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How to Start a Bakery Business in (2024): Step-by-Step Guide

19 Min Read

how to start a bakery business
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Fast Facts

  • Startup costs: $26,600-$36,700
  • Industry trend: Growing
  • Difficulty: Moderate to high
  • Profitability: 4-9%
  • Time to build: 6–18 months
  • Commitment: – Full-time

Are you a passionate baker who wants to translate their love for baking into a successful business? Or perhaps you are a smart-witted entrepreneur eager to tap into the bakery market demand? In either case, it’s important to find a sweet spot between your baking creativity and business acumen to start a successful bakery venture.

Well, a lot needs to be figured out financially, legally, and operationally before you can actually open your bakery. It’s complicated but we are here simplifying the entire process for you.

From helping you choose a perfect business model to making your business legally compliant- we have answered all the questions you might have regarding how to start a bakery, in this guide.

Ready? Let’s get started.

How much money do you need to start a bakery?

Opening a small bakery in the US can cost anywhere between $26,600- $36,700 and more. These costs are heavily influenced by factors such as location, size, and concept of your bakery.

What is the Average Bakery Profit Margin?

The profit margins of bakery businesses can span up to 15%. While a well-managed bakery shop can earn 6-12% profit margins, a home-based bakery can earn 4-9% profit margins by selling baked goods.

Pros and Cons of Starting a Bakery Business

Starting a bakery can be a rewarding venture for many entrepreneurs. However, before you open a bakery, check out these pros and cons:

Pros

  • Wide range of offerings: Enough room for small businesses to mark their niche.
  • Minimum capital requirement: This can be started at home with minimum capital.
  • Easy to scale: Easy to diversify, grow, and scale your bakery.

Cons

  • High operating costs: – A huge amount goes towards payroll, rent, inventory, and maintenance every month.
  • Competitive marketplace: Saturated by huge commercial players.
  • Compliances: Heavily regulated by the health and food safety department.

Now that you are aware of the benefits and cons of opening a bakery, let’s start our guide on how to start a bakery.

How to Start a Bakery: A Step-by-step Guide

From helping you choose a suitable model for your new bakery to crafting a bakery marketing strategy to determining your bakery layout- this step-by-step guide has every detail you need for opening a bakery in the US.

1. Understanding the Bakery Industry and Market

Starting a bakery in this rapidly changing business environment requires a lot of planning and understanding of technologies, emerging trends, and consumer preferences.

Well, here are a few bakery market statistics that might help you form a solid foundation for your business:

  • Bakery market size: In 2023, the US bakery market size was valued at 99.47 billion dollars. Between 2023 and 2028, this market space is projected to grow at a CAGR of 2.08%.
  • Retail vs Wholesale bakery: Commercial wholesale bakeries generated a revenue of $31 billion dollars, which is 10 times more than the revenue generated by retail bakeries.
  • Number of bakers: There were approximately 205,000 bakers in the USA as of 2022. This includes individual bakers running home bakeries and the ones working in commercial and retail bakeries.
  • Home baking business: The market of home bakeries selling baking ingredients is estimated to be valued at 15.6 billion dollars in 2023.
  • Specialty bakeries: By 2026, the US specialty market is expected to grow by 10.54 US billion dollars
  • Growing trends: There is an emerging trend of free-from-food baked goods in the specialty market. This includes gluten-free flour, aluminum-free baking powder, organic flour, etc.

Now, let’s move forward and discuss the first step in starting a bakery.

2. Select a Bakery Format

As a first step towards starting a bakery, you need to give your idea of selling baked goods a solid business structure. A variety of bakery models exist in the market. However, they can be broadly categorized into wholesale and retail categories.

Now, if you are planning to enter the retail market and cater the customers directly, you have a range of business options to explore. Here are a few bakery formats prevalent in the market.

  • Bakery cafe: A bakery cafe is a suitable choice if you want to offer dine-in or seating services to your consumers. Generally, bakery cafes serve coffee, beverages, and savory snacks along with their signature baked goods.
  • Counter-style bakery: If you are looking for a storefront that requires minimum space, a counter bakery is an ideal choice for you. The customer walks in, places the order, and gets the takeaway on the go.
  • Bakery food truck: A food truck bakery uses rented commercial kitchen space for production and then sell baked goods in food trucks.
  • Home bakery: Start with a home-based bakery, if the food truck idea seems infeasible to you. It requires minimum investment and resources to start a home bakery business.

The other option for starting a bakery is entering the wholesale market. Wholesale bakeries sell their bakery goods to grocery stores, supermarkets, local restaurants, and other businesses. Such bakery businesses manage large-scale operations and demand extensive investment.

Select one of these business models or create your own hybrid model after considering costs, competition, and a variety of other factors.

3. Brainstorm a Bakery Name

The bakery name forms the very cornerstone of your brand’s identity. So, it needs to be remarkable, memorable, and a true representative of your brand values.

There are plenty of name-generating tools that can help you brainstorm perfect ideas. However, we also have a few tips for you to consider before you finalize your bakery name:

  • Don’t go extra fancy with names. Choose names that are easy to spell and pronounce.
  • Try using bakery-related keywords in your business name.
  • Check beforehand if anyone has registered a trademark or copyright for that business name.
  • Go online and see whether the domain name is available. Also, do the same for social media platforms.
  • The niche should reflect your specific niche. For instance, if you are starting a cake business specializing in wedding cakes, the wedding cake artisans, royal confectioners, etc can make a good name.

Keep it simple. Include your friends and creative peers in the group to gather ideas for business names.

Want a Unique Name for your Bakery Business?

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4. Find the Right Location for Your Bakery

To realize your dream of building a successful bakery, start scrutinizing different locations across the state. Remember that the location can either break or make your business.

To begin with, determine the size and space requirement for your unique business model. For instance, bakery cafes require more space in the front and back of the house compared to counter-service bakeries.

Once you figure out the space requirements, shortlist the areas where you plan to open a bakery. Ideally, the bakery location should be easily accessible to your target market and must have remarkable foot traffic.

Whether you are planning a wholesale or a retail bakery, here are a few key considerations to include in your business location analysis apart from rent:

  • Proximity to target market and suppliers
  • Foot traffic
  • Competition
  • Safety and crime rates in the neighborhood
  • Zoning permits
  • Lease contractual agreement

Hire a commercial real estate agent to assist you in finding a suitable location for your retail or wholesale bakery. These experts can help you crack a profitable deal in terms of contractual agreements by being your trusted advisor.

Pro tip: Actively look out for places that were rented by restaurants, cafes or bakeries. Renting a pre-made facility will help you save on equipment and huge construction costs.

Here is a list of the best cities to start a bakery in the USA

Cities Bakery density per 10K people
Wyomissing, Pennsylvania 10.51
Palmer, Alaska 8
St. Matthews, Kentucky 7.92
Creve Coeur, Missouri 7.29
Slidell, Louisiana 6.21
Decorah, Iowa 6.21
Rutland, Vermont 6.17
Bridgeport, Virginia 6.01

Source: wtop

5. Write a Bakery Business Plan

Just like a baker shouldn’t bake without a recipe, you shouldn’t start a business without a business plan.

Your spectacular bakery idea needs a structure and a roadmap to translate it into a successful bakery business. A well-crafted business plan helps you achieve exactly that.

Writing your own bakery business plan will help you understand your business idea in great detail. It will force you to look into matters that are often neglected and overshadowed by the excitement of opening a bakery.

A comprehensive plan is like a bible for your business. It has answers to every step, every process, and details that are essential for running an efficient bakery.

Checklist the sections of your business plan by including these key components in it:

  • Executive summary
  • Company Overview
  • Industry and market analysis
  • Bakery goods and services
  • Bakery design and layout
  • Bakery organizational structure
  • Bakery operations
  • Marketing and sales plan
  • Financial plan

Business plan writing is as difficult as cracking a recipe for perfect buttercream. It requires a thorough detail orientation and precision to craft a perfect plan.

Pro-tip

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6. Design a Bakery Menu

So you are eager to start your own baking business. But, have you decided what bakery goods you will offer that will capture the tastebuds of your target audience and make your bakery their go-to favorite in the market?

Your bakery menu is your unique fingerprint that will set you apart in the market. It’s very important to have a menu that fills the gap in the market and is different from your competitors.

Depending on your bakery concept and the target audience, you can add specialty dishes that are trending in the market. Or better, be the trendsetter.

For instance, gluten-free specialties, keto-friendly baked goods, wedding cakes, artisan bread, flaky croissants, etc.

Now, don’t make it an all-specialty menu. Trends die and change. The menu should have a few tasty treats and classic favorites that will make the customers your regulars. For example: breads, classic pastry flavors, coffees, muffins, etc.

After finalizing what baked goods to sell, start designing your menu. It’s important to understand that designing is much more than making it visually attractive. You need to engineer the right placement for the product and price to get more sales and profit.

Invest some time learning the principles of menu engineering or simply hire an expert to look after it.

7. Register Your Bakery

Every business needs to be registered, even your small business that is operating from home. More than compulsion, it’s advisable to register your business so that you can file returns and apply for essential licenses and tax schemes.

State regulations and local laws for business registration vary depending on the type of business and its industry. However, you need to follow these steps in general, regardless of your business nature:

Select a business entity

The business entity is the structure of your bakery business. This structure determines your business liabilities, state taxes, and filing fees, as well as your ability to secure business funding.

Overall, your business entity will shape the success and sustainability of your bakery business.

Here are a few prevalent business entities you can choose from:

  • Sole proprietorship
  • Partnership
  • LLC
  • Franchise
  • Corporation

Understand these business structures and analyze their pros and cons before registering with the state.

Apply for tax registration & business EIN

As a second step, you will register for taxes with the state commission. Again, depending on your business model, the tax requirements will vary between each state. Check the tax registration guidelines for your state at its official website.

At this step, you will also apply for an employer identification number (EIN) through an Internal Revenue System IRS portal.

The 9-digit EIN number is like a security code that will enable you to open a business bank account, apply for credit cards, file taxes, and roll out wages. Overall, consider this as an important number to accomplish various legal tasks.

8. Apply for Business Licenses and Permits

After giving your bakery business a legal identity, start acquiring the licenses and permits essential to make it legally compliant.

Create a checklist and draft your applications for bakery licenses required in your state:

  • Food handling license: This is a compulsory license required for all businesses involved in food handling and procurement.
  • Zoning permits: Many states require you to take zonal permits before starting a business at home. Even food trucks require a zonal permit to operate in certain locations. Check with your state’s guidelines and take steps for required compliance.
  • Building permits: Get this permit if you are renting a commercial space. Also, you need a permit to undertake construction and renovation in the rental space.
  • Health department permit and food service license: The health and safety certification ensures that you have met all the health and sanitization compliances to operate a bakery.

Be very vigilant in identifying your licensing requirements. Any kind of incompliance will result in heavy fines and sometimes a permanent closure of your business.

9. Get a Business Insurance

Business insurance is essential to safeguard your business assets against unforeseen risks and casualties that are mostly beyond your control. Depending on the type of your bakery business model, you may be required to get certain insurance to meet legal requirements.

Here are a few business insurances you must consider having:

  • General liability insurance: Provides general protection against property damage, accidents, and personal injuries happening in your bakery business. This is one insurance you must have.
  • Worker’s compensation insurance: This is essential for businesses that employ people. In case of work-related injuries or illnesses, worker’s compensation covers the medical expenses.
  • Product liability insurance: If the bakery goods sold by you cause any harm or illness to the customers, this insurance will have your back.
  • Property insurance: Any damage to the bakery’s physical assets will be covered under this insurance.

Consider getting an umbrella insurance that will help you get coverage against the limits of your liability policies.

10. Brand Your Bakery

“Strong branding is the beacon that guides customers to your door, even in the midst of crowded marketplace.”

Consider it as a secret ingredient that will give your business a deserving taste of success in the market.

Begin by outlining the purpose, business values, target audience, and competitors of your bakery business. This will help you weave an impeccable story across all fronts.

Do you want to grow your bakery as a brand that does impeccable wedding cakes or someone who deals in a variety of breads? Are you trying to establish yourself as a bakery that sells delectable classics or a specialty bakery that sells gluten-free delicacies?

Now, work on small elements like name, design, logo, decor, bakery flavors, packaging, employee’s uniform, and menu to tell your unique brand story. Add a flavor of your brand in every activity you do, be it digitally or physically.

And lastly, stay consistent. Branding is like a compound interest whose rewards keep getting better year after year.

11. Determine your bakery finances and operating expenses

The everyday expenses to keep the bakery upkeep and running are plenty. If you don’t keep an eye on the expenses, the already thin profit margins will start dwindling.

So before you invest your money and start a bakery, get a detailed understanding of everyday operating expenses. While making financial projections of your monthly business operating costs, keep it realistic. Account for the following expenses:

  • Monthly rent or mortgage: $2,000-$2,500
  • Business insurance: $500-$1,000
  • Marketing and advertising: $500-$1,000
  • Payroll: $2,000-$2,500
  • Baking supplies and ingredients: $1,000-$1,500
  • Maintenance and repair: $400-$600
  • Technology expense: $100-$500

A large part of your monthly operating costs emerges from rent, payroll, and supplies. It’s important that you build vendor relations right from the beginning to regulate your costs.

Also, before the operating expenses start rolling, open a separate business bank account. It is advisable to keep your business finances separate from personal accounts. Also, apply for a business credit card using your EIN number.

12. Fund Your Bakery

It takes at least $20,000 and more to start a bakery in the US. This is for the small bakeries that operate as a counter service. However, everyone might not have enough personal savings to fund their bakery.

As a small business owner, you have a variety of options to fund your business. However, analyze your monetary requirements before you start looking for funding options:

  • SBA small business loan: SBA (Small Business Association) approved small business loans are perfect for small businesses that are struggling to gather enough startup capital. However, their loan approval process is lengthy and full of compliances. Getting an approval might take time.
  • Bank loan: A variety of business loans are offered by public and private banks to help small business owners. Submit your application and get a loan at a specific interest rate.
  • Venture capitalist: Potential investors might invest money in your business if they find the proposal interesting enough. For a certain percentage stake, you can get the essential funds to open a bakery.
  • A business line of credit: Similar to a credit card, you get approval to use an amount within a certain limit. However, you will only be charged for the amount you use.
  • Loans for financing bakery equipment
  • Startup grants
  • Working capital loans
  • Crowdfunding

Now, check your eligibility for different funding sources and acquire your startup capital.

13. Hire your bakery team

Now, let’s put together a solid team that will drive your bakery business toward success. Depending on the concept and need of your bakery, you will need:

  • Bakery managers
  • Bakery chefs
  • Baristas
  • Servers
  • Cashier

Don’t hire extensive staff right from the beginning. Strike a balance between full-time and part-time employees to reduce the payroll workload in the initial months.

14. Get the necessary bakery equipment and technologies

A variety of equipment and technologies are required to start a bakery and operate it successfully. You must have already identified the requirement for essential equipment in your bakery’s business plan.

However, let’s quickly recall that.

  • Bakery equipment: Convection ovens are essential for baking perfect delicacies. Start your search for perfect ovens considering the products on your menu offerings and the size of the bakery operation.
  • Storage units: To keep your back-of-the-house organized, invest in functional storage units such as vertical shelves, refrigerators, etc. Also, look out for refrigerated and non-refrigerated shelves to display your baked goods on the counter.
  • Cleaning equipment: Sinks, dishwashers, and cleaning items such as liquids, soaps, scrubbers, and sponges to keep your bakery hygienic and clean.
  • Cutlery and smallware: Make a list of small equipment like bakery knives, cutlery, and glassware essential for your business.
  • Bakery POS: Identify the suitable POS system for your bakery considering the size of your operations. Look out for POS systems used by local coffee shops, restaurants, and other bakeries in your neighborhood. Talk to these people before making a decision.
  • Security system: CCTV units, cash lockers, fire and smoke alarms, etc.

15. Set the Atmosphere and launch

Now, it’s time to turn your bakery concept into a reality. Begin by designing an efficient bakery floor plan that will allow a seamless flow of operations in the front and back house.

Front-of-the-house decor is not essential for wholesale bakeries. However, if you are planning a bakery cafe or counter service bakery, you need to work on setting up the right atmosphere.

Here are a few things that will help you set up the right ambiance for your new bakery in the market:

  • The theme of your bakery should encapsulate your brand image. When a customer walks in they must get the warm, energetic, and fuzzy feels that your brand stands for.
  • While designing the dining space, ensure that tables have enough space in between to allow privacy. Invest in plush couches and clean designs for your furniture.
  • Work with your display shelves on the counter. How you decide to present your baked goods makes all the difference.
  • The entranceway should be brightly lit putting a person at ease as soon as they enter. Find a way to waive the aroma of freshly baked goods at the entrance.

You are sure to craft a successful profitable business, once you find a way to rule your audience with the right type of ambiance setting.

After putting together a clear bakery floor plan, get to work for an ultimate grand launch.

Deploy a digital marketing strategy to create a stellar presence on the web and social media. Advertise and create hype for the grand opening. Spread the word through emails, pamphlets, and local events.

Make your launch day extraordinary by introducing special offers and discounts. The launch day will attract potential customers to your bakery. It’s a perfect chance for you to get them hooked on your tasty offerings and world-class customer service.

Set a day for launch and open the doors of your bakery to the customers.

Conclusion

Now that you understand every detail regarding how to start a bakery, let’s turn your dream into a reality.

Let’s start by writing an impeccable business plan. A well-crafted actionable plan will act as a roadmap guiding your bakery on a path of success. So what are you waiting for? Download the comprehensive bakery business plan sample from Upmetrics now and kickstart your plan writing process.

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About the Author

Kruti                                                       
            Shah

Kruti Shah

Kruti is a passionate and skilled writer with a knack for business management. She loves to talk and write about small business, startups, business growth, and planning. Besides writing, she loves to read and explore the world. Read more

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