Starting a bakery can be a rewarding and lucrative business, but it also requires a significant upfront investment. The process of buying or leasing a property, leasing equipment, hiring staff, obtaining permits, and other upfront costs can be significant. You’ll also want to decide on a location and factor in costs like rent and utility bills. Find a partner or team member to help with the business.
Types of Bakeries
Not all bakeries are created equal. Depending on the type of bakery you decide to open, you may be required to obtain a different set of permits. For example, if you plan to open a commercial bakery that manufactures products for resale, then you will need to obtain a different set of permits than you would if you were operating a non-profit community bakery. The same goes for opening a wholesale bakery versus a convenience bakery.
There are four basic styles of bakery you can choose from when you decide to start. They all offer pros and cons, so you should take some time and think about which is the best option for you.
- Counter Style Bakery
- Bakery and Cafe Hybrid
- Food Truck Bakery
- Home Bakery
This format is the most typical and recognizable format of a bakery, and it has its benefits. Very little space is required in the front of the bakery if you simply offer a counter that customers can order from. Usually, nodining space is too little, which keeps this type of bakery lean and efficient operation. But this format does limit your options for serving food and keeping customers on-site where they might order more food and drinks over time.
This option has plenty of seating for customers, which can allow you the space you need to serve meals if you want to expand past only offering baked goods. You can still add seating if you want to encourage customers to hang around your business. You may want to add coffee or tea to the menu, as well to entice them to stay longer. If you offer comfy seats and free Wi-Fi, you’ll likely find success amongst the working crowd.
Starting a food truck is a cost-effective venue for opening a bakery and can help you reach a variety of customers that normally wouldn’t see your products. Take your baked goods along for the ride and park your food trucks at street fairs, offices, and special events. You won’t have the space to bake a lot in the truck. But, you can easily fill up your truck with baked goods you made in your home or commercial kitchen space and bring them to your location.
Keep things simple and opt to start a bakery from home instead. You’ll require less startup capital and can easily sell your goods online, at local farmers’ markets, or even catering services. You may even be able to make deals with local shops or cafes to sell your goods in their locations by offering them a cut of the profits.
List of Bakery Franchises and Costs
Opening a bakery franchise can be profitable, but most require a significant initial investment. You can always look to start a bakery franchise and build your business with the help of some big corporations. Here are some of the franchise fees and initial investment costs for opening popular bakery franchises:
- Panera Bread
Initial investment starts at $228,620 - $942,000-$1M initial investment cost
One of the largest franchises in the market, Dunkin has one of the highest costs of initial investment due to its name recognition. This helps drive customers but can be a drawback if your location isn’t in a prime real estate spot.
Initial investment starts at $30,000 - $200,000-$500,000+ initial investment cost
Another large franchise, Cinnabon is more flexible when it comes it initial investment cost. This is due to the fact that Cinnabon allows mall franchises and small single window stores, unlike most of the others. Not needing a dining area helps offset the costs of other large franchisers.
To start it is a $100,000 franchise fee with a $942,000-$1M initial investment cost
They are one of the biggest, most recognized names in the industry so their costs reflect that. All Panera franchises need to have some sort of dining area. They offer wi-fi and the ability for a person to sit at their stores and get jobs done which helps them retain a customer base in the area.
These are just some of the biggest names in the industry. There is a multitude of other options when it comes to franchising. You should always do your due diligence when researching franchises.
How Much Does It Cost To Open A Bakery?
The average startup cost to open a bakery is between $10,000 and $50,000. This is lower than the cost of opening a restaurant, largely due to the reduced need for employees, seating, and inventory for most bakeries. Another low-cost way to open a bakery is opening a bakery food truck, which reduces the need for real estate and a full staff.
The average cost per square foot for commercial space that can be used for restaurants is around $180, and renting usually comes in around $160 per square foot.
Constructing a new bakery costs around $300-400 per square foot and also varies depending on where you are located, not only regionally but where the building is. Urban real estate is typically more expensive, and the suburbs are less.
Budget between $100 and $800 per square foot when opening a new restaurant. This includes equipment, materials, setup, and more. The more square footage, the more you’ll need to budget, and if you’re on the east or west coasts of the U.S, plan for the higher end of the range due to the market.
Writing A Bakery Business Plan
Writing a bakery business plan is a critical step in starting a new bakery business. A business plan is a roadmap that helps you plot your course and stay on track. It also serves as a marketing tool that can be shared with potential investors. A well-written business plan not only helps you launch your business but also helps you stay on track throughout its lifespan. A business plan is a living document, and it should be updated annually according to your business’s needs and conditions.
We will go over the basics and give you some insight as to why you need them.
- Executive summary example for bakery
- Market analysis for bakery business plan
- Products and Services
- Marketing and Sales Plan
- Financial Plan and Projections
- Sales Privilege License For Food Service Companies
- Food Handler's License
- Catering License
- Kitchen Health and Safety Inspection
- Zoning Laws and Permits
- Sales Floor
- Dressing rooms
- Additional storage space
- Checkout counter
- Public Relations (PR) Services
- Branded Merchandise
- Social Media Marketing
- Digital Advertisements
- Website and Brand Identity
- Email Marketing
An executive summary is a brief description of your business plan that communicates its main points in a condensed format. It's often the first thing investors read, so it needs to be both engaging and persuasive. An executive summary should be one to three pages long, and it should be written in plain, easy-to-understand language. The objective of this is to get a foot in the door and have face time with an investor. You should detail what makes your company special and why that will make your company successful, along with your expected growth.
The first paragraph should serve as an introduction that explains what your bakery will do. The next should be aimed at your business’s strengths. Including details about products or services that others may not have will help sell your business as unique. Use bullet points to allow investors to read through your summary faster, but don’t sacrifice quality or level of detail.
Always be sure to write your executive summary aimed at your investors. You want to make it easy to understand, so take into account their background and what they do for a living to tailor your summary around what they would like to see. Don’t be afraid to change it up to appeal to individual investors as you progress. Everyone might be looking for something different, and changing your summary for each investor might help you catch their attention
Here, you’ll share an in-depth analysis of your industry. You will want to look into the demographics of your area, trends, the competitors in the area, codes and regulations, and even financial information. All this analysis will be beneficial to not only running the business but when looking for investors. It will help you show knowledge of your industry and market and confirm the conclusions that you stated in your summary.
Market analysis also involves researching the current state of your target market, the customers who will be visiting your bakery, and what they are looking for. You can conduct a market analysis by speaking to your potential customers, doing surveys, and asking them what they want in a bakery.
Products and Services summaries provide a detailed look at exactly what your business will be selling. This section can look at your menu, products, and how the bakery format you chose in the first step will serve your customers. Highlight special recipes or promotions that you will run or what special services like catering you may offer your clients.
This is where you can show your investors the creativity you are going to bring to your bakery. Maybe show them a new recipe that others might not have or a new unique twist on an old favorite. This is the area where investors will look to see what makes your business different from others.
It is important to have a marketing and sales plan in place if you want to increase your company’s profitability. To create a solid marketing and sales plan, you need to start with a detailed analysis of your current situation. What are the main challenges that are keeping you from reaching your goals? What markets do your repeat customers fall into? Creating a marketing and sales plan helps you go in-depth into your business and highlight the areas that are working well and which might need addressing. This is also a good place to start reaching out to marketing firms. They can help you make an aimed market plan to help increase foot traffic and revenue.
If there are several owners of the business, it is in this section you can include personal information and shares of ownership. Showing future investors a management plan allows you to prove you’re qualified to run a bakery.
This is a very important aspect of any business plan, and it is especially important for investors. You may be looking to raise capital from angel investors or venture capital firms, or you may be looking for funding from a government agency. In either case, you will need to provide a detailed financial plan and projections for the business. A detailed financial plan for a business will show readers how the business will make money, how much it expects to make, how much it will spend to make that money, and how long it expects to take to make that money. It includes building a financial model, creating a forecast, and tracking your actual results against your plan.
You should provide at least three years of financial projections as well as any financial data from your business’s past performance. You’ll want to prove that you have a plan to take your bakery from an idea to a profitable one and that you’ll be able to execute that plan.
How To Get Bakery Equipment Financing
A business equipment loan or lease application is a very simple process. All you need is a one-page application and information about the equipment you’re purchasing with the financing or leasing. Documents you'll need, Driver's License, Voided Business Check, Completed Application, and your Equipment Quote.
By leasing the equipment instead of buying, you can pay fewer upfront costs and not be tied into a piece of equipment that may no longer fit your bakery’s needs. Leasing baking equipment does have its drawbacks. You’ll end up paying more than you would have for the equipment during the entire leasing term, but generally, you have the option to purchase the business equipment for very little when the term is up.
Bakery Financial Projects Spreadsheet
Bakery financial projects are financial spreadsheets that allow businesses and organizations to track the progress of their investments, expenses, and performance against a set of projected goals. These financial spreadsheets can be used for a variety of purposes, from calculating the return on investment for a particular project to tracking expenses against a set budget. These spreadsheets are often used by businesses that have a set of capital expenses as part of their normal operations and require a degree of tracking to ensure that they are recouped.
How To Get A Startup Loan For Your Bakery
A start-up loan for a bakery or cafe owner will expect you to see an interest rate between 5-8% from most traditional business lenders, with a term between 3-10 years, depending on the structure. A term loan through a traditional bank can take up to 6 months so you can look at the other options available to you.
One type is a mid-prime alternative business loan With this type of business loan, you can get access to funding your business needs, without the stringent requirements of a bank loan. Even better, the process is simple, and funding usually takes place within days. An owner of a bakery can expect to see rates in the 8-20% range with a term in the 18-month to 5-year range.
Food Service Permits and Licenses
Opening any foodservice business comes with a bunch of permits and licenses that you are going to need to apply for. These permits and licenses are important parts of your business and you need to make sure they are up to date and available to any health inspector or state licensing agent visiting your establishment.
If you're opening a retail location, you’ll probably need a sales privilege license. This type of license will be necessary to sell your goods in a retail format. This allows your company to collect your state’s sales tax alongside what your goods cost.
Any business that handles food will need a food handler’s license or a food and safety certificate. You will need to prove that you have the proper knowledge regarding food handling and storage. The owner will need this license as will any employees who assist in the cooking of your baked goods.
If you choose to pursue a catering-style bakery business, then you may need a catering or food vendor license. This generally applies if you make the food yourself and deliver it, not if you prepare the food in the client’s kitchen.
Any kitchen space will need to pass a health and safety inspection to be properly certified. Researching these rules for your state is especially important if you want to start a bakery. They occur, at random, every 6 months, however, a food inspector is also obligated to come to visit you if a customer ever complains. They are going to be looking for knowledge from your managers and staff. Restaurant owners are required to know all of the local health codes. Management is required to have all up-to-date training on food safety and all restaurant employees must demonstrate knowledge of safe food handling and preparation. (How to schedule your health and safety inspection for your restaurant)
If you’re running a bakery out of residential space, you’ll want to review your localzoning laws to see if you can even operate out of your home. In this case, other permits may be necessary. For example, a permit may be required if anyone is coming to your home to pick up food.
How To Find A Retail Space For Your Bakery
Finding the right retail space for your business is one of the hardest parts of starting a bakery. Determining how much space you need, location and even budget are all things to consider when searching for retail space. You may also want to think about if you want a dining area for customers to sit or not. There is no set rule for what a bakery is, so you may want to look for a place you can modify and customize to fit your needs.
Determine Your Budget
It’s helpful to start with knowing what you can afford. Determining your budget will narrow your choices and prevent you from making impulse decisions if you fall in love with a place. Remember to find a figure you’re comfortable with because it will take a significant portion of your monthly budget.
Decide What You Need From a Space
When you lease retail space, you don’t want to pay for space you won’t need, but you also want to have enough space to be comfortable and accommodate growth. Space needs vary for each business, but here are some common areas for which you may need space:
Find Mulitple Retail Space Options
Now that you have your budget and space requirements figured out, it is time to locate four to five quality options for renting retail space. You don’t want to limit yourself to one right from the beginning. Instead, find four or five choices that could work and then compare them to one another to determine the best fit. Multiple options also give you more leverage when you negotiate costs later.
Evaluate Each Potential Location
Now that you have a few good options, it is time to narrow them down. You should think about locating your business in a safe area, where your customers are. This ensures that you know you have a customer base that will return to your shop.
You may also want to think about locating it near your competitors or other compatible businesses. This will allow you to gauge customer interest in your business and gain some of the overflows when customers decide to go elsewhere.
Lastly, locating your business near public transport/major highways or high foot traffic areas is a great way to gain new customers. Especially if you offer more than just baked goods, travelers will stop in for a drink or a quick bite to eat if you are located near a major hub.
Ordering Bakery Equipment
The initial costs for bakery equipment and cookware are around $20,000 for a standard bakery, and almost double for commercial bakeries. You can also lease out equipment for a fraction of the cost, but it will have you paying more than the retail cost over the length of your lease
Bakery business equipment checklist
Hiring Staff For Your Bakery
Staffing accounts for nearly 30% of a bakery’s revenue. And hiring and retraining employees can be a challenge, so finding and keeping the right people on board is key to a successful restaurant operation.
Staff is your hardest/most important part of your bakery. No matter how big or small, employees are the lifeblood of any food service. There are restaurant-specific job boards, but you may find more luck in old fashioned job advertisements posted around your city.
Create Your Bakery Menu
This is the area in that you have the most creative control in your business. This is fully dependent on what you decide to bake. You can keep it simple with bagels and cookies, or you can go all out and offer fully designed cakes or even a catering menu.
This might also depend on how much space you have dedicated to your business. Having a full kitchen might allow you to expand and offer hot foods and drinks. But, if you are a food truck, or based out of a small residential kitchen, you may want to keep it smaller and offer items that you can bake in batches, saving you time and storage space.
How To Advertise Your Bakery
Restaurant marketing and advertising budgets can range from virtually zero, to hundreds of thousands of dollars on a full brand marketing campaign, PR agency, and advertising. For a franchisee, parent companies often provide free advertising, but local marketing efforts can pay off in the form of loyal customers. Restaurant marketing costs should be between 3-6% of your bakery’s sales, but this can vary based off a number of factors.
Potential marketing costs for new bakeries include:
Find The Right Restaurant POS System
There are a number of easy-to-use POS for bakeries with a variety of options to get the most out of your system. Many modern POS software includes the option to use handheld devices and sync the front of the house with the back of the house to get orders out faster. This helps keep your business organized. Beyond that, customers want to be able to order from your restaurant online, join a customer loyalty program, and quickly pay with a credit card.