How to Start a Bakery Business
If you want to start a small business and have a gift for the culinary arts, you might choose to start a bakery business. But before you do, you should plan carefully and learn about the legal issues you will face.
The following steps can help you build a strategy for profitability while avoiding future legal hassles.
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1. Decide on the Type of Baking Business You Want To Start
You should think about whether you would like to open a storefront bakery, a home-based bakery, or a wholesale bakery. Storefront bakeries and home-based bakeries sell directly to consumers. Wholesale bakeries sell to retailers.
- Home-based bakeries: If you are just starting out, a home-based bakery might be the way to go. The overhead and startup costs will be lower, and you can hone your baking skills before you go big. With a home-based bakery, you can sell your baked goods online, at farmers markets, or at local events. You can ship your sales to customers or offer free local delivery. You might even choose to sell your home baked items out of a food truck. Buying the truck adds to your startup costs. But it can help you reach out to customers in new locations.
- Storefront bakeries: Storefront bakeries can be sit-down establishments like cafes. If you want to open a storefront bakery, you need to create an excellent customer experience. This will encourage repeat business. A good checkout procedure, an attractive layout, and a comfortable dining space all go a long way toward making customers happy. You should also make sure that your employees offer great customer service.
- Opening a storefront bakery versus a home-based bakery: The decision between a home bakery and a storefront bakery will largely come down to cost and your preferences. A storefront bakery will have higher overhead costs than a home-based bakery. Commercial rent or a mortgage and utilities will be monthly costs. You will also need to buy equipment, cookware, furniture and more for a storefront. This can add up to tens of thousands of dollars. Home-based bakeries, on the other hand, do not need to pay additional rent or purchase furniture. Storefront bakeries come with a few added legal considerations too:
- Before you hire employees, you will need to get an Employer Identification Number(EIN) from the IRS for tax purposes.
- You will need workers' compensation insurance in case an employee is injured on the job.
- Your insurance should include coverage for premises liability in case a customer injures themselves in your store.
- Wholesale Bakeries: Wholesale bakeries are usually large operations. They are generally much more expensive to start than storefront or home-based bakeries. Wholesale bakeries sell to retailers like food stores, cafes, and restaurants. They do not sell directly to customers. So, if you open a wholesale bakery, you don't need to seek a location in a heavily trafficked area. Instead, you will need to find a spacious location where you can produce a high volume of baked goods for your retail clients. You will also need great baking equipment and large amounts of ingredients. Your wholesale bakery will need an EIN and workers' compensation insurance if you plan to hire employees.
2. Choose Your Business Location
As you narrow down your options for a business space, consider the needs of your specific type of bakery. Small storefront retail bakeries will have very different needs from large wholesale operations.
If you want to open a storefront bakery or café, you should choose a location with plenty of potential customers and foot traffic nearby.
For a wholesale business, you do not need to worry about locating near consumers. Your clients will be restaurants, cafes, and supermarkets. So, you need to focus on finding a large business space with good baking equipment to help you create an efficient, high-volume bakery.
3. Choose a Name
Your bakery's name should be distinctive and unique. This will help your target audience recognize your brand at a glance. You should also make sure that your name is not copyrighted or trademarked. It is also best to look for names that are not being used by other businesses. If you are starting an LLC or doing business under a fictitious name, your state's laws will have certain naming rules you must follow.
4. Make a Sign for Your Bakery
If you are opening a storefront or café, you can get more foot traffic by having an inviting exterior and a clear sign. You should look up the regulations in your area to see if you will need a sign permit. Your city or county will usually be the issuing authority.
These authorities often ask you to send pictures of what the sign will look like and how big it will be. If you can work with a sign contractor, it can simplify the process. Sign contractors usually know the city or county's signage requirements, and they are often licensed with the state.
5. Make a Marketing Plan
The baked goods market is a competitive and evolving business environment. To create a successful bakery business, you should write a marketing plan. This will help you target your customer base. You should know what your customers are looking for and who they are.
Social media platforms can be good places to learn about recent trends.
For instance, some customers might be looking for gluten-free options. Others might want organic ingredients, dairy-free alternatives, innovative flavor combinations, or nostalgic confections. Good marketing research will help you create the quality product that your target market demands.
Once you know a little more about your potential customers, you should create attractive business cards that you can give out. Even in this digital era, people appreciate the extra touch of a business card that they can hold on to. There are many options online for creating customized business cards with logos and photos. Just make sure to include your website and social media handle on your cards.
Your marketing plan should also include information about where your customers are located and add some research about the pricing they expect. You should include your market analysis in your bakery business plan.
6. Write a Detailed Business Plan
A good bakery business plan will help you formulate your goals and mission. Business plans can vary, but yours should include:
- A description of the business
- An overview of the management
- A list of business members
- Your marketing plan
- Your financing plan
- Financial projections
As you write your business plan, you should consider the costs of operating and the prices you think you can charge. You should be realistic about these costs and prices so that you can create accurate financial projections. Make sure to count all the costs of running a bakery, not just the ingredients, equipment, and labor. You also need to consider overhead costs.
Overhead includes any expense that you must pay regardless of your production. Think of rent, mortgage, and utilities. Overhead will be lowest for home-based bakeries and food trucks.
Once you have a detailed rundown of your costs and product prices, you should create a break-even analysis. This is helpful because it shows you what sales you need to reach before you have paid off your costs. This analysis helps you build a strategy to create a profitable business.
With a comprehensive business plan in hand, you can show investors the benefits of putting their money into your business.
7. Look for Funding
If you would like to open a brick-and-mortar storefront location, you might need a business loan to finance your commercial lease. Even if you plan on running a home-based business or a food truck, you may still need some initial financing to cover startup costs.
8. Think About Your Business Structure
Consider incorporating or forming a limited liability company (LLC). This can help you protect your personal assets from your business's liabilities. These business structures may also offer tax advantages. Your state's corporate office can give you more information on how to formalize your business's legal structure.
9. Find Out About Your Tax Obligations
As a small business, your business taxes will include federal, state, and local taxes. It is important to understand your tax obligations and keep good records to avoid an audit.
10. Implement Food Safety Procedures
No business owner ever wants to make their customers sick. Foodborne illness is not only bad for business, but customers who get ill from food poisoning could even bring legal action against you.
There are many steps you can take to lower the risk of foodborne illness or contamination. To learn more about your state's food service codes and regulations, visit the FDA's website.
11. Research Your Insurance Needs
Even if you have excellent safety procedures in place, it is still a good idea to have a robust insurance policy. Good insurance protects your business from potential liabilities like a food poisoning claim. If you have a storefront or a café, you also need your insurance to cover workers' compensation, premises liability, and slip-and-fall accidents.
12. Learn About the Licensing Requirements in Your Area
Whether your bakery business is a large wholesale bakery or a homemade food business, you will likely need a business license. The FDA recommends that food business start-ups get in touch with their local FDA office to learn more about licensing.
The FDA can also help you learn what regulations apply to your bakery business. Before you open your bakery, you will probably need to get a food establishment permit from the local authorities. These are usually issued by a state agency like the department of agriculture. The interactive map provided by the Association of Food and Drug Officials can help you locate the state agency near you.
13. Research Your Labeling Requirements
If your bakery opens in multiple locations, you may need to provide nutritional information on your menus. You will also have labeling requirements if you sell packaged goods.
Foods that are sold for human consumption are generally subject to labeling requirements. The FDA is the federal agency that enforces many of these requirements. There are different requirements based on whether the food is packaged or unpackaged.
Packaged foods usually must have a nutritional information label. The required information includes ingredients, preservatives, spices, allergens, and more. You can contact the FDA for more information on what to include in your nutrition label.
Your unpackaged food will have labeling requirements if you sell it at a retail chain with 20 or more locations. Your nutritional information will need to be available for customers to read at the point of sale. This could be on a sign at the checkout area, in the menu, or in an informational pamphlet.
Small Business Food Labeling Exemptions
You might be exempt from the packaged foods labeling requirements if you are a small business. An exempt small business has fewer than 100 employees and sells fewer than 100,000 units of its product in a year.
There are also exemptions for retailers based on gross sales. If your business makes less than $500,000 in gross sales, you might be exempt. You could also be exempt if your gross sales of food and supplements are $50,000 or less.
If you think your business qualifies for an exemption, you can file a notice by fax, mail, or online. For more information, visit the FDA's website.
No matter what your business model, you will need to have good food safety procedures in place. These procedures help protect you and your customers from foodborne illness. From time to time, the local health authorities will probably inspect your place of business.
The following steps can help you maintain the safety and taste of your bakery items:
- To keep your baked goods fresh, you should always store them at the right temperature.
- Establish a clear handwashing policy.
- Store unprepared ingredients separately from finished baked goods.
- Make sure that utensils, cutting boards, and other food preparation tools are clean and safely stored.
How an Attorney Can Help
If you are a passionate about baking and have an entrepreneurial spirit, starting a bakery business might be for you. But there are some special legal considerations in the food preparation business too.
If you have concerns about licensing, insurance, labeling, or other legal issues, you should talk to a local business attorney today.
And when you are ready to start your business, use our simple DIY business formation process to ensure you meet all the legal requirements in your state.
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