steps to start a bakery business? Here is a list to help you get going.

Business Plan

A business plan is basically a document to identify an opportunity, research why this opportunity is profitable and the steps needed to capitalize on the opportunity. The business plan should be the first thing you do for starting your bakery.

The business plan can be a formal document or it can be written on the back of a napkin but the mere act of writing the idea down forces you to get the idea out of your head and on paper which helps find hidden business flaws and makes you think carefully about each phase of your business.

The plan will have you consider the financial aspects of starting the business including how much money you need to start as well as how much product you need to sell each month to make a profit. If you don’t know this going into it you may be starting a business that was destined to fail.

Writing a business plan is something anyone can do, even if you don’t know anything about business or finances. Even though the business plan is critical to getting the idea off of the ground, many entrepreneurs procrastinate when it comes to preparing a written plan. If you don’t know anything about business or finances, now is the best time to begin learning as the chances of your bakery being successful will be limited without this knowledge. Just as a builder won’t begin construction without a blueprint, entrepreneurs shouldn’t rush into new ventures without a plan. The old saying that “those who fail to plan, plan to fail” is very relevant when talking about starting a bakery business. SBA’s statistics claim over half of new businesses fail in the first three years and the common factor is poor planning or under-capitalization (which is also poor planning).

The first step in creating a business plan for your bakery is just getting started. Writing the business plan may seem overwhelming at first, but if you break the plan down to bite sized pieces and work on one section at a time, it won’t seem as daunting. Begin with what you know first and describe your business and your products. Work towards the more difficult subjects such as marketing, operations and financials. Don’t worry about it being perfect now, just get the concepts on paper – expand and refine later. If you get stuck on a section in the plan, skip it for now and come back later when you have more details. Free resources to help with your plan are available from your local Small Business Development Center www.asbdc-us.org and the Service Corps of Retired Executives www.score.org.

Mass Baking Skills
Knowing how to bake a pan of cookies for yourself or ten trays is a very different process. If you don’t know now and think a week or a month in a bakery course is going to be sufficient, I hope you reconsider. This will never give you anything like even the necessary baking skills, never mind the small business management skills that you will need. Bakery apprentices get a full year of classroom training, plus the 1-3 years of hands on time. If you do not have any large scale baking skills, then you need to spend a few years growing them.

It is necessary for any successful baker to know how to bake, how to teach and manage bakers for consistency. Once you make a product and sell it, you should make all future batches exactly the same way (same ingredients, process and temperature). Make sure you write your recipes down and follow them carefully to ensure your baked goods are of a consistent quality. Having your product vary too much and customers will complain and that means lost revenue. Consistency is also important because if you aren’t the one cooking, product still needs to go in the display cases. The entire business can’t be successful if you are the only one who can make the product.

Get the Money
Take your business plan to the bank. There are also revolving loan funds and micro loans for small businesses that are not able to get funding from the bank. Funding is hard to come by, especially for businesses in the food industry so get your plan right. Banks are interested not only in a profitable business but collateral as well. Collateral is stuff you own (houses, investments, etc) that aren’t going to be used in the business but you can pledge in case the businesses goes bust. Don’t get into any binding agreements to start your business until your financing is secure. You may not be able to make good on those agreements. Funding typically takes longer than you expect so figure on one week to three months and sometimes more to secure financing, depending on your personal situation and loan program.

Location
You will need a spot to bake and sell your product. Running a thriving bakery business requires a steady stream of regular customers. Look for newly established or newly developed suburbs, high traffic locations, and little competition. Also look at areas that may not be well serviced, like industrial estates or high density office blocks where you can draw customers. Also know in advance how much space you’ll need for baking and storage versus space for retail and sales. Search for a commercial property with a kitchen suitable to the space you need.

One possibility you might want to consider is to see if there is a local restaurant, church or cooperative kitchen that will let you use their kitchen facilities. Most bakers work from 4am to about 10 or 12 noon, while restaurants open for dinner usually don’t start having staff come in until about 3 or so.

You may be able to make this arrangement beneficial to the kitchen owner besides paying rent by making deserts and breads for the restaurant, which also helps you establish a small amount of revenue.

Also if your state allows you may be able to operate out of your home. If you go with a location where you can’t sell directly out of, you will have issues with making money through retail sales. You may have to be more aggressive at selling through supermarkets, farmers markets and restaurants. Farmer’s Markets are fun and a great place to sell your baked goods, just know the typical farmer’s market customer often holds you to a higher standard than a walk-in customer and they love to bargain. If you are working out of your home and want to seem more legitimate you may consider free delivery so nobody knows you work out of your home. You sell it as a service, when in reality it improves the image of your company.

If you skipped the step on getting money and found the “perfect location” go back and perfect your business plan and go to the bank and get the funding. There is nothing worse than getting a lease on the “perfect property” to find out you can’t get the money for equipment and are stuck with the lease.

Licenses & Permits for a Bakery
Opening a bakery will require to get a variety of licenses. If you bake out of your home you’ll need to meet all of the state and local requirements that any regular bakery business would and typically need a separate kitchen in your home.

Since bread is under the food business umbrella, you would also need to have a food vending license from the state you are in and also a food handlers permit from the health department. Be prepared for many inspections on your property to check for cleanliness.

You will need a Federal employer identification number from the Internal Revenue Service as well as a sales tax number to allow you to collect and pay sales tax. Last, you may be required to have a business license of some kind in order to open any business, even an at home one.

Equipment
In order for your bakery business to run smoothly, it is critical that you have access to adequate commercial equipment. Commercial ovens and mixers of different sizes and features are going to be needed to make your product. Have junk equipment will result in bad product. Display cases, as well as refrigerators are important for the food you are selling. Make sure you have enough equipment for your needs and it be in perfect working condition. Also make sure you have access to enough money as well!

Insurance
For you and your employees’ protection, you need to have your bakery business properly insured. Two types of bakery insurance you should have at a minimum is liability and workman’s compensation. Other insurance that may be beneficial is fire insurance and rental/property insurance.

Cash
In order to have some wiggle room to give time incase business does not take off immediately, you need enough cash to support your bakery for at least three months. Startup up costs for a bakery can be considerable, so can look into leasing equipment to lower your initial investment.

Also think about making a profit.When creating your baked goods, you want to make sure you are offering a product that that your market can afford. If you plan to use premium products, you will need to price accordingly so there is a profit.

Bookkeeping

In April when you file your taxes, you will need to have a record of all your expenses so you can write them off at the end of the year. Every business expense is deductible the important thing is to track off of the expenses. Have a plan ahead of time on how you are going to keep track and do taxes for the business. Have you ever maintained books for a business and done payroll? It’s not like whipping out your checkbook and issuing checks or as if you can pull someone from behind the counter to do it for you. Find your help on the books now so you can focus on running a bakery.

Also if you plan on showing up a couple of weeks at the end of tax season and you are going to get your taxes done, good luck. To have a successful business, every month you or a bookkeeper should prepare financial documents to measure results and make improvements.

Marketing
Marketing your bakery requires you to know what your competitive advantage is, who your customer is and how you are going to market to them. Know this ahead of time as once you open all of the salespeople from radio, television and newspapers will flock to you and try to convenience you to use their channels as they will be able to increase your sales. They are persuasive but if you don’t know your customer you are fighting a losing battle.

Running
There are two huge pitfalls, among the many that you will face. One is not delegating enough, because you can’t do it all yourself, but you will probably try and not be focused on your skills. The second is not knowing your numbers. Too many people run their business by the checkbook balance and that isn’t a great strategy for success. You need to have a conversation with an accountant about what the numbers mean and how you compare to similar businesses in the bakery business and where you can improve.