How to Start a Bakery

Is now the time to open a bakery business?

There’s no question that baking is big business in the United States—data from the American Bakers Association shows nearly 800,000 Americans are employed by the bakery industry in some way, and the group claims the nationwide direct economic impact of bakeries is greater than $186 billion annually.

More small businesses are finding niche markets to serve and are seeing great returns on their efforts as it becomes easier and easier to find and connect with customers. Ongoing trends in the baking world, like health-conscious products, small-batch releases, rotating and pop-up menus, and many others, have brought a new wave of customers to the forefront. With this influx of customers and expanding tastes and demands, the time might be ripe for an enterprising new baker to throw their hat into the ring.

How to decide which business structure is right for you

Your bakery’s business structure will be determined by the scale of your operation and the type of bakery you choose to run. A small-scale operation based out of your own home might function best as a sole proprietorship or single-member LLC. A large commercial bakery will likely benefit from being organized as an LLC or some form of corporation.

Liability

One of the main considerations when choosing a business structure is your personal financial liability for business expenses and debts. Structures like LLCs and corporations protect owners from these types of business liabilities, while sole proprietorships leave the owner on the hook for any and all debts incurred by the business.

Taxes

Your tax situation will also change considerably depending on which business structure you choose. Many small business owners choose an LLC structure because it provides a great deal of flexibility in how you handle your taxes. Many LLCs are treated as pass-through entities, allowing owners to pay taxes on profits rather than the income from the business.

Management

Some business owners choose their business structure based on the amount of control it will afford them over the business’ operations. A sole proprietorship offers direct, complete control over the business, while an LLC or corporation typically requires some consensus from members or directors regarding important decisions regarding the company.

No matter how you structure your bakery, LegalZoom’s business formation services can help streamline the process and make sure you’re following all the necessary steps to properly organize your business. 

As you dive deeper into your research, think about which type of business entity would work best for you. 

How to open a bakery in 12 steps

If you’re ready to launch your own bakery, you’ll need to follow a few key steps to set yourself up for success.

Step 1: Research your market

As with any business, market research is key.

Try to learn everything you can about consumer habits, your closest competitors, expectations about price and quality, and current trends in the bakery industry. You might have the best recipes around for gluten-free muffins, but if there isn’t a market for this type of product in your town, then you might need to switch up your proposed menu or consider a different market before you open your doors. 

Step 2: Decide on your bakery format

Online sales, widespread delivery availability, and changing consumer preferences have brought about an unprecedented level of variety in the food industry, and the bakery sector is no exception.

Will you operate a home baking business and offer deliveries, or will you need a brick-and-mortar store? Will you sell directly to consumers, or will you supply local restaurants and retailers? What, exactly, are you planning to bake? You’ll need to answer all of these questions and more early on in the process to serve as a guide throughout the next steps.

Step 3: Choose a business model

There’s more to running a bakery than just making delicious treats, unfortunately. Before you can start selling cookies or sourdough loaves, you need to decide what your business model will be. For many small business owners, a limited liability company (LLC) offers the perfect combination of legal and financial protections with enough flexibility to suit their business.

If you’re unsure of which style is right for you, LegalZoom can help you decide on the right business model for your bakery.

Step 4 - Write a business plan

A business plan will serve as a guide for your company as you start to develop your brand and find new customers. A well-conceived bakery business plan will include the following elements at the very least.

• Executive summary: The executive summary gives a thorough overview of the plan as a whole, condensing it down to the most pertinent information.
• Company description and mission statement: Your company’s mission statement serves as a guide for big-picture decision-making and states your long-term goals clearly and concisely.
• Products and services: While it might seem obvious, articulating exactly what you offer to customers can be a helpful exercise and should be included in your plan.
• Target audience: Every company has an ideal customer, and recognizing the traits and lifestyle attributes of this customer will help you make decisions for your business in the future.
• Market analysis: Market analysis helps businesses determine what their community needs, what they’re able to offer, and how those two things coincide.
• Competitive analysis: Understanding your customers is just one part of the research you need to do before opening your bakery. The number of competitors your business will have and what sets your bakery apart will have a big impact on how you run your business.
• Operations and management: The structure of your organization and the division of labor should be clearly laid out for company leadership and employees alike to help keep things running smoothly.
• Sales and marketing strategy: Businesses need to stay adaptable, and it can be tempting to change strategies constantly to meet the expectations of the market and your competitors. By laying out an overall sales and marketing strategy, your bakery will have a big-picture plan to fall back on when trying to decide how and when to adapt your approach.
• Financial plan: Running a bakery is about turning out great products, but if those products aren’t meeting your business’ financial goals then it doesn’t matter how good they taste. Articulating the financial needs and goals for your business is key to staying solvent as a business.

Step 5: Find the perfect location

Whether you plan to do retail sales or wholesale orders, your bakery needs the right location to succeed. The perfect location for your business will depend on your specific needs, and what might work for one bakery could be detrimental to another. Factors like visibility and pedestrian access will be critical for a retail bakery business, while a more affordable location with less accessibility to the public could be preferable for a baker supplying local restaurants.

Regardless of the type of bakery you hope to open, you’ll also need to consider things like local zoning regulations and proximity to your competitors and target markets when selecting a base of operations for your business.

Step 6: Obtain necessary permits and licenses

Before you can start selling your baked goods, you’ll need to secure a number of certifications related to your industry and location. Regulations vary from state to state, but most places have either a general business license, food industry license, or both. There are also additional licenses your business must keep up to date for employees who prepare and serve food.

You should also familiarize yourself with your local zoning ordinances to confirm your business activities conform to the regulations in your zone or district. Your local health department will need to perform a health and safety inspection in addition to meeting all the local zoning requirements.

Step 7: Purchase equipment and inventory

While small-scale operations may get by with consumer-grade equipment for a while, eventually you’ll need to scale up your operation and invest in a commercial setup. Before you open your bakery, take stock of what bakery equipment you already have and what you might need to buy right away. Gear like commercial ovens and mixers and business items like signage and displays can represent a significant investment and should be planned out well in advance to ensure you have all the tools needed to succeed.

Your business will also need baking ingredients, packaging materials, and various other types of overhead costs in stock consistently. Keeping a well-stocked inventory and managing your supply chain is a critical part of any business, but these sorts of margins are notoriously important in the food-service industry. Developing strong business relationships with your vendors and staying on top of your orders will go a long way in keeping your bakery running smoothly.

Step 8: Design your layout

No two bakeries are the same, and every bakery will have its own workflow and a layout to support it. If you deal primarily with catering or wholesale clients, your commercial kitchen space might be designed for maximum efficiency and utility in order to facilitate fast, consistent production. A retail bakery is more likely to prioritize comfort and customer experience on-site, leaving less room for production and requiring certain design choices which might not matter to a catering kitchen.

Whatever your business model might look like, your business spaces should be carefully considered to ensure you’re able to work safely and comfortably while providing the best possible experience for your customers.

Step 9: Get a POS system

Point-of-sale systems have come a long way in recent years, making it easier than ever to accept a variety of payment options and provide flexible options to your customers. Modern POS systems typically include card readers and tap-to-pay options, and some even allow customers to use online payment platforms like Venmo or PayPal to complete transactions.

One thing to consider when choosing a POS platform is whether or not your business will offer some form of customer loyalty program. Many POS terminals allow customers to use their phone number or email to accumulate and redeem coupons or points toward free and discounted goods, encouraging return customers and buyer engagement. LegalZoom’s trusted partner Square can assist you in setting up a POS system.

Step 10: Hire and train your staff

Your staffing needs will depend on the size of your operation and the nature of your business. A small bakery could potentially make do with just one or two employees, with one person handling the baking and one person handling customer relations. Bigger bakeries will need more staff to succeed, though. The following are some of the most common positions employed by bakeries.

• Bakers
• Customer service and retail workers
• Managers
• Dishwashers
• Prep staff

With additional employees come additional liabilities for your business. Payroll management is an important responsibility and must be kept up with consistently, and tax requirements for businesses employing multiple people are inherently more complex than sole proprietorships. You’ll also need to familiarize yourself with workers’ comp laws and ensure your liability insurance is sufficient to protect your business and all your employees.

Step 11: Market your business 

Good marketing can make or break a new business. Standing out from the rest of the competition can be difficult, but you must take steps to differentiate yourself if you want to attract and retain customers.

There are countless ways to approach your marketing strategy. These methods can be broadly divided between traditional advertising, which consists of print media, TV, radio, and other physical ads, and digital marketing, which covers everything from location-based ads and social media campaigns to paid search ads and more.

In addition to paid advertising, it’s important to remember that some of the best marketing is done by word of mouth. Building your reputation based on quality and memorable, unique products will pay large dividends as word spreads about your business to potential customers.

Step 12: Launch and manage your bakery

Once your affairs are in order, it’s time to open your business. When you’re ready to take the plunge, you’ll need to tie up some loose ends and make sure everything is set up for a smooth launch. If you haven’t already, make sure your name is registered and you have all your important tax matters taken care of, like registering an employer identification number.

Once you’ve started operating, be sure you’re sticking to your budget and staying on top of your inventory management. Establishing good business habits early and staying with them are important pieces of the puzzle when running a successful bakery.

When your business is running smoothly and you feel like it’s time to expand, take the time to make a plan for controlled, responsible growth. Expansion is natural and often necessary for businesses to persist, but uncontrolled, chaotic growth can often lead to hardships for the business.

How much does it cost to open a bakery?

All businesses have startup costs, and bakeries have some specialized needs that can carry steep prices. As you plan your baking business, make sure you have the capital necessary to do it the right way.

Location, leasing, and utilities 

Your rent and utility costs will largely depend on what type of bakery you decide to open. A small, intimate bakery in a busy downtown area might pay higher rent per square foot than a wholesale operation in a less desirable location. A catering kitchen might use fewer utilities than a large-scale commercial bakery. 

Depending on your location, it might be more economical to build or buy your own space rather than renting. Real estate and rental costs vary widely from place to place, but you can generally expect to spend at least a couple thousand dollars a month on building space and utilities if not more.

One other alternative for smaller-scale bakeries is to use your existing space to get started while following a home bakery business roadmap. If your municipality allows it, you may be able to save a good deal of money by using your home kitchen as you first get into the bakery business.

Renovations and decor

These expenses will also vary substantially depending on what type of bakery you plan to open. If you buy an older building, it may require updates and repairs to bring it up to health and safety standards. A retail bakery will likely need to be redecorated to suit your personal style and business needs.

Renovations and decorating can be done relatively affordably, especially if you know how to do some or all of the work yourself, but costs can add up quickly. It’s a good idea to plan to spend $5,000-$10,000 or more on these expenses before your business is ready to open.

Equipment and inventory

Equipment costs can be one of the largest expenses when first starting out in the baking industry. Commercial ovens and other pieces of heavy-duty kitchen gear often carry a hefty price tag. Depending on the scale of your business and the type of baking you’re doing, you could be looking at $10,000-$20,000 in startup expenses for equipment, if not more.

Your inventory costs will also represent a significant, ongoing expense for your bakery, with typical bakeries spending at least a couple thousand dollars on inventory each month and larger operations buying a good deal more than that.

Licensing, permits, and insurance

Your licensing needs and the expenses that accompany those licenses can vary widely based on your location. Some states and municipalities charge a good deal more than others to operate a business and secure all the necessary certifications to prepare and serve food, but you may need to spend a few hundred dollars a year or more on keeping all the necessary paperwork up-to-date.

Your insurance needs will be largely determined by the number of employees you hire and the amount of interaction with the general public your bakery will have. Every business is different, but you will likely owe somewhere between a few hundred and a few thousand dollars a year in insurance payments.

Staffing

Hiring and payroll expenses can add up quickly for a small business, and it’s important to find the right number of staff and the appropriate compensation level for your business and geographic location. Depending on where your bakery is located and the number of employees you hire, your payroll costs could be some of the largest expenses your business faces. Food-based businesses typically pay a higher percentage of their net income toward payroll than businesses in other industries, so it’s a good idea to prepare yourself for these costs.

Marketing

Every business needs to market itself, and depending on how you choose to advertise, these expenses can take up a large part of your budget. Unlike other startup costs like renovations and equipment purchases, early marketing efforts are a big part of your initial costs and your ongoing expenses as well. Whatever you choose to allocate for marketing costs, be sure to keep a close eye on your engagement rate and return on your marketing investment to help determine how you can fine tune your approach to remain effective.

FAQs

What licenses are needed to start a baking business?

The licenses required to start your business will depend on your location and the type of bakery you plan to open. Most states and municipalities have some form of business license, and many also require additional certifications for businesses that prepare and serve food. Check with your local clerk of court to learn more about business licensing in your area.

What are the risks of starting a bakery?

Food-service businesses can be difficult, and there are many pitfalls you might encounter as you start your bakery business. Supply chain issues, customer retention difficulties, overall industry trends, and many other factors can work against you as you’re first starting out, making it all the more important to be proactive and prepare yourself as much as possible before opening your doors. By creating a plan and sticking to it, you can mitigate many of the most common problems a young business will encounter.

How long does it take to open a bakery?

From start to finish, it can take a year or more to plan, develop, and roll out a new bakery business. Finding the right location, team, and business plan all take time and are absolutely necessary for your business to succeed from day one.

How much do bakers make?

Baking is not the most lucrative career choice, but it is a highly satisfying career choice for those who are called to it and the most successful bakeries can comfortably support owners and staff just like any small business. According to the United States Bureau of Labor Statistics, the median income for a baker in the U.S. was a little less than $35,000 a year.