How to Start a Bakery

Start a bakery by following these 10 steps:

1. Plan your Bakery
2. Form your Bakery into a Legal Entity
3. Register your Bakery for Taxes
4. Open a Business Bank Account & Credit Card
5. Set up Accounting for your Bakery
6. Get the Necessary Permits & Licenses for your Bakery
7. Get Bakery Insurance
8. Define your Bakery Brand
9. Create your Bakery Website
10. Set up your Business Phone System

We have put together this simple guide to starting your bakery. These steps will ensure that your new business is well planned out, registered properly and legally compliant.

Exploring your options? Check out other small business ideas.

STEP 1: Plan your business

A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:

• What will you name your business?
• What are the startup and ongoing costs?
• Who is your target market?
• How much can you charge customers?

Luckily we have done a lot of this research for you.

What will you name your business?

Choosing the right name is important and challenging. If you don’t already have a name in mind, visit our How to Name a Business guide or get help brainstorming a name with our Bakery Name Generator

If you operate a sole proprietorship, you might want to operate under a business name other than your own name. Visit our DBA guide to learn more.

When registering a business name, we recommend researching your business name by checking:

• Your state's business records
• Federal and state trademark records
• Social media platforms
• Web domain availability.

It's very important to secure your domain name before someone else does.

What are the costs involved in opening a bakery?

Costs vary wildly depending on your location, the quality of your ingredients (organic vs. nonorganic, etc.), and the size of your operation. Are you selling baked goods from your home? From a counter inside a shopping mall? Or do you plan to lease your own sit-down venue where people can come and eat a snack, or even a whole meal?

Here is a breakdown of startup costs and monthly expenses from BabyCakes NYC, Erin McKenna’s vegan bakery:

• Security deposit: $4,000
• Facility rent and security deposits - $5,000 to start, and $2,000 per month thereafter.
• Construction / remodeling: $28,250
• Start-up Inventory: $3,000
• Cookware: $2,500
• Permits: $255

Total Start-up costs: $38,005

What are the ongoing expenses for a bakery?

As with your start-up costs, your monthly expenses will largely depend on your location, the quality of ingredients you use, and also the size of your team.

Here’s a breakdown of BabyCakes NYC’s average monthly running costs from 2015:

• Rent & utilities: $2,800
• Employees’ pay: $5,143
• Raw ingredients: $3,000
• Insurance: $700

Average monthly expenses: $11,643

Who is the target market?

A bakery can attract a wide variety of customers. Doughnut chains like Dunkin’ Donuts and Krispy Kreme succeed by offering tasty treats that are affordable for the general public. Doughnut Plant in New York City, on the other hand, offers eggless doughnuts made from fresh, organic ingredients, thus attracting the health-conscious and vegetarian crowd who can afford to pay a slightly higher price for a better quality product.

Depending on your personal interests, values, and skills, you may wish to similarly cater your bakery to a niche market. For example, a bakery specializing in custom cakes will do well advertising to weddings, birthdays, graduations, and retirement parties. Other items, like bagels or fresh bread, could appeal to those who simply want to include high quality baked goods as part of their regular diet.

How does a bakery make money?

Bakeries make a certain amount of profit per item sold. In many bakeries, the revenue from beverages, including coffee, tea, juice, and other specialty drinks, is even greater than the profit from baked goods themselves.

How much can you charge customers?

Individual baked goods generally range from $2.00 to $5.00, depending on the cost of ingredients and also the demographic where your shop is located. In general the cost of labor and ingredients should be around 30-50% of the final sale cost. This means a treat that costs $1.50 to make could sell for anywhere from $3.00 to $4.50.

How much profit can a bakery make?

According to the American Institute of Baking, typical bakeries bring in anywhere from $30,000 to $60,000 in annual profit from the sale of baked goods. Those that sell beverages, including coffee or juice, are able to bring in considerably more revenue, as it is easier to mark up these products. For example, a glass of juice that only costs $0.40 is commonly sold for around $2.00.

How can you make your business more profitable?

Serving coffee, lattes, and other specialty drinks is by far the quickest and most effective way to increase your revenue. People often order coffee or tea along with their baked treats, and it is easier to make a profit from drinks than from baked goods, simply for the reason that they require far less labor to produce.

Consider offering seasonal deals, and also discounts on bulk orders, to increase profits. Breaking into the commercial bakery business, by finding nearby cafes and restaurants that want to purchase your goods wholesale to sell to their customers, can drastically expand your sales.

STEP 2: Form a legal entity

The most common business structure types are the sole proprietorship, partnership, limited liability company (LLC), and corporation.

Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your bakery is sued.

You can form an LLC yourself and pay only the minimal state LLC costs or hire one of the Best LLC Services for a small, additional fee.

STEP 3: Register for taxes

You will need to register for a variety of state and federal taxes before you can open for business.

In order to register for taxes you will need to apply for an EIN. It's really easy and free!

There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.

STEP 4: Open a business bank account & credit card

Using dedicated business banking and credit accounts is essential for personal asset protection.

When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.

Open a business bank account

Besides being a requirement when applying for business loans, opening a business bank account:

• Separates your personal assets from your company's assets, which is necessary for personal asset protection.
• Makes accounting and tax filing easier.

Get a business credit card

Getting a business credit card helps you:

• Separate personal and business expenses by putting your business' expenses all in one place.
• Build your company's credit history, which can be useful to raise money later on.

STEP 5: Set up business accounting

Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.

Make LLC accounting easy with our LLC Expenses Cheat Sheet.

STEP 6: Obtain necessary permits and licenses

Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.

Federal Business Licensing Requirements

There are federal regulations regarding what can and cannot be added to, sold as, and processed with food. Attached is a resource from the Food and Drug Administration detailing the process of starting a food business: How to Start a Food Business

State & Local Business Licensing Requirements

State permits and licenses are typically needed to operate a bakery business. Learn more about licensing requirements in your state by visiting the Small Business Administration’s reference to state licenses and permits.

In addition, when selling food, you will need licensing from a local health department; all establishments serving food are required to pass a health inspection. Tips for faring well on a health inspection can be found here.

Certificate of Occupancy

If you plan to run this business out of a commercial kitchen, as many owners do, you will need a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.

• If you plan to lease a location:
• It is generally the landlord’s responsibility to obtain a CO.
• Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a business involved in food preparation.
• After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.

• If you plan to purchase or build a commercial kitchen:
• You will be responsible for obtaining a valid CO from a local government authority.
• Review all building codes and zoning requirements for your business’ location to ensure your bakery business will be in compliance and able to obtain a CO.

STEP 7: Get business insurance

Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.

There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.

Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.

Is this Business Right For You?

A good baker has mastered the art of baking. It takes dedication over a long period of time to become successful in this business, as there is a lot of competition. As such, the baking business is ideal for people who love baking, who don’t mind working odd hours (for example, early mornings), and who have an artistic side. The best-selling bakeries not only have items that taste great, but also look so appealing that customers simply cannot resist buying them.

What happens during a typical day at a bakery?

As owner of the bakery, your time will likely be spent primarily in the kitchen. Regardless of your unique business model, the most time-consuming activity will be baking. This includes prepping your baking space, putting together the ingredients, watching the ovens to make sure everything cooks just right, and then cleaning up at the end of the day.

Depending on how big your store is and how much staff you have on board, you may also be interacting with customers, operating the cash register, keeping track of business expenses, and developing a marketing strategy to bring more people into your shop.

What are some skills and experiences that will help you build a successful bakery?

First and foremost, you should possess a talent and passion for baking. Your ability to develop recipes for baked treats that people love to eat will be the decisive indicator for the success of your business.

It also helps to be friendly and a people person. A successful bakery is one where locals like to go, and as such it helps if your bakery has a warm and welcoming ambience.

What is the growth potential for a bakery?

Total annual revenue for the retail bakery industry is approximately $3 billion, and in the small commercial bakery industry it is about $7.5 billion. As such, the bakery business is a competitive industry that offers a good chance of financial success to those who can consistently provide their customers with quality products, and who are able to develop their business in a smart way.

You could choose to start a small bakery operation out of your home, taking orders online from members of your local community, and choose to never expand beyond that. Or, if you are a bit more ambitious, you might invest in a storefront, hire a team of employees, and develop your own unique brand, eventually establishing your own franchise.