According to a recent article, Forbes commented that a bakery is one of the 10 least profitable businesses to start.
What a way to start an article on starting a bakery!
Many people think that since people like to eat their cakes, pies, you name it then they should start a business. While there have been successes from people who started a bakery business based on that assumption, there are many more stories who failed and here are the reasons. There is very little potential for success with a bakery because it is such a saturated market (in most areas). Small “mom and pop” businesses have to compete with large supermarkets that have their own bakeries. The supermarkets have a corner on traffic, convenience and price control. Small bakeries will never be able to compete against these things. What small bakeries have an advantage on is having unique products, ability to customize, high quality and taste. The big question is whether you have a market that large enough that values these things and is willing to pay. Also, you have to know how to run a business. You may be the best baker in town, but if no one knows it, you won’t survive. If you can’t manage cash and inventory you won’t make it long either. There’s also employees, taxes, the health department and many other responsibilities as a business owner. Your quality is just a small piece of the puzzle.
Now there will be a lot of people who will say, that’s not going to be me. I can’t fail because this is my dream/I bake better/know more/can do XYZ. My situation is different. It may be true. The point I want to make though is starting a bakery is a risky endeavor and I hope you will take precautions. Think about the following few things which aren’t listed in the glossy brochure on how great starting a bakery is.
Your first few years, expect to work 100 hour weeks a week. The day starts early with prep work as many recipes require several hours for get ready. Recipes that require that the rising will need to be started several hours before the first customer enters. There is a lot to do all day and after the shop is closed, a few hours of cleaning and preparing for the next day will be needed. Somewhere in the day you need to find time to do the bookkeeping, payroll and paperwork bits of the business. Oh, and since your business revolves around celebrations your holidays are now booked solid. You probably won’t have enough money to hire right away and if you did, you probably wouldn’t find anyone who made things as good as you. The result is you will work your tail off and hopefully set up your business where when enough money is coming in and you can/are willing to hire someone to take over some of the tasks you can grow the business. While running a business is satisfying, you can’t work in your business forever and not get burnt out. Remember a business isn’t like a job, especially when you owe money. Meaning you just can’t quit and your boss will always be a slave driver.
Don’t expect to make a profit for the first 1.5 – 3 years. As the business grows, you will be reinvesting heavily for equipment, inventory and cash for the slow times. If you plan to survive, save some extra money during the peak times to cover the bills during the slow ones. Those who don’t, won’t be able to keep the lights on for long.
Running a successful bakery requires a critical attention to inventory management. Margins are pretty slim and inventory will make up a bulk of your expenses so use it carefully or the slim margins disappear. Aim to keep 1.5 weeks of inventory on hand. Also if you over bake, you can’t store the excess for long as it will go bad. Last there are several governmental rules that any food business has to follow.
If you are still gung ho on starting a bakery I recommend you first start off working at a bakery. Here you will get a taste of what a bakery is really like. If you still love it you may next try starting small and even renting space during off hours in a restaurant kitchen and produce some breads and sell them at farmers’ markets or though wholesale to existing grocery stores. If they sell you know you really have something special that customers are willing to pay for and you have a proven revenue stream that will make it easier to get the capital you need to get started.