Start a cake business by following these 9 steps:
You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your cake business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
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 are the startup and ongoing costs?
- Who is your target market?
- How long it will take you to break even?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a cake business?
As mentioned, many novice bakers start out baking in their home kitchen. While this approach can be limiting, depending upon the size of your kitchen, it significantly reduces start-up costs. Many home-based cake bakers report an initial investment as low as $1,000. Budget for the following items when determining how much capital you need:
- Licenses - Costs vary, depending upon your state’s Department of Health requirements. Fees run anywhere from $50 to $400.
- Insurance - Seek the advice of a professional regarding the type of coverage that you require. Policy premiums vary depending upon the specifics of your organization.
- Bakers supplies and decorating tools- Use your time spent working with other bakers to identify what supplies and brands work best for you. Once you have revenue to reinvest, a professional grade mixer and oven is likely something you will want to consider.
- Ingredients - To insure quality, ingredients are purchased on an as-needed basis. Your initial ingredient investment will not likely exceed $150.
- Refrigerator - A fridge dedicated to your baking needs will help keep ingredients from getting contaminated and ensure your personal fridge isn’t overrun with baked goods. You can purchase a used one for as low as $200.
- Shelving - Between ingredients and baking tools, you will have a good amount of items to store. A cupboard can be purchased new for $100 and will save you a great deal of headache long-term.
- Marketing materials - While you don’t need to spend a great deal of money on it, your packaging is as much a part of your brand as the cakes themselves. An initial investment of approximately $300 should be sufficient for packaging. Your initial marketing strategy should also include well-placed ads, printed material, and business cards.
- Website - Your website should be simple and clean, offering potential clients enough information about your skills to draw them in. Websites can be built for free, with standard hosting fees incurred once it goes live.
What are the ongoing expenses for a cake business?
Aside from standard overhead costs, your ongoing expenses will be fairly minimal. Your operating license and insurance will renew annually and could set you back anywhere from $700 to $1,500. Cake ingredients, packaging, and promotional items will consume the greatest portion of your budget. These costs fluctuate, depending upon how busy you are that particular month. Regular maintenance and repair on your equipment will limit costs associated with replacing damaged items. If you offer delivery, you will also need to budget for fuel, costs associated with the vehicle, and higher insurance premiums.
Who is the target market?
When developing your business plan, you will want to identify your target market. Research other bakers in the area and identify community needs that aren’t being met. Do any of those niches appeal to you? Organic cakes, vegan products, and gluten free options are niches you might want to explore. Do you want to specialize in wedding cakes or is this a niche you want to avoid altogether? Once you’ve identified the facets of the business that most appeal to you, you can begin to build your buyer personas and target them in marketing efforts.
How does a cake business make money?
Whether you open a retail location or focus solely on custom orders, your cake business’ revenue will be generated from the sale of each cake. Each creation will have special pricing, based on a variety of factors.
How much can you charge customers?
Ingredient costs are just a small portion of what customers are paying for. Baking and decorating skills, as well as your time, should always be considered when setting prices. Don’t sell yourself short. Carefully consider the time each project will take and price accordingly.
How much profit can a cake business make?
The cake business offers an opportunity to realize a significant profit, particularly as your reputation within the community blossoms. This is an industry where people rely heavily on word of mouth, so it is advised that you consider a safety net in your bank account prior to embarking on this business venture. Bakers who choose to remain small, with only one location, report a profit of $41,000 to over $65,000. Those who choose to branch out and expand further report profits ranging from six figures to over a million. Revenue is directly tied to your vision for the business and drive to accomplish those goals.
How can you make your business more profitable?
Implementing the following strategies could help boost profits:
- Teach baking classes, where students learn everything from baking to decorating. Be careful to not give away too many trade secrets though.
- Consider offering additional baked goods, such as cupcakes, cookies, and pies. If you have a storefront, combine these items with quality coffee and you could have a true recipe for success.
- Seek out a partnership with high-end hotels and restaurants in the area. Depending upon your strengths, time, and overall goals, you could become their sole contributor for dessert items, or offer support for large events only.
What will you name your business?
Choosing the right name is very important. Read our detailed guide on how to name your business. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
After registering a domain name, consider setting up a professional email account (@yourcompany.com). Google's G Suite offers a business email service that comes with other useful tools, including word processing, spreadsheets, and more. Try it for free
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your cake business is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
Form Your LLC
Read our Guide to Form Your Own LLC
Check out the Top Business Formation Services from our friends at StartupSavant.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
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!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
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
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Recommended: Find the right bank for you, read our review of the Top 5 Banks for Your Small Business
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment 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.
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
Certain state permits and licenses may be needed to operate a cake business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
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.
For information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Certificate of Occupancy
A cake business is generally run out of a bakery with a commercial kitchen. Businesses operating out of a physical location typically require 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 cake business.
- 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 location:
- 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 cake business will be in compliance and able to obtain a CO.
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 inspections
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.
Learn more about General Liability Insurance.
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.
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.
How to promote & market a cake business
Word of mouth will, ultimately, be your strongest marketing tool. While building your reputation, consider free online resources, such as social media and local business registries. If you become a member of any organizations, inquire about their online listings, which is often offered free of charge to members. Distribute mailers within the community and become a sponsor for local charity events. Many communities have charity events that feature local chefs; take part in these to gain exposure.
Approach wedding and party planners in the area. These professionals are often asked for recommendations. If you partner with the right ones, your business could soar with very little marketing effort.
How to keep customers coming back
Your clients are looking for the ultimate, mouth-watering experience. The right recipe will speak for itself, offering a perfect blend of flavors and design. That, coupled with premier customer service will help you build a solid foundation of customers. When exploring new recipes or designs, ask your customers for input. Your clients will see that you consistently strive for new innovation and that their opinion matters to you.
STEP 9: Establish your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Start A Cake Business In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
Is this Business Right For You?
Some of the most skilled chefs claim to fall short when it comes to baking. Are you one of the fortunate few who are skilled at baking? Are you passionate about the art of cake decorating and enhancing someone’s life celebration? Have you often pondered the benefits of being your own boss? If your answers were “yes,” opening your own cake business could be the perfect opportunity to realize your professional and personal goals.
What happens during a typical day at a cake business?
Each day will be structured differently from the next, depending upon the orders you have lined up and how you’ve decided to structure your business. Many cake businesses forego a storefront location, focusing solely on custom orders. If you do choose a brick and mortar location, you will need to spend additional time baking, so that custom orders are met and displays are filled regularly. Once cakes are baked and decorated, orders should be packaged for delivery.
For many bakers, wedding cakes are their biggest revenue generators. To insure the cake arrives safely to the venue and is presented correctly, these works of art are often delivered and set up by the bakers, themselves. If wedding cakes are something you wish to offer, plan on devoting a portion of each day for transporting these goods. Most prospective customers will also want to have a taste-testing session prior to placing an order. This is an opportunity to build a relationship with the client, showing them how your creations stand out above the competition. It also gives them a chance to make decisions regarding the flavors and decor of the cake.
Cleanliness sets the professional apart from the hobbyist. A baker’s kitchen is like a sanctuary and must be treated as such. It should be thoroughly cleaned after each order is filled, and at the end of the day. Since each creation required a different set of ingredients, replenishing baking supplies is typically done on a weekly or bi-weekly basis.
During your downtime, you will want to split your attention between perfecting new recipes/sharpening your skills and tending to administrative tasks. Customers will have questions and concerns that must be addressed and books must be balanced. To insure a steady flow of clients, it’s also critical that a marketing strategy be implemented and remain a consistent part of each day.
What are some skills and experiences that will help you build a successful cake business?
While this industry offers many opportunities for success, it is a competitive market. For long-term success, you must be a skilled baker and decorator, with a natural eye for color, and a steady, artistic hand. Industry leaders have a natural ability for blending flavors and textures. Additionally, a drive and passion for continuously seeking out ways to better your products is what will help position you as a leader in the community.
Running a successful cake business requires a set of skills that goes beyond the kitchen. Strong business management and marketing acumen are both critical to the company’s success. If this is not your strong suit, consider utilizing resources such as American Bakers Association or International Association of Professional Cake Decorators (IAPO). Both offer industry-specific advice and resources to members, as well as networking opportunities. Keep your interpersonal skills sharp by interacting with consumers in your community, as well as bakers from around the world. This not only serves as a powerful marketing tool, it offers a unique opportunity to remain on top of industry trends and needs.
Before embarking on this business venture, it is recommended that you spend some time working in the industry. Identify well-respected bakers in the community and work closely with them. If you are committed to this business long-term, study under several different cake artists. Take note of their strengths, both in and outside of the kitchen. Compiling this information into your own business plan will assist in positioning you as a well-respected cake baker. When you’ve realized success, be sure to support the industry by mentoring other aspiring bakers.
What is the growth potential for a cake business?
The baking industry exceeded $50 billion in sales in 2016, with those numbers expected to grow exponentially in the coming years. Most cake business owners start out small, working out of their homes or a small public kitchen. Many choose to remain small and local, content with servicing the needs of their community. The opportunity is there, however, to expand your cake business based on your personal and professional goals. Once you’ve established a name in the industry, you could share your secrets with other aspiring bakers, opening additional locations in your area, or on a national scale.
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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.
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 cake business?
Industry leaders indicate the following tips helped position them for success:
- While it adds another element to the business structure and budget, offering delivery takes customer service to a higher level.
- Don’t try to invest in everything at once. Much like your ingredients, purchase your kitchen tools on an as-needed basis.
- When you find the perfect ingredient and kitchen tool brand, stick with it. This will help ensure consistency, which is critical to the business’ success.
- A well-thought-out pricing guide not only defines your profits, but is a reflection on your brand. If you price too high or low, you will only attract a certain level of customer. Consider who you wish to cater to and your quality of product as part of the process.
How and when to build a team
While building the business, you will likely need to wear many hats. To deliver quality products consistently, however, it’s important that you recognize when it is time to start building your team. If wedding cakes are something you offer, a professional representative must make sure the cake arrives safely, on time, and is displayed properly. Many experienced bakers choose to mentor culinary students. The students then receive the class credits and education they need and the baker gets quality help at a fraction of the cost.
Whether you oversee a team of one or twenty, it is your business’ name and reputation at stake. Therefore, it is vital that you only employ individuals who are dedicated to your company’s mission. Each employee should also possess the drive to consistently grow and sharpen their skills. Encourage employee growth and loyalty by investing in their continued education. An engaged employee will be loyal to the cause and contribute tenfold to the business’ success.