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How to Start a Bakery

Updated on January 19, 2022

How to Start a Bakery

How to Start a Bakery

It’s hard to beat the smell of freshly baked bread, muffins, and pastries in the morning. For many, walking into a good bakery is like walking into paradise. If you love baking, and people love your baked goods, this could be a great time to chase your dream and open a bakery!

The US bakery market has been growing for years and is now worth $12 billion, so why not get your piece of the pie?

Starting any business, however, is challenging and will take hard work and passion. But the right information will point you in the right direction, and this step-by-step guide provides all the insight you need to start baking your way to success.

Fast Facts

Investment range

$3,650 - $33,100

Time to build

0 – 3 Months

Industry trend

Growing

Revenue potential

$78,000 - $390,000 p.a.

Profit potential

$54,600 - $78,000p.a.

Commitment

Flexible

Step 1: Decide if the Business Is Right for You

Pencil on notebook with text written PROS and Cons with blank lists, concept of compare advantages and disadvantages of something to consider carefully before making a sensible decision

Pros and Cons

Every business has pros and cons, and a bakery is no exception. You need to weigh these carefully to decide if starting a bakery is right for you.

Pros

  • Self-expression – Do what you love; choose what to bake
  • Build Community – A good bakery becomes a gathering place
  • Low startup costs – Start baking at home with little investment

Cons

  • Early bird – Retail bakeries start baking as early as 5am
  • Limited Profit – Inflation and spoilage will cut into your margins

Industry trends

Research firm IBISWorld values the US bakery industry at $12 billion and expects nearly 4% growth in 2021, a significant increase from previous years.[1]https://www.ibisworld.com/united-states/market-research-reports/bakery-cafes-industry/

Consumers have in recent years embraced health-conscious options, gluten-free products, and vegan and plant-based alternatives. But the hottest trend in baking right now is probably hybrid pastries that represent a mash-up of two traditional baked goods.

For instance, the “cretzel” is a croissant crossed with a pretzel, while the “cruffin” combines a croissant and a muffin. It all started at Dominique Ansel’s New York City bakery in 2013, when crowds started lining up around the block after he released his croissant-doughnut mash-up, the cronut.[2]https://www.cntraveler.com/stories/2016-05-09/the-complete-history-of-the-cronut

How much does it cost to start a bakery?

Startup costs for a bakery range from about $3,500 to over $30,000, with an average of around $18,000. The low end reflects a bakery started at home, while the high end includes renting a commercial space.

Start-up CostsBallpark RangeAverage
Setting up a business name and corportation$150 - $200$175
Licenses and permits$200 - $300$250
Insurance$100 - $300$200
Business cards and brochures$200 - $300$250
Website setup$1,000 - $3,000$2,000
Location security deposit$0 - $5,000$2,500
Site preparation and equipment$0 - $20,000$10,000
Bakeware$1,500 - $2,500$2,000
Initial Inventory$500 - $1,500$1,000
Total$3,650 - $33,100$18,375

How much can you earn from a bakery?

The average profit margin for a retail bakery is about 10 – 20%, while a home-based bakery could have a margin of around 70%.

In your first year or two, you could work from home and sell an average of $1,500 in baked goods each week, bringing in $78,000 in annual revenue. This would mean nearly $55,000 in profit, assuming that 70% margin.

As your brand gains recognition, sales could grow and you would rent a commercial space and hire staff, reducing your margin to 20%. But if you do $7,500 in weekly sales, you’ll have annual revenue of $390,000 and a tidy profit of nearly $80,000.

You can use Step By Step’s profit margin calculator to help you calculate these figures.

What barriers to entry are there?

There are a few barriers to entry for a bakery business. Your biggest challenges will be:

  • Competition – Local bakeries and cafes, national chains like Dunkin Donuts and Starbucks, supermarkets and convenience stores
  • Building a Name – Strong marketing will be needed to draw customers

Step 2: Hone Your Idea

Now that you know what’s involved in starting a bakery, it’s a good idea to hone your concept in preparation to enter a competitive market.

Why? Identify an opportunity

Research bakeries, cafes, and supermarkets in your area to see their baked goods offerings and prices, and which are most popular. Look at what’s trending in the bakery market and determine what’s missing in your area. Maybe your town lacks a gluten-free or vegan bakery, or maybe it craves a good cronut and doesn’t even know it. You’re looking for a market gap to fill.

What? Determine your products or services

You should probably start with extensive product testing among family and friends: whip up batches of your favorite muffins, cupcakes, brownies, and sourdough for everybody to try. The items people like best will be your menu. If you’re opening a bakery shop, you’ll also want to offer a variety of beverages, starting with coffee.

With either a shop or a home-based bakery, it’s a good idea to be open to custom orders, for birthday cakes and cookies, for instance, or catering an office meeting with an assortment of baked goods.

How much should you charge for baked goods?

Here are some typical prices of baked goods:

  • Custom cakes – $30 – $100
  • Wedding cakes – $120 – $1,000
  • Dozen muffins or donuts $15 – $30
  • Bread loaf $8 – $15
  • Pies $15 – $30

You should check your competitors’ prices and aim for something competitive, or even better. Once you know your costs, use the Step By Step profit margin calculator to determine your price points.

Who? Identify your target market

Your target market will depend on what kind of bakery you’ve chosen. If you choose a gluten-free or vegan concept, your target market may be a younger demographic. You can find those people on sites like Instagram that also target younger people.

Where? Choose your business premises

In the early stages, you may want to run your bakery from home to keep costs low. But as your business grows, you’ll need to hire workers for various roles and may need to rent out a storefront. You should choose a location with high foot and road traffic and little competition.

Find commercial space to rent in your area on Loopnet, Craigslist, Crexi, and Commercial Cafe. When choosing a commercial space, you may want to follow these rules of thumb:

  • Central location accessible via public transport
  • Ventilated and spacious, with good natural light
  • Flexible lease that can be extended as your business grows
  • Ready-to-use space with no major renovations or repairs needed
Should You Start a Bakery Business

Step 3: Brainstorm a Business Name

Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.

Here are some ideas for brainstorming your business name:

  • Short, unique, and catchy names tend to stand out
  • Names that are easy to say and spell tend to do better
  • The name should be relevant to your product or service offerings
  • Ask around — family, friends, colleagues, social media — for suggestions
  • Including keywords, such as “bakery” or “baked goods”, boosts SEO
  • Choose a name that allows for expansion: “Jim’s Bakery” over “Jim’s Cookies”
  • Avoid location-based names that might hinder future expansion
  • Use online tools like the Step by Step business name generator

Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names at a web cataloging site such as NameChk. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.

Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. And if you’ve exhausted all your creative juices but still don’t have a business name, don’t stress! Instead, check out our business name generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.

Step 4: Create a Business Plan

Every business needs a plan. This will function as a guidebook to take your startup through the launch process and maintain focus on your key goals. A business plan also enables potential partners and investors to better understand your company and its vision:

  • Executive Summary: Brief overview of the entire business plan; should be written after the plan is complete.
  • Business Overview: Overview of the company, vision, mission, ownership, and corporate goals.
  • Product and Services: Describe your baked good offerings in detail.
  • Market Analysis: Assess market trends such as variations in demand and prospects for growth, and do a SWOT analysis.
  • Competitive Analysis: Analyze main competitors, assessing their strengths and weaknesses, and create a list of the advantages of your services.
  • Sales and Marketing: Examine your companies’ unique selling propositions (USPs) and develop sales, marketing, and promotional strategies.
  • Management Team: Overview of management team, detailing their roles and professional background, along with a corporate hierarchy.
  • Operations Plan: Your company’s operational plan includes procurement, office location, key assets and equipment, and other logistical details.
  • Financial Plan: Three years of financial planning, including startup costs, break-even analysis, profit and loss estimates, cash flow, and balance sheet.
  • Appendix: Include any additional financial or business-related documents.

If you’ve never created a business plan yourself before, it can be an intimidating task. Consider hiring an experienced business plan writer on Fiverr to create a professional business plan for you.

Step 5: Register Your Business

Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.

Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!

Choose where to register your company

Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states might offer real advantages when it comes to bakeries.

If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.

Choose your business structure

Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your bakery will shape your taxes, personal liability, and business registration requirements, so choose wisely.

Here are the four main options:

  • Sole proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business.
  • Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the pre-tax profits and are liable for losses.
  • Corporation – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly.
  • Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.

We recommend that most new business owners form an LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can quickly and cheaply form an LLC using ZenBusiness’s online LLC formation service (it can take as little as 5 minutes). They will check that your business name is available before filing, submit your Articles of Organization and be on hand to answer any questions you have about the company formation process.

Business structure comparison infographic

Step 6: Register for Taxes

The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.

Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.

The IRS website also offers a tax-payers checklist, and taxes can be filed online. It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.

Step 7: Fund your Business

Loan agreement form on desk with calculator in bank. top view. view form above.

Securing financing is your next step and there are plenty of ways to raise capital:

  • Bank loans: This is the most common method, but getting approved requires a rock-solid business plan and strong credit history.
  • SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
  • Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
  • Crowdfunding: Websites like Kickstarter and GoFundMe offer an increasingly popular low-risk option, in which donors fund an entrepreneur’s vision.
  • Personal: Self-fund your business via your savings, the sale of property or other assets, and support from family and friends.

Step 8: Apply for Licenses/Permits

Starting a bakery requires obtaining a number of licenses and permits from local, state, and federal governments.

Federal regulations, licenses, and permits associated with starting your business include doing business as, health license and permit from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.

Your state may require inspections if you have a home bakery, and you may need a food safety certificate. You may also need state-level licenses and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more. You could also check this SBA guide for your state’s requirements.

This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties. If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.

For peace of mind and to save time, we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state, and provide them to you to make sure you’re fully compliant.

Step 9: Open a Business Bank Account

Before you start making money you’ll need a place to keep it, and that requires opening a bank account.

Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your bakery as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.

Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.

Step 10: Get Business Insurance

Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.

Here are some types of insurance to consider:

  • General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
  • Business Property: Provides coverage for your equipment and supplies.
  • Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
  • Worker’s compensation: Provides compensation to employees injured on the job.
  • Property: Covers your physical space, whether it is a cart, storefront, or office.
  • Commercial auto: Protection for your company-owned vehicle.
  • Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
  • Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of any of the above insurance types.

Step 11: Prepare to Launch

As opening day nears, prepare for launch by reviewing and improving some key elements of your business.

Develop your website

Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism. They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google

You can create your own website using services like WordPress, Webflow, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.

Essential software and tools

Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.

You may want to use industry-specific software such as aptean, cybake, or Flexibake to track customer orders, inventory, and nutritional content.

Marketing

Some of your business will come from the casual passerby or online visitors, but still you should invest in marketing! Getting the word out is especially important for new businesses, as it’ll boost customer and brand awareness.

Once your website is up and running, link it to your social media accounts and vice versa. Social media is a great tool for promoting your business because you can create engaging posts that advertise your products:

  • Facebook: Great platform for paid advertising, allows you to target specific demographics, like men under age 50 in the Cleveland area.
  • Instagram: Same benefits as Facebook but with different target audiences.
  • Website: SEO will help your website appear closer to the top in relevant search results, a crucial element for increasing sales.

Accounting

  • Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero.
  • If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.

Equipment

You’ll need a handful of items to successfully launch your bakery. Here’s a list to help you get started:

  • Mixers
  • Oven
  • Bakeware
  • Bread slicer
  • Refrigerator

Step 12: Build Your Team

If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a bakery would include:

  • Bakers – assist with making products
  • Store clerks – take orders and make sales
  • Marketing lead – SEO strategies, social media, other marketing

At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.

Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.

Step 13: Start Making Money!

Focus on USPs

Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your bakery meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.

Some signature USPs for your bakery could be:

  • The best gluten-free breads and pastries around
  • Specialty cakes for all occasions
  • Hybrid baking mastery, from scuffins to brookies to cronuts
USP venn diagram

Kickstart Marketing

Take advantage of your website, social media presence and real-life activities to increase awareness of your offerings and build your brand. Some suggestions include:

  • Competitions and giveaways – Generate interest by offering prizes for customers who complete a certain action, such as the first 10 customers buy one get one free.
  • Optimize calls to action – Experiment with text, color, size, and position of calls to action such as “Order Now”. This can sharply increase online orders.
  • Signage – Put up eye-catching signage at your store and website
  • Flyering – Distribute flyers in your neighborhood and at industry events
  • In-Person Sales – Offer your products/services at local markets, trade shows

Consider a Niche

You should consider creating a niche for yourself by specializing in a certain aspect of your industry. This could jumpstart your word-of-mouth marketing within your niche market.

Build Affiliate Relationships

Affiliate marketing is advertising in which you compensate third parties (i.e. your affiliates) in order to generate traffic to your website. You can develop long-term relationships with these affiliates and generate traffic for each other on an ongoing basis.

Wrap-up

Bakeries often become a beloved element of the community, which is why this industry is still growing and evolving to favor the desires of today’s consumers. You can capitalize on the industry, the trends, and your own talents to build a fantastic bakery business.

Now you’re ready to bake your cake and eat it too, as you embark on your entrepreneurial journey.

Bakery Business FAQs

Can I run a bakery business from home?

Probably, but you should check with your state and local government to see if there are restrictions and what permits you need. Your state may require inspections of your home bakery, and you may need a food safety certificate.

How much does it cost to start a bakery?

If you start a bakery from home, startup costs are low. You could launch with around $3,500. If you already have all the equipment you need, you could start with even less.

Is owning a bakery profitable?

A home bakery can have profit margins as high as 70%. If you have a commercial space, you’re likely to have a profit margin of around 20%. With a great location, your revenue could easily be in the six figures, so yes, a bakery can make good money!

How can I attract customers if I have a home bakery?

Rely on your network! Bring in friends and family customers, and have them promote your goods with word-of-mouth referrals. Create a website and advertise often on social media with pictures of your creations and customer testimonials. Once you get some traction, you may get more business than you can handle!