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How to Start a Bakery

How to Start a Bakery

Baking and selling sweet treats may seem like a charming business idea. But starting a bakery can be a messy endeavor without the right knowledge and skills.

“It’s not as glamorous as a lot of people think it is,” said Mary Jayne Wilson, executive chef and director of operations at Amélie’s French Bakery in Charlotte, N.C. There are four Amélie’s bakeries in the Charlotte area, one in Rock Hill, S.C. and one in Atlanta serving freshly-baked pastries, savory sandwiches, soups and salads.

Despite the long hours and commitment that’s required, business owners operate more than 11,500 bakery cafes in the U.S. The industry is expanding, and bakery cafes have grown nearly 3% since 2014 and are expected to reach $11 billion in revenue this year. Total revenue for bakeries is likely to be even higher with more bakeries selling only pastries.

While cooking for others to enjoy can be rewarding and an enthusiasm for baking is essential, love for your craft will only get you so far, Wilson said.

“There has to be a passion for it,” she said. “But it’s really a fine balance between having a passion for it and understanding that it’s a business.”

Continue reading to find out what you need to know when starting a bakery business.

Starting a bakery in 7 steps

A background in culinary arts isn’t required to start a successful bakery, but knowledge of the industry would be useful, said Nicole Sullivan, owner of Sweet Boutique Bakery in Fayetteville, N.C.

Sullivan opened her custom cake and pastry shop in 2007 after leaving a career as an Army communications officer. Although Sullivan later took courses at the Institute of Culinary Education in New York, she began her bakery with little knowledge beyond how to bake a cake.

“I’ve learned it all by trial and error, which is not recommended,” she said.

Here are a few steps you can follow to help you minimize mistakes when starting a bakery.

1. Choose your bakery type.

All retail bakeries sell baked goods directly to consumers, though some specialize in one kind of pastry or service. You could choose from the following types of retail bakeries:

  • Bakery café: A combination of bakery and café that sells baked goods and provides a dining space for customers.
  • Counter service: A bakery selling goods at a counter without a dining area.
  • Bakery food truck: Products are sold from a truck but are typically baked in an off-site kitchen.
  • Specialty bakery: Features one type of baked goods, such as wedding cakes, cupcakes or gluten-free pastries.
  • Home bakeries: Home-based businesses that often sell products online and ship goods to customers.

In addition to made-to-order cakes, Sullivan also sells single-serve pastries at Sweet Boutique Bakery. You may want to consider diversifying your product offering to attract a variety of customers, especially if you mainly sell something seasonal, like wedding cakes with most ceremonies in the summer.

The type of bakery you want to operate would determine other aspects of the business, such as the amount of space, equipment and ingredients you would need, Wilson said. We’ll discuss those details next.

2. Find a location.

You could buy or lease a bakery location, depending on the financial resources you have available, Sullivan said. Renting a space would likely be a more affordable option for new business owners but buying could be a better long-term investment.

“If you can find a place that’s affordable…then buying would be terrific,” Sullivan said.

Consider the amount of foot traffic surrounding a potential location. Sweet Boutique Bakery is now located in a Belk department store and benefits from mall traffic, Sullivan said. But the bakery’s first location was in a retail space near several medical facilities. People would stop by the bakery on weekdays while in the area for work, but it was quiet on weekends, she said. It was difficult to attract new customers to that location.

“It’s crucial how you inform the public not only that you’re there, but what you’re up to to entice people to come,” Sullivan said.

Your city or state might provide resources for finding a business location. Some even provide incentives such as tax credit so check with your local Small Business Administration office or Small Business Development Center.

3. Purchase bakery equipment.

Equipment is the second biggest startup expense for bakery owners behind rent, Sullivan said. No matter what baked goods you sell, expect to buy a pastry case, commercial oven and refrigerator. Those are the three essential items for any baker, Sullivan said.

Many bakery owners buy used equipment at the start, but it may be worthwhile to buy some things brand new. A used oven or refrigerator could have lingering scents that may affect your pastries, Sullivan said. The pastry case should also be free from smells or damage, so pastries appear appetizing.

Large tables, called work benches, mixers and dishwashers are also crucial in a bakery, Wilson said. Most cities have local vendors that sell new and used equipment for food establishments, she said. To equip multiple Amélie’s locations, Wilson and her team shopped at Recycled Restaurant Equipment in Charlotte. You could speak with the staff at a recycled equipment store or vendor in your area to learn what appliances your bakery needs.

“I’ve learned a lot about quality equipment – what’s worth spending more money on and what you can buy used,” Wilson said. “We have a good blend of both.”

When opening a new Amélie’s location, average equipment costs total $150,000, Wilson said. In addition to kitchen equipment, each Amélie’s requires a coffee and espresso bar. Your costs would depend on what your bakery offers, as well as the size of the space, she said.

4. Hire employees.

New bakery owners often think they can handle the entire business on their own, but hiring a manager, especially someone with industry experience, could be a huge help, Wilson said. A manager could take administrative tasks off your hands, like ordering inventory, and they could train any bakers you hire to make sure products remain consistent.

“The more people who know things, the better,” Wilson said. “Otherwise, you get handcuffed to the business.”

To save time and money training employees, Sullivan hires experienced pastry chefs and cake decorators. Finding talented and capable decorators who can meet deadlines can be difficult, she said, but the right people can be priceless. Sweet Boutique Bakery has five employees – a pastry chef, two decorators, a bakery assistant and Sullivan.

“I learned quickly not to hire anyone who thinks it would be fun and bakes cakes at home,” Sullivan said. “I try to find people who are already trained at least in their art.”

5. Calculate costs.

Rent and equipment are typically the biggest expenses for bakery owners, Sullivan said, but other ongoing costs can add up. Payroll can be a major expense, depending on the hourly rate employees earn based on their skill level, she said.

Economic factors often cause the price of ingredients to fluctuate and it can be challenging to forecast your bakery’s inventory costs, Sullivan said. Also, natural disasters or weather events in other parts of the country can affect the price of raw materials like wheat and vanilla extract.

“You’re pretty much held hostage, not just by the economy, but what happens in other places,” she said. “How do you pass that on to your customer without scaring them away?”

Bakery owners should aim to spend 28% of sales on food costs, Wilson said. To efficiently use ingredients at Amélie’s, Wilson tries to incorporate the same items into as many recipes as possible. Buying basic ingredients in bulk also helps cut inventory costs.

“If you have a huge variety of things that you’re offering, that’s when your ingredient costs can go up,” Wilson said. “The biggest things you have control over is your food costs and your labor costs, as far as operations.”

6. Set your prices.

Prices of baked goods typically reflect the labor and ingredients required to make them, Sullivan said. Many bakeries double or triple the cost of goods to determine prices, but custom work may require a different strategy, she said.

To price a custom cake from Sweet Boutique Bakery, Sullivan estimates the amount of time it would take to complete the cake. She then breaks down the cost of each minute her highest-paid employee would spend on the cake, based on their hourly rate, and doubles or triples that total. If the price can handle an increase, Sullivan will also factor in the cost of ingredients and the expense of keeping the bakery open, such as electricity and water costs, based on the time it would take to make the cake.

“I can’t really say it’s the perfect answer,” Sullivan said. “But I found early on that if you just go by the cost of making the item and strictly what you pay the individual, it doesn’t really work.”

7. Build your bakery’s brand.

Promoting your bakery is a crucial step to get customers in the door. Create social media accounts and a website for your bakery where you can post photos of baked goods. Sullivan calls this strategy “smellovision,” as customers are more likely to visit your bakery after seeing appetizing photos.

“People buy based on how it looks,” she said.

Engaging social media followers with giveaways and contests would encourage people to interact with your brand and become familiar with your bakery, Wilson said.

“Social media is huge,” she said. “It’s great for a new business because it’s a cheap and easy way to get your name out there.”

However, make sure your social media output matches the actual experience of visiting your bakery, Wilson said. Customers also expect consistency, so your offerings should look and taste the same each time they come in.

Financing for bakeries

If your personal savings isn’t enough to start a bakery, there are several business financing options that could give you a boost.

To launch Sweet Boutique Bakery, Sullivan took out a $55,000 loan designed for military veterans — the U.S. Small Business Administration waives upfront fees for veteran loans up to $350,000 through the SBA Express program (we talk more about SBA loans, below). The funding helped her get the bakery up and running, but she would advise new business owners to include one year’s worth of operating expenses in their desired loan amount. Make sure you have enough funding to cover operating costs after the bakery opens, she said.

Here are some funding options that may be suitable for new bakery owners.

SBA loans

The SBA partners with lending institutions to guarantee loans made to small business owners. You could obtain an SBA-backed loan up to $5 million to cover general business expenses. The SBA offers multiple programs, among them the 7(a) loan program and Microloan program, both of which could be appealing to bakery owners.

The 7(a) loan is the SBA’s primary offering. Qualified small business owners could receive up to $5 million with repayment terms between seven and 25 years. These loans can pay for startup costs or ongoing working capital needs. Microloans are smaller, maxing out at $50,000. Nonprofit and community-based organizations issue microloans, which are designated for women, minority, low-income and veteran entrepreneurs. The SBA sets limits on interest rates to prevent lenders from charging high amounts for loans. Competitive rates and terms make SBA loans an attractive funding option for many small business owners.

Alternative business loans

Online alternative business lenders can be a viable financing option for those who have trouble qualifying for traditional bank loans. Online lenders may approve borrowers with just a year in business, low revenue and credit scores between 500 and 620. The turnaround time for an online loan is typically quick, and some lenders advertise approval in days or hours.

You could apply for term loans, equipment financing, invoice financing, cash advances and lines of credit from online lenders. However, there’s a price to pay for fast time to funding and minimal requirements. Online lenders often assign high interest rates and short repayment terms to loans, typically offering smaller amounts than a bank would provide.

Crowdfunding

Crowdfunding allows business owners to raise capital from family, friends and the general public. Startup businesses sometimes have trouble qualifying for a business loan without substantial experience or collateral, and crowdfunding could be a possible alternative. Online platforms like GoFundMe, Kickstarter and Indiegogo let you set up a campaign explaining your business and funding needs. Most platforms collect a fee to use the service and may require you to provide donors with access to products or a stake in your company in exchange for money.

Time to funding may be slow, as it could take a while to raise money, and you may not raise as much as you expect. It could be challenging to compete with other crowdfunding platforms online, but the exposure you would gain from being on a platform like GoFundMe or Kickstarter could be valuable in building your customer base.

Open your bakery with a recipe for success

Although a formal background in culinary arts or business management would ease the process of starting a bakery, it’s not a mandatory requirement, Sullivan said. Local, small business development centers or community colleges could provide education and guidance when making decisions about your bakery.

When Sullivan first opened Sweet Boutique Bakery, it was one of the first custom cake shops in Fayetteville, N.C. There was a learning curve among customers who expected “bake sale prices,” she said. Since then, several more independent bakeries have popped up in the area and customers are more understanding of what it takes to make custom creations.

To keep customers coming back, the food quality and in-store experience must be consistent, Wilson said.  The Amélie team has the challenge of creating an identical customer experience across six bakeries.

The key to maintaining consistency is effective bakery management, Wilson said. If you don’t have extensive industry experience, consider hiring a manager who does and could lead your team, or at least teach you the ropes of running a bakery, she said.

“The leadership is everything,” Wilson said. “That really makes or breaks the business.”

 

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