How to Start a Bakery in 9 Steps

If you’re a baker, you know that creating the perfect Instagram-worthy product is actually the culmination of a lot of time and effort — and the right recipe, of course. The same is true of running a bakery business.

You’ll need to gather ingredients like your equipment and employees, mix them together in the right sequence and add just the right amount of resources in order to create something truly special. We’ll list out the exact method in our nine-part recipe for how to start a bakery.

1. Choose your bakery type

All retail bakeries sell baked goods directly to consumers, though some specialize in one kind of pastry or service. You could choose from the following types of retail bakeries:

• Home bakeries: Home-based businesses that often sell products online and ship goods to customers.
• Bakery food truck: Products are sold from a truck but are typically baked in an off-site kitchen.
• Bakery catering business: A bakery that specializes in catering would prepare baked goods for customers in a remote location, like hotels, weddings, events or even offices.
• Counter service: A bakery selling goods at a counter without a dining area.
• Specialty bakery: Features one type of baked goods, such as wedding cakes, cupcakes or gluten-free pastries.
• Bakery café: A combination of bakery and café that sells baked goods and provides a dining space for customers.

You may want to consider diversifying your product offering to attract a variety of customers, especially if you mainly sell something seasonal, like wedding cakes.

The type of bakery you want to operate determines other aspects of the business, such as the amount of space, equipment and ingredients you need, as well as startup costs. We’ll discuss those details next.

2. Figure out your budget and costs

Once you have some idea of the type of bakery you want to open, the next step is to create a bakery business plan. Writing a strong business plan is a little bit of art and a little bit of science — and at this stage, it’s an important planning tool to figure out what exactly your bakery does and how much it’ll cost to start up and run.

In 2024, the average cost to open a bakery ranges from $267,000 to $535,000, depending on the type of bakery, according to a survey from the business planning firm SharpSheets. Your exact costs will depend on your business type, but here are some of the more common startup expenses:

• Utilities
• Marketing
• Insurance
• Contingencies
• Permits and licenses
• Rent and security deposit
• Ingredients and packaging
• Baking and sales equipment
• Legal and professional services
• Storefront and kitchen renovation

Your bakery business plan should calculate all expected costs and how you plan to pay for them, whether from savings, small business loans, gifts from friends and family, investors, etc.

If you can’t get enough funding, you can always consider scaling down your plans and growing over time. For example, if you don’t have the money to open a cafe, you can start with a home bakery business.

3. Find a location

Your bakery business plan will also help you plan out where you’ll be running your business based on the size and features you’ll need, your intended clientele and your budget.

• Using your home kitchen. Often the cheapest option, but be aware that there may be limitations on what and where you sell based on your state’s laws (see next section).
• Leasing commercial kitchen space. If you’ll be running a bakery that doesn’t require an eating area, like a catering company or a food truck, a popular option is to lease a commercial shared kitchen space.
• Leasing a building. If you want your own storefront and dining area, then leasing a building (or a space within a building, such as in a shopping mall) is cheaper than buying.
• Buying a building. If you have enough funding to buy your own storefront, you’ll have more control over your space and you’ll build equity — but you’ll also have less freedom to move to new locations and you’ll need significantly more startup capital.

4. Research permits, laws and insurances

All business owners are subject to various laws and permitting at the federal, state and even local levels. It’s a good idea to reach out to a local small business attorney to see what specific regulations might apply to you. Here are some of the most common:

• Sign permit
• Food permit
• Sales tax permit
• Business license
• Food service license
• Food handling permit
• Building health permit
• Certificate of Occupancy

In addition, it’s a good idea to consider business insurance in your cost estimate. It may even be required in some cases, such as if you hire employees or lease a kitchen space. The average small business spends about $87 a month on insurance, but that can vary significantly based on the size, type and location of your business.

5. Purchase bakery equipment

Equipment is the second-biggest startup expense — behind rent — for bakery owners. No matter what baked goods you sell, you may anticipate buying a pastry case, commercial oven and refrigerator. Large tables, called work benches, mixers and dishwashers are also crucial in a bakery. Your costs would depend on what your bakery offers as well as the size of the space. Here are some of the common equipment costs you can expect if you’ll be purchasing them new:

• Oven: $5,000-$15,000
• Mixer: $500-$2,000
• Dough sheeter: $2,000-$5,000
• Proofing cabinet: $1,500-$3,000
• Bakery display case: $1,000-$5,000
• Refrigerator: $2,000-$5,000

Many bakery owners buy used equipment at the start, but it may be worthwhile to buy some things brand new. A used oven or refrigerator could have lingering scents that may affect your pastries. The pastry case should also be free from noticeable scratches and discoloration, so pastries appear appetizing.

If purchasing is prohibitive, equipment leasing would allow you to use the equipment you need for a set period of time, but you wouldn’t own it at the end of that time.
 

6. Hire employees

If you won’t be running a solo shop and plan to hire employees to help your business, you’ll need to research relevant employment laws and regulations for your state.

Be aware that you should consider offering benefits such as health insurance, paid time off, a workplace 401(k), etc., in order to attract good employees, even if it’s not required. You’ll also need to pay employment taxes.

7. Set your prices

You’ll do a market and competitor analysis when you write your bakery business plan. This will give you an idea of what prices other bakeries are charging in your area based on the products they’re selling. It can also give you a good idea of how much you can price your specific baked goods.

In general, most bakeries operate with profit margins of 5% to 10% after all expenses are included. In other words, you can expect to pay $90 to $95 for every $100 in sales you make.

That’s a very narrow profit margin, which highlights the importance of getting your pricing right. Some types of bakeries may operate with higher margins, such as luxury baked goods that may command profit margins of 15% or higher.

8. Market early

You’ll want potential customers to know about your bakery before you open. Otherwise, you’ll be faced with an empty store on opening day. You should devote at least some amount of your startup funds to a marketing budget to generate buzz about your brand.

It may be worth hiring a local marketing or public relations firm to help in this regard. Here are some good options to consider:

• Host a grand opening event
• Advertise in your local newspaper
• Post in local online community forums
• Stay active with your business’s social media profiles
• Budget for social media advertisements, such as on TikTok, Facebook, Instagram, etc.

9. Open your bakery

Once you get new customers in the door, the goal is to keep them coming back for more. Creating consistent recipes that become your customer’s standby favorites is a good way to encourage repeat visits. Giving them an extra nudge with coupons and customer loyalty programs can also help.

It’s also important to keep a close eye on your books. You should have a strong understanding of your profit margins for each item and what impacts it so that you can make better business decisions going forward as you develop your menu.

Financing for bakeries

If your personal savings isn’t enough to start a bakery, there are several business financing options that could give you a boost. Here are some funding options that may be suitable for new bakery owners.

SBA loans

The SBA partners with lending institutions to guarantee loans up to $5 million made to small business owners.

The 7(a) loan is the SBA’s primary offering. These loans can pay for business growth costs or ongoing working capital needs. Microloans are smaller, maxing out at $50,000. Competitive rates and terms make SBA loans an attractive funding option for many small business owners.

Business loans

Most business loan providers require at least six months of business history. However, some companies offer equipment financing to new businesses, using the equipment as collateral for security.

Online alternative business lenders can also be a viable financing option for those who have trouble qualifying for traditional bank loans. However, online lenders often offer smaller loan amounts with higher interest rates and shorter repayment terms than banks.

Crowdfunding

Crowdfunding allows business owners to raise capital from family, friends and the general public. Online platforms like GoFundMe, Kickstarter and Indiegogo let you set up a campaign explaining your business and funding needs. Most platforms collect a fee to use the service.

Time to funding may be slow, as it could take a while to raise money, and you may not raise as much as you expect. It could be challenging to compete with other crowdfunding campaigns online, but the exposure you would gain from being on a platform could be valuable in building your customer base.

Personal loans

Many people use personal loans to pay off credit card debt or handle surprise emergencies, but you can generally use personal loans to start a business, too. Since many small business loans require you to have been in business for at least two years, a personal loan may be easier to qualify for if you’re a newer business.

However, you’re also personally liable for the debt, and you’ll have to repay it even if your business goes under, making this a risky option.

You’ll typically need a good personal credit score, and rates can be higher than a typical small business loan. Also, most lenders don’t offer personal loans higher than $100,000.

Scaling up

You might have grand plans for a world-renowned bakery, but chances are you won’t start that way. Just like with other businesses, you’ll generally start small and grow your bakery over time — which could be a good thing. Not only does it allow you to get started sooner and with less capital, but you’ll also be risking less in the event your business fails.

Business loans generally require personal guarantees, so if your bakery closes, you’ll still be required to repay the loan with your own money.

Plus, scaling up allows you the opportunity to grow a customer base before you take your business to the big time. It’ll be easier to take your business from a stall at the farmer’s market to your own storefront if you know you’ve already got a loyal group of fans willing to follow you there.

Taking on a partner

Another option is to find an investor and offer them a stake in your bakery as a business partner. This can be a good option if you can’t find another way to finance your new bakery.

You will, however, sacrifice control over your business, and you’ll need to split the profits with your business partner, since it’ll be their bakery, too. On the other hand, if they’re knowledgeable in an area that can help your business be successful and you both get along well, it could be a real win-win arrangement.