How to Start a Home Bakery Business with Small Investment
Are you someone who enjoys baking? You may also binge watch baking competitions on TV and wish to compete in one of them; after all, you can open your dream bakery by winning the grand prize.
Well, you may not make it to these competitions due to massive applications, but the good news is that you can still open your dream baking business with a small investment. This article will answer all your queries about how to start a home baking business and will guide you through easy steps to start a baking business from home.
Whether you want to get connected with leading supermarkets to sell your baked goods or looking to know how to start a baking business online, you will find this guide helpful to start selling baked goods from home and make good profit.
Let’s explore what it takes to start a home baking business and how to start your own small scale bakery with a small investment.
1- Research the Home Bakery Business Laws in Your Area
The first and foremost step before starting a home bakery is to ensure that home bakeries are legal in your area. These laws vary from state to state, so you must do your research before investing in your home based bakery business.
Visit your state’s Department of Health website to find out whether or not a home bakery is legal under laws that are often referred to as “cottage food laws.”
The Cottage Food Laws regulate whether or not you can produce low-risk foods in your home for sale. These laws are designed specifically for micro businesses, i.e. many states have put a cap on how many thousands of dollars in revenue your micro food business can make while still considered legal. Once the revenues cross the upper limit, you must change the business model by establishing a fully functional commercial bakery.
In case the cottage food laws in your area do not allow home bakery businesses, that’s not the end. You can still start a small scale bakery through a startup approach and make and sell baked goods online or in store and in coordination with local supermarkets.
2- Certifications, Licenses, and Health Requirements
With a green light from your state laws and jurisdiction, the next step in opening a home bakery is to research what kinds of certifications, licenses, and health precautions are required by the authorities. Some states may require both a business license and a food license, and possibly a zoning permit too, while other states may not require any license or permit at all.
Currently, 22 states and DC require some sort of registration or licensing for micro businesses under cottage foods law. You do need a license to start a home baking business if you are based in any of these states; Alaska, Arizona, California, Colorado, Delaware, Georgia, Illinois, Iowa, Kentucky, Maine, Massachusetts, New Mexico, New York, Nevada, Oregon, Pennsylvania, Rhode Island, Tennessee, Utah, Vermont, Washington, West Virginia and the District of Columbia.
Check the website of your state’s health department and find details about cottage food laws. Better is to contact them and ask specifically about licensing.
Obtaining a business license is not a difficult process, but if your local laws require zoning permits, you will need to do some extra effort. Moreover, you cannot start selling home baked goods with a business license only, most states will require your kitchen to be inspected for health & hygiene concerns.
3- Naming Your Home Baking Business
Whether you plan to run your micro bakery business as it is or you have plans to make it big on a later stage, naming plays a vital role in branding. Moreover, a business name is a must when it comes to registering your business with the local authorities.
Name your bakery carefully. You can name your baking business any way you want but some most popular ways are as follows:
- Your Name + Your Expertise
- Your Name + Baked Items
- Baked Items + Area
- Mix up Ingredients
- Baked Items + Adjective
- Off Topic Names
Naming your business can be tricky, so take your time and come up with something unique yet meaningful. Whatever you name your baking business after the goods you prepare or something off topic, make sure it has following features.
- It’s short and easy to remember.
- It is available (Ideally, you should have multiple names readily available, so if one is not available for registration, you can go with another)
- A relevant domain name and social profiles are available.
4- Register Your Bakery
With a few business names in hand and knowledge of right licensing options, you are all set to legalize your home bakery. Usually you need a general business license obtained from your city or county, sales tax permit, home occupation permit, and health and safety permit to legally sell your baked goods.
5- Write a Foolproof Home Bakery Business Plan
Despite the fact that you cannot wait to get your baking skills in action, you must know that the baking business is not just about baking. In order to make your dream of starting and running a successful bakery business, you need parallel planning and a lot of administrative and marketing work. That is why a business plan is a must to set up a bakery correctly and to operate it efficiently.
Business plan is a document that lists and details all the aspects of starting and operating a bakery, so you avoid wasting time and resources. You might not want to spend a lot of time just constructing this document and you can start with a one page business plan even. However make sure your business plan has the following contents.
A Brief About the Concept
A quick overview of what you plan to do, who you are, your expertise, when and how you want to start this bakery business, and where do you see your concept in next few years, etc.
Products that You Will Be Selling
A list of all the baked items that you intend to sell and possible selling price. Identifying the right pricing at an initial stage is the best idea and you can do it with a simple research, i.e. what products others are selling at what price and also by doing a quick analysis of your baking cost on each product and adding a profit margin to it.
Market Research & Target Customers
There are several ways to identify your target customers, i.e. if you intend to take custom cake orders in your home bakery, the audience will be different than the one for selling fresh breads and croissants.
Since, you can sell multiple products and may take customized orders while preparing lots of fresh breads for local supermarkets, doing little math right in the beginning will be awesome .
Know who your customers are, and how to reach them. Find out who your competitors are, what strengths and weaknesses they have and what competitive edge you have with your products. Outline the steps to market your bakery business, i.e. brochures & pamphlets distribution, social media, etc.
Identify Human Capital
You might want to skip this section when you are starting your home baking business as a one person venture, however, having it outlined in the beginning can make things easier. Initially you may just want to identify and list who will be responsible for buying materials, taking orders, baking and delivery.
Most certainly you cannot do all things, so you may want to outsource purchasing and delivery to someone. Note down the additional costs and adjust your pricing accordingly.
Include Supplier’s Chain & Network
You can do one or two baking gigs by purchasing materials from a supermarket, but you cannot buy from a supermarket in the long run and may cost you a lot. Having a list of suppliers right from the beginning is a great idea.
Include supplier details in the business plan, i.e. their contact details, pre agreed rates and the validity of contract that includes pricing terms, payment processing procedures and delivery methods etc. Ideally, suppliers should agree not to increase prices for a certain period of time.
Add the Financial Plan
A significant part of your home bakery financial plan is already done in the market analysis and research section, whereby you identify a pricing strategy. This section requires you to add more financial details, i.e. the setup cost, operating costs, marketing and advertising expenses, storage costs and estimated monthly and quarterly revenue.
Based on these figures you can calculate the expected profitability of your business and in case if you see that the business doesn’t seem to be making healthy profits, you can always rethink the process, i.e. where and how to cut costs and add more revenue sources.
Summarizing the Home Bakery Business Plan
The business plan summary is the first page of your business plan, but it is created in the last. The summary should not be longer than a page or two and should include most important facts and data.
6- Set up Your Commercial Kitchen
Though you can start a small-scale baking business right from your home kitchen, some state or local laws may require you to turn your home kitchen into a commercial kitchen. And depending on your home kitchen’s current layout, you may either need to make a few adjustments or else may need to completely renovate it before starting operations.
In that case you may need to perform this step before obtaining a business license. If the kitchen setup cost is out of your budget, you can always reduce the costs either by buying second hand equipment or else by renting a commercial kitchen.
If you prefer installing the fully functional bakery kitchen, here’s a list of must have equipment for your home bakery:
- Food storage racks
- Commercial oven
- Additional sinks
- Separate food preparation area from your personal kitchen area
- Sprinkler system
- Updating your ventilation system or hoods
Moreover, if your state requires home bakeries to pass health inspections, you need to schedule visits from Health Officers who will assess your equipment, storage, hygiene practices, sanitation methods and possibly the quality of prepared goods.
Depending on local laws, there may be another certification required to obtain, i.e. food safety certificate. In that case, you need to take a certification course in food safety and a lot of state-approved food safety courses are available to educate food entrepreneurs in proper food handling and storage, to avoid the risk of cross-contamination and foodborne illness.
Summarizing the Home Bakery Setup
Here’s what a home bakery setup looks like in a nutshell.
- Set up your bakery kitchen and storage system.
- Get all the necessary equipment ready.
- Have all the required materials and supplies handy.
- Get the kitchen inspected and get certified.
7- Marketing Your Home Based Bakery Business
You obtained all the licenses and permits and have a fully functional kitchen to start baking your favorite treats, but you cannot sell baked goods unless you have a workable marketing plan devised. You may be able to make a few sales to friends and family and their direct contacts, but you cannot rely entirely on this medium of sales.
So developing a marketing plan for your home bakery business is the last planning step before you actually start operations. Brainstorm the ideas and list down every possible option. Let’s see what can be done:
Marketing Ideas to Promote Your Home Bakery & Generate Sales
- Social Media is a great medium to generate sales; create social profiles and fill them with the photos of your creations.
- Ask people (for whom you baked earlier) to leave you reviews on social media.
- Trade at local food markets.
- Get some restaurants onboard.
- Get supermarkets onboard.
- Organize some events at your place or become a supplier at someone’s event.
- Rather than buying something from outside, take your own baked items when visiting people.
- Build a website and add a blog to it.
- Design and develop the print materials wisely and distribute them in the targeted locations.
- Participate in local events.
- Keep a record of your new and returning customers and keep sending them periodic updates and offers.
8- Start Operations
With a solid business plan and a quick marketing plan in hand, you are all set to start baking and sell your home baked goods. Procedures may take longer in the initial, but as you grow your business, these procedures can be optimized.
- Keep all your recipes handy to avoid delays in baking.
- Restock your materials and supplies before you hit the 20% line.
- Schedule the commercial kitchen cleaning during late hours so your day is not wasted.
- Do not take orders more than your capacity to deliver.
- Hire help if needed.
- Never stop marketing, even when you already have a lot of orders, keep spreading the word.
The Bottom Line
Starting and running a home baking business can be exciting, but you must know that there’s a huge difference between baking for fun and baking for business. When you turn your hobby into a business, it requires parallel time and effort to produce results.