Baked treats are a specialty of cultural cuisine throughout the world. Who doesn’t love the smell of fresh-baked bread? A bakery business typically operates out of a storefront in the commercial section of a city or town. However, many entrepreneurs have successfully run bakeries out of their homes, attracting customers via word of mouth and small-scale advertising. Still others rent space in a commercial kitchen and distribute their baked goods wholesale to local cafes, restaurants, and convenience stores.
Retail bakeries prepare their items in-house and sell their baked goods directly to customers, with some locations offering seating for their clientele.
Commercial bakeries operate without a physical storefront, acting as suppliers for businesses that wish to sell baked goods, but don’t have the capacity to produce them in-house.
Learn how to start your own Bakery and whether it is the right fit for you.
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Start a bakery by following these 10 steps:
- Plan your Bakery
- Form your Bakery into a Legal Entity
- Register your Bakery for Taxes
- Open a Business Bank Account & Credit Card
- Set up Accounting for your Bakery
- Get the Necessary Permits & Licenses for your Bakery
- Get Bakery Insurance
- Define your Bakery Brand
- Create your Bakery Website
- 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?
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
Read our bakery purchasing guide to learn about the materials and equipment you'll need to start a bakery, how much to budget, and where to make purchases.
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.
Want a more guided approach? Access TRUiC's free Small Business Startup Guide - a step-by-step course for turning your business idea into reality. Get started today!
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your bakery is sued.
Form Your LLC
Read our Guide to Form Your Own LLC
Recommended: You will need to elect a registered agent for your LLC. LLC formation packages usually include a free year of registered agent services. You can choose to hire a registered agent or act as your own.
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.
Recommended: Read our Best Banks for Small Business review to find the best national bank or credit union.
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.
Recommended: Apply for an easy approval business credit card from BILL and build your business credit quickly.
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.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
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.
FInd out what types of insurance your Bakery needs and how much it will cost you by reading our guide Business Insurance for Bakery.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
If you aren't feeling confident about designing your small business logo, then check out our Design Guides for Beginners, we'll give you helpful tips and advice for creating the best unique logo for your business.
If you already have a logo, you can also add it to a QR code with our Free QR Code Generator. Choose from 13 QR code types to create a code for your business cards and publications, or to help spread awareness for your new website.
How to promote & market a bakery
In the food industry, the best way to promote your business is to provide a winning customer experience. This means that the menu should have a variety of tasty options, the pricing should accurately reflect the quality of ingredients, and the overall aesthetic of the bakery should appeal to your target audience. Succeeding in these areas keeps customers coming back for more, often with friends who may become new regulars. This kind of word-of-mouth promotion is the best marketing strategy a food business could ever ask for.
Another great way to get your brand out there is to invite local news and food-related publications to do a review of your shop.
Finally, coming out with new flavors and baked treats on a regular basis encourages repeat customers to stop by and taste your latest creations. Selling holiday-themed treats, like pink Valentine’s Day frosted cookies, or sticky rice cakes to celebrate the Chinese New Year, is another great way to attract new customers.
How to keep customers coming back
Never let your menu grow stale. Keep track of your best-selling items, and also take note of those that repeatedly fall short of your sales goals. By changing the menu to make sure every product is a winner, you’ll be sure to develop a steady stream of customers.
STEP 9: Create your business website
After defining your brand and creating your logo the next step is to create a website for your business.
While creating a website is an essential step, some may fear that it’s out of their reach because they don’t have any website-building experience. While this may have been a reasonable fear back in 2015, web technology has seen huge advancements in the past few years that makes the lives of small business owners much simpler.
Here are the main reasons why you shouldn’t delay building your website:
- All legitimate businesses have websites - full stop. The size or industry of your business does not matter when it comes to getting your business online.
- Social media accounts like Facebook pages or LinkedIn business profiles are not a replacement for a business website that you own.
- Website builder tools like the GoDaddy Website Builder have made creating a basic website extremely simple. You don’t need to hire a web developer or designer to create a website that you can be proud of.
STEP 10: Set up your business phone system
Getting a phone set up for your business is one of the best ways to help keep your personal life and business life separate and private. That’s not the only benefit; it also helps you make your business more automated, gives your business legitimacy, and makes it easier for potential customers to find and contact you.
There are many services available to entrepreneurs who want to set up a business phone system. We’ve reviewed the top companies and rated them based on price, features, and ease of use. Check out our review of the Best Business Phone Systems 2023 to find the best phone service for your small business.
Recommended Business Phone Service: Phone.com
Phone.com is our top choice for small business phone numbers because of all the features it offers for small businesses and it's fair pricing.
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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.
Want to know if you are cut out to be an entrepreneur?
Take our Entrepreneurship Quiz to find out!
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.
Take the Next Step
Find a business mentor
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Learn from other business owners
Want to learn more about starting a business from entrepreneurs themselves? Visit Startup Savant’s startup founder series to gain entrepreneurial insights, lessons, and advice from founders themselves.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
What are some insider tips for jump starting a bakery?
Starting a bakery from scratch is a lot of work. Granted, it can be a fun and rewarding experience for those who have an adventurous spirit and know a thing or two about the business. However, it may be a better to purchase an existing bakery so you can jump in with everything already in place.
How and when to build a team
The timing of expanding your team all depends on your unique business model. A good friend of mine started his own bakery business, Maha Muffin Co., by renting out a small space in a commercial kitchen. For the past seven years he has done all the work on his own, from purchasing ingredients, to baking, to finding clientele among local cafes and restaurants, and making deliveries.
While working as a small-scale commercial baker, you can do a lot on your own, or with one or two assistants. However, as soon as you open a physical shop, you will need a team to help in the kitchen and at the counter.
In 2015, BabyCakes NYC paid its full-time staff members $500-600 per week, and the owner was working 12-hour days. Now, BabyCakes NYC has three locations across the United States, and is on its way to becoming a recognized franchise.
Read our bakery hiring guide to learn about the different roles a bakery typically fills, how much to budget for employee salaries, and how to build your team exactly how you want it.