How to Start a Bakery

Starting a bakery can be an exciting and rewarding venture for aspiring entrepreneurs with a passion for baking.

However, it’s not all about the love for creating delicious treats — success also demands careful planning, creativity, and a strong grasp of the business side of operations.

In this comprehensive guide, we’ll walk you through all the essential steps you’ll need to take to start your own bakery, from conducting market research and securing funding to developing a unique menu, setting up operations, and attracting customers.

Ready to turn your business idea into a reality? Tailor Brands is our top recommendation because it guides you through every step of the process with hands-on support.

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Industry Overview

The U.S. baked goods market, which is valued at USD 78.96 billion in 2023, remains a significant segment of the food industry and is projected to grow to USD 86.93 billion by 2029, at a steady CAGR of 1.62%.

Contributing significantly to this growth, bread remains the primary driver of the U.S. baked goods market, accounting for 32% of total sales. Furthermore, rising disposable incomes and the fast-paced lifestyle in the U.S. have driven the demand for quick and easy food options, while technological advancements like automation have helped meet this demand by boosting production efficiency.

Having said that, despite the steady growth within the U.S. baked goods market, the industry faces several barriers that could impact its future trajectory.

One of the primary challenges is the increasing awareness of health issues associated with the consumption of baked goods, particularly those high in refined flour, sugar, and carbohydrates.

Bread, which accounts for the most significant portion of the market, has seen a steady decline in consumption in recent years due to growing concerns about obesity, diabetes, and other diet-related conditions.

This shift in consumer consciousness is driving demand for healthier alternatives, such as GMO-free, organic, and preservative-free baked goods, which can be more expensive and complex to produce.

Moreover, the volatility in the cost of raw ingredients, such as wheat and sugar, poses financial challenges for bakery businesses, particularly smaller operations. Supply chain disruptions and rising labor costs also add pressure, making it difficult for companies to maintain competitive pricing without sacrificing quality or margin.

These factors have contributed to the dominance of large corporations, with over 60% of the U.S. baked goods market controlled by just three major chains, leading to a market where smaller players must innovate or specialize if they want to compete effectively.

Startup Costs

If you’re considering whether a bakery is right for you, the first thing you’ll need to know is whether it’s a) affordable, and b) worth the investment. I mean, how much can you actually make running your own bakery company?

Well, it depends. The initial investment for a bakery can vary widely based on factors like location, the size and type of bakery you plan to open, and the equipment and ingredients you’ll need.

To give you a clearer picture of the costs involved, here’s a detailed look at the primary expenses you’ll need to consider when launching your bakery:

  • Lease or Purchase of Space ($2,500 – $10,000+ per month): You’ll need to secure a suitable location for your bakery, with rental costs varying based on factors such as location and size.
  • Renovations and Build-Out Costs ($10,000 – $50,000+): You will likely need to renovate your space to accommodate bakery equipment, ensure compliance with food safety regulations, and create an inviting environment for customers, with costs varying based on the extent of work required and the condition of the space.
  • Bakery Equipment ($20,000 – $100,000): You will need to obtain equipment such as ovens, mixers, and refrigerators for production, as well as display cases and shelving for customer service, with costs varying based on the size of your bakery and the quality and type of equipment you choose.
  • Ingredients and Initial Inventory ($2,000 – $10,000): You will need to stock up on initial supplies of ingredients like flour, sugar, eggs, and butter, as well as packaging materials and baking trays, with costs varying based on the volume of products you plan to produce and whether you choose higher-cost ingredients like organic or gluten-free options.
  • Licensing ($500 – $5,000): Depending on your location, you will need to obtain various licenses and permits, such as food handling certifications, health department approvals, and business licenses, with costs varying significantly based on local regulations.
  • Initial Staffing Costs ($6,000 – $18,000 per employee): You’ll need to cover the cost of training and the first few months of payroll for each employee, which can range from $6,000 to $18,000, depending on local wage rates and the employee’s experience level. Keep in mind that a small bakery will usually need at least 3 to 5 employees, including bakers, counter staff, and possibly a manager, depending on the size of the business.
  • Utilities ($500 – $2,000 per month): You should budget for utility costs, as bakeries are energy-intensive operations due to the continuous use of large ovens, refrigeration units, and other equipment.

Note: Although not exactly a startup cost, it’s highly recommended to set aside working capital to cover 3-6 months of operating expenses, ensuring you can handle any cash flow gaps or unexpected costs during the early stages of running your bakery.

Earning Potential

Bakeries typically operate with profit margins that range between 5% and 15%, with most new bakeries needing at least six months to become profitable as they establish a customer base and streamline their operations.

However, once they do, small and customizable bakeries can become quite lucrative, a process that in the baking industry is guided by something called “sales forecasting”.

Simply put, sales forecasting allows bakeries to anticipate customer demand and adjust production accordingly to minimize waste and maximize profitability.

The way to achieve this is by collecting data — such as sales figures, customer preferences, and seasonal trends — and analyzing it during the first few months of operation.

The more data you have, the more accurately you will be able to predict customer demand and adjust your production levels accordingly, thereby saving on costs and increasing your overall profitability.

Think about it: as you gather data over time, you will reach a point where you will know that, for example, on Tuesdays at noon, the rush typically results in sales of between 200 and 240 loaves of bread, while on Mondays at 3 PM, you generally sell around 150 loaves.

This insight allows you to make only what you need, minimizing waste and ensuring that you always have fresh bread available for your customers.

This is very important because the result you are trying to achieve is essentially twofold: maximizing the freshness effect — where consumers are more likely to purchase items they perceive as freshly baked — and minimizing the amount of unsold product at the end of each day.

Keep in mind that, as surprising as it may seem, small, customizable bakeries often have the advantage over larger chains when it comes to sales forecasting, meaning that if you put in the time and effort needed, owning a successful and profitable bakery will definitely be within your reach.

8 Steps to Starting a Bakery

In order to start a bakery, you’ll need to complete the following steps:

  1. Planning Your Bakery Company
  2. Registering Your Business
  3. Secure Funding (If Applicable)
  4. Find and Secure the Right Location
  5. Setting up Business Accounting
  6. Opening a Business Bank Account and Credit Card
  7. Getting all Applicable Licenses and Permits
  8. Obtaining Business Insurance

We’ve broken each one of these down in more detail below.

Still exploring your options? Check out other small business ideas.

Step 1: Plan Your Bakery Company

Before diving into your bakery company, you’ll need to spend some time conducting thorough market research to understand where your business will fit and how it can stand out.

When it comes to planning, one of the main areas to focus on is competition. Look at nearby bakeries — how are they pricing their products, and how close are they to your potential location? Evaluate what types of baked goods they offer and whether there are gaps in their product lines that you can fill.

You will also need to establish a clear pricing strategy, considering factors such as your production costs, desired profit margins, and the competitive landscape in your area to ensure your prices attract customers while keeping your business profitable.

This will help you evaluate the financial viability of your project — including projected revenues and expenses — as well as determine whether to focus on artisanal, specialty products with higher price points, or more standard, everyday baked goods that appeal to a larger audience.

Finding a Suitable Name

Choosing the right business name is both important and challenging.

This is because your name will need to be eye-catching, memorable, and (at least somewhat) related to your industry.

If you don’t already have a name in mind and need help, you can visit our How to Name a Business guide or use our Bakery Name Generator tool.

If you do have a name in mind, we recommend researching the following:

  • Your state’s business records
  • Federal and state trademark records
  • Social media platforms

You will also need to make sure that your business’s name is available as a domain — this is your website’s URL address.

Note: If you’re planning to operate a sole proprietorship, you might want to operate under a business name other than your own name — known as a “Doing Business As” (DBA) name. Keep in mind that this is not recommended for a bakery.

Developing and Perfecting Your Menu

Before opening your bakery, it’s important to spend some time properly developing and testing your menu.

This means going through multiple rounds of recipe trials until you have found exactly what works for your bakery and aligns with the quality and style you want to deliver.

You’ll want to consider more than just taste — visual appearance and smell are just as crucial for attracting customers and keeping them coming back, so make sure your products consistently look good and have an inviting, fresh-baked aroma.

To achieve this, you will need to create processes that ensure consistency in every batch — by developing clear, step-by-step recipes and procedures for each product, outlining exact measurements, baking times, and presentation guidelines.

Remember, your staff will likely have varying levels of experience, so account for that when creating your menu by ensuring that the recipes and techniques are manageable for all skill levels.

Regular quality checks should also be part of your system to ensure that each item meets your standards for texture, flavor, and presentation, and that any failed products are caught before they reach customers.

By refining these processes, you’ll ensure that your menu consistently delivers high-quality products, meeting customer expectations and making your bakery a reliable choice for repeat business.

Creating a Detailed Business Plan

A detailed business plan is essential for outlining your business strategy, securing funding, and mapping out your bakery’s path to growth and profitability.

When drafting one, be sure to include an executive summary, market analysis, organizational structure, product offerings, pricing strategy, and financial projections.

Remember to include as many relevant data points, research insights, and concrete examples as possible to support your claims and demonstrate the viability of your business model.

The more comprehensive and data-driven your plan, the better equipped you’ll be to make informed decisions and attract potential investors.

For more information on this step, you can have a look at our How to Write a Business Plan guide.

Step 2: Register Your Business

One important aspect that cannot be overlooked when starting your bakery is the importance of establishing a solid business foundation. While sole proprietorships and partnerships are the most common entity types for small businesses, they’re a far less stable and advantageous option than LLCs.

This is because unincorporated business structures (i.e., sole proprietorships and partnerships) expose you as an owner to personal liability for your business’s debts and legal actions, while LLCs protect you by keeping your personal assets separate from your business’s liabilities.

In practice, this means that if your bakery company were to face a lawsuit or incur any debts, your savings, home, and other personal assets could not be used to cover these costs. On top of this, forming your business as an LLC also helps it to appear more legitimate and trustworthy.

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Note: If you’re interested in more information before getting started, we recommend having a look at our state-specific How to Start an LLC guide (DIY) or our in-depth Best LLC Services review (for those opting for a professional service).

Step 3: Secure Funding (If Applicable)

Securing funding is a critical step in starting your bakery, with the most common options being bank loans, SBA loans, private investors, and crowdfunding campaigns.

Although most new bakeries will need some form of financing to cover the significant upfront costs required — such as equipment, renovations, and lease deposits — it’s important to borrow only what’s necessary.

This is because high-interest payments can quickly eat into your profit margins, which are already slim in the early stages of running a bakery — and with profitability often taking at least 6 months or more, it’s important to avoid being overleveraged, as the results could be devastating.

Of course, the extent that this step will be applicable to you will depend on your individual financial situation.

Step 4: Find and Secure the Right Location

The next step you’ll want to take is to find (and secure) the right location for your bakery.

While many factors come into play, including foot traffic, accessibility, and visibility, one thing that must always be taken into account is the balance between cost and value.

Similarly, since moving to a new location will likely lead to significant disruptions and, in some cases, serious or even irreversible declines in your revenue, you will want to lock in a lease that spans at least five to 10 years, with options to renew under predetermined conditions.

This will give your bakery long-term stability, protecting your business from unexpected rent hikes or the risk of being forced to relocate, thereby safeguarding your customer base and ensuring steady operations without costly disruptions.

Note: You will also need to make sure that your prospective property is zoned for commercial use and complies with all applicable local and state regulations (discussed in more detail in Step 7).

Step 5: Set up Business Accounting

Recording your various expenses and sources of income is very important to understanding the financial performance of your business.

For a bakery, where profit margins are often tight, it’s essential to know exactly what you’re spending and where, as this will help you identify areas where you can cut costs and improve profitability:

  • Ingredients and Inventory (e.g., flour, sugar, eggs, butter, and other baking supplies)
  • Equipment and Maintenance (e.g., ovens, mixers, refrigerators, repairs, and servicing)
  • Rent and Utilities (e.g., monthly rent, electricity, gas, water, waste disposal)
  • Payroll and Benefits (e.g., staff wages, benefits, payroll taxes)
  • Packaging and Supplies (e.g., boxes, bags, labels, and other materials used for packaging)
  • Retail Sales (e.g., daily in-store purchases of baked goods)
  • Wholesale Orders (e.g., sales to local cafes, restaurants, or retailers)
  • Catering and Special Orders (e.g., custom cakes, event catering, bulk orders)
  • Online Sales (e.g., orders placed through your website or delivery platforms)

This should provide clear visibility into your business’s financial performance and aid in accurate cost analysis.

Step 6: Open a Business Bank Account and Credit Card

Using dedicated business banking and credit accounts is essential when operating as a business owner; this is because when your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) can be at risk in the event your business is sued.

In business law, this is referred to as piercing your corporate veil and is a result of the fact that not having a separate business bank account can be interpreted by some courts as evidence that you are not treating your business as a separate financial entity.

As a result, you could lose your limited liability protections even if you’ve registered a separate business such as an LLC or C Corp.

There are also a variety of practical and economic benefits to this step, such as a larger access to business loans and a more legitimate look.

Getting a business credit card can also be a great idea as it can help you build your company’s credit history from the start.

Recommended: Read our Best Banks for Small Business review to find the best national bank or credit union.

Step 7: Secure All Required Licenses And Permits

The applicable licenses and permits that you’ll need will largely depend on your state and local regulations.

Even so, we’ve compiled a list of some of the common licensing regulations that you’ll likely need to satisfy in order to operate legitimately.

Business Operation Licenses

At a state level, your bakery will most likely be required to obtain a business license in order to operate — though this will depend on your location.

This process generally involves submitting an application, paying a fee, and meeting specific state requirements.

Food Service License

In some states, you’ll need to obtain a Food Service License in addition to a general business license in order to operate your bakery legally.

This license ensures that you adhere to local food safety regulations and is usually issued by your state’s health department.

To obtain it, you’ll need to pass a health inspection of your facility, which assesses your food handling practices, equipment, and overall cleanliness to confirm that you meet the required safety standards.

Zoning and Land Use Permits

Before establishing a bakery, you’ll need to ensure that the land is zoned appropriately for a commercial food business.

Zoning regulations vary by locality and dictate the types of activities that can be conducted on a piece of land. In some areas, you may need to obtain a special use permit or a variance if the land is not already zoned for your intended use.

We recommend consulting with your local zoning authorities in order to understand the specific requirements and restrictions that will be applicable to your bakery. Alternatively, you can consult with a business attorney if you want someone else to take care of this for you.

Health and Safety Inspections

Local health and safety inspections are mandatory to ensure that your bakery complies with health codes and safety standards.

These inspections typically cover aspects such as the cleanliness of the facility, the proper storage of food and ingredients, the functionality of equipment, and the adequacy of emergency exits.

Keep in mind that regular inspections help maintain a safe environment for patrons and are often required for the renewal of operating permits.

ADA Compliance

The Americans with Disabilities Act (ADA) requires all businesses open to the public, including bakeries, to be accessible to individuals with disabilities.

This includes providing accessible routes, ensuring that slopes and landings meet specific gradient requirements, and removing any barriers that could impede access. Compliance with ADA standards is not only a legal requirement but also ensures that your facility is inclusive and welcoming to all patrons.

Note: If you decide to use a scale in your bakery, then depending on your location, you may need to obtain a Weights and Measures License, which ensures that your scales are accurate and comply with local regulations.

Step 8: Secure Business Insurance

In addition to securing the necessary permits and licenses, you will need to obtain the right business insurance.

Note

Even if you form an LLC, purchasing business insurance is still a good idea. This is because an LLC structure protects your personal assets, not your business’s.

While specific coverage needs may vary based on various factors, most bakery companies should consider the following types of insurance:

General Liability Insurance

General liability insurance is a foundational coverage that’s essential for bakeries because it protects against claims of bodily injury, property damage, and personal injury that may occur on your premises.

The average cost for general liability insurance according to recent data is $42 per month, or $504 annually, though costs can vary based on your business’s specific needs and risks.

Product Liability Insurance

One of the most important types of insurance that every bakery should have is product liability insurance, which covers claims related to defects or safety issues with your baked goods.

For example, if a batch of cookies is found to contain an undeclared allergen, resulting in a customer having an allergic reaction, this insurance will cover the legal and medical costs involved, ensuring that one mistake doesn’t undermine your entire operation.

The cost for this coverage typically ranges from $500 to $4,500 annually for a small to medium-sized bakery, depending on factors such as production volume, the types of products offered, and your bakery’s claims history.

Property Insurance

Property insurance is essential for safeguarding your bakery’s physical assets, such as the building, equipment, and inventory.

The median cost for business property insurance is approximately $63 per month for plans with a $1,000 deductible and a $60,000 policy limit.

Having said that, rates can vary significantly based on factors such as your location, risk profile, and the value of the property in question.

Workers’ Compensation Insurance

If your bakery will have employees, workers’ compensation insurance is likely going to be a legal requirement depending on your state.

This insurance policy provides coverage for medical expenses and lost wages to employees who are injured during work.

The average cost of workers’ compensation insurance ranges between $45 per month, but this can vary based on factors such as payroll, location, and (once again) your business’s specific risk profile.

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How to Start a Bakery FAQs

How profitable is a bakery?

The profitability of a bakery typically falls between 5% and 15%, depending on various factors such as your location, product offerings, and operational efficiency.

Having said that, by implementing effective sales forecasting and cost management strategies, you can significantly enhance your bakery’s profitability over time.

How many people do you need to run a bakery?

The number of staff required to operate a bakery varies based on factors such as the size of the bakery, the range of products offered, and the hours of operation.

For a small bakery, you will typically need at least 3 to 5 employees, including bakers, counter staff, and possibly a manager to oversee daily operations and customer service.

What is the minimum amount to open a bakery?

The minimum amount to open a bakery can vary widely based on factors such as your location, the size of the bakery, and the type of products you plan to offer.

Generally, you can expect to invest anywhere between $50,000 to $100,000 to cover the initial startup costs, including equipment, ingredients, licenses, and permits.

How do I start a small commercial bakery?

To start a small commercial bakery, you will need to conduct market research, create a solid business plan, secure funding, and find the right location.

You should also ensure that you have a well-developed menu, establish relationships with suppliers, and implement effective marketing strategies to attract customers once your bakery is up and running.