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Setting up a Bakery Business

All you need to know about starting and running your business

Business guides » Setting up a Bakery Business

What is a Bakery business?

The bread and bakery industry in the UK is worth a whooping £8.7 billion. With bread, cake and other baked goods being such a statement of British life, this figure may come as no surprise to many people. It’s no coincidence that a daily cup of tea and slice of cake is a British stereotype that is known across the world.

With certain successful baking businesses being well known across the UK, prospective bakers may be worried that they are entering an already saturated market. However, this couldn’t be further from the truth. When it comes to baking businesses, supply doesn’t usually outstrip demand and growing your business from a home baking business, or a small bakery, is an achievable possibility.

Baking businesses in the UK are on the rise, with home baking businesses increasing by a huge 157% in 2020. Additionally, after the Covid-19 pandemic had such a devastating impact on the retail industry, we are now seeing the number of retail bakery businesses beginning to rise again and the industry starting to recover. This means that now is a great time to start up a baking business.

A baking business can sell a huge number of baked goods. Some of the most popular are:

  • Bread.
  • Bagels.
  • Cookies.
  • Pies.
  • Buns.
  • Cakes.
  • Cupcakes.
  • French patisserie.
  • Pastries.
  • Flapjacks.
  • Biscuits.
  • Muffins.
  • Desserts.
  • Tarts.
  • Croissants.
  • Brownies.
  • Scones.
  • Doughnuts.
  • Pizza.
  • Macarons.

 

When starting a baking business, it is important you consider what type of business you want to run.

There are many different types of baking businesses, including:

Retail Bakery

A retail bakery sells baked goods directly to customers, rather than to other businesses.

There are different types of retail bakeries, including:

  • A bakery café – This type of bakery includes a dining area for customers to sit in. Bakery cafes usually sell a variety of baked goods and will usually offer hot and cold drinks. Some bakery cafes also offer other types of food, such as sandwiches, soups, salads and snacks. Bakery cafes usually offer both sit-down and takeaway options.
  • A counter service bakery – Counter service bakeries are usually smaller. They don’t have an area for customers to sit down, and instead baked goods are only served for takeaway. This type of bakery usually requires fewer staff members.

 

A retail bakery allows you to have more personal interaction with customers and make any changes or improvements to your menu based on customer feedback. However, upfront costs can be higher as you will need to pay for the premises and hire employees.

Retail bakery owners need to consider the design of their bakery, as well as the products they serve. An eye-catching, attractive shop front and a well-designed, clean interior can help you to attract customers and increase your business.

Commercial Bakery

A commercial or wholesale bakery is a business that sells its products to other businesses and establishments, such as restaurants, shops or cafes. Commercial baking businesses usually enter into contracts with their clients, meaning their business growth, expenses and profits are predictable.

A commercial bakery will need to have business premises and hire employees such as bakers, delivery drivers and cleaners. Depending on the size of the business, a commercial bakery is likely to have to produce its products on a large scale.

Although upfront and overhead costs may be higher than other baking businesses, a commercial bakery usually has steadier income and higher profits.

Home Bakery

A home bakery makes baked goods in their home and sells these directly to customers. They may offer a delivery or pick-up service or may sell their products at markets, streets fairs and other events.

A home bakery business usually has significantly lower upfront and overhead costs than other bakery businesses. However, your potential income may be more limited. You also need to ensure you comply with all legal and health and safety requirements for food from home businesses. You can consult our full guide for home-based food businesses to help you get started.

Catering Van Bakery

Catering vans are becoming increasingly popular in the UK as they are a low-cost, low-risk venture for those looking to set up a baking business. You will likely need to bake your products ahead of time, because of the limited space available in a catering van.

A catering van offers you the flexibility to move around to different locations and operate your business in the hours you choose. However, catering vans are less successful in bad weather and are often seasonal businesses. For more information on catering van businesses, consult our business guide.

Speciality Bakery

A speciality bakery usually focuses on a speciality product. Some examples of speciality bakeries include wedding cake shops, allergy-friendly or gluten-free bakeries, and pie businesses.

Focusing on a specific product type can help businesses to perfect their products. Focusing on a niche can also help bakeries to stand out from the crowd and become more successful. They can also choose to sell their products retail or wholesale. However, it may be more difficult to become established and may take longer to begin making a profit.

If you have a passion for baking and the commitment to set up and run your own business, starting a baking business could be a great option for you. As well as a flair for business, you will also need to be willing to dedicate the time and effort required to make your business a success.

Types of Customers

Cakes, bread, cookies, desserts and other baked goods are popular across all ages and demographics. From young children to working professionals, families and the elderly, a bakery business can appeal to all.

Some baking businesses are designed to attract all types of customers, whereas others are designed with specific customers in mind.

When considering whether you will have a target market and what types of customers you hope to attract, there are some considerations you first need to make:

What type of baking business are you going to run?

The type of baking business you are going to run will have a significant impact on the types of customers you will target. For example, a commercial bakery will target other businesses whereas a counter service bakery may target families and workers on their lunch breaks.

Where will your baking business be located?

The location of your business will have a significant impact on your customer base, particularly if you operate a baking business that your customers visit, such as a retail bakery or a catering van. If you are located in a town centre, you may be more popular with shoppers and workers whereas bakeries located in small villages may be more likely to attract families and groups of friends.

What products are you going to sell?

Your products will have a significant influence on your customer base. Deciding what products you are going to make is an essential first step when setting up your baking business. For example, if you create occasion cakes, you may target people who are celebrating weddings, birthdays, christenings and other special occasions.

Will you offer a delivery service?

If your baking business offers a delivery service, this greatly increases the number of customers you can attract. You will no longer be limited to passers-by and people in your local area.

What is your pricing strategy?

The price point you sell your products at could affect your target market. Products with a higher price point may only be attractive to those looking for premium products or those who are purchasing for a special occasion.

Bread Cartoon
Bakery Cartoon
Doughnut Cartoon

Equipment You Will Need

The type of equipment you will need for your baking business can vary, depending on the types of baked goods you are producing. For example, a business that specialises in wedding cakes will have different equipment requirements than a local counter service bakery that sells bread, pastries and cupcakes.

Below, we have prepared a general list of equipment requirements for baking businesses.

Baking Equipment

Baking equipment can encompass a huge variety of equipment types and your equipment requirements will vary based on the type of business you set up.

Some baking equipment you could purchase includes:

  • Mixers – Many baking businesses require several mixers. You will likely need a mixer with a variety of mixing accessories and attachments, such as different whisk attachments. You may also need to purchase a large dough mixer and a countertop mixer. The most common industrial type mixers found in a bakery are planetary mixers, horizontal mixers and spiral mixers. When deciding which mixer is best for your business, you will need to consider the size and capacity of the mixer, the power and the type of mixing they are capable of, for example, can the mixer, blend, whip and knead as well as mix?
  • Food processor – A food processor can be utilised when you are making bread, brioche, croissants, pies and some desserts. It is particularly recommended for recipes that require butter.
  • Oven – Depending on the type of products you bake, your oven requirements may vary. You will likely need a large industrial oven so you can bake a large number of products at one time. Depending on the size of your business, you may even require multiple ovens.
  • Dough proofer – Any baking business that uses dough will likely need a dough proofer. Dough is used in bread, pastries, pizza, cinnamon rolls, biscuits, cookies and doughnuts. A dough proofer can help to simplify the dough rising process, helping you to ensure your products are uniform in shape and size, and the production process is streamlined.
  • Bakeware – Bakeware are items such as baking tins, trays, pans and moulds that are used during baking. The type of bakeware you will need depends on what products you are baking. For example, cake pans, bread pans and pie pans are all different, so you need to choose the ones that are necessary for your business.

 

Baking Accessories

There are a large number of accessories you may need in your baking business. As with baking equipment, your accessory requirements will likely vary depending on the types of baked goods you are making.

Some accessories you may require include:

  • Flour sifters/sieves – Sifting flour and other dry ingredients is an essential step in baking. Choose a high-quality sifter to get the best results.
  • A bread slicer – If you are baking your own bread, a bread slicer is a necessary accessory as many customers will require already sliced bread. A bread slicer allows you to quickly cut uniform slices of bread.
  • Measuring cups/spoons and weighing scales – Precision is key to baking. Measuring cups and weighing scales will ensure you always have the perfect amount of each ingredient.
  • Spatulas and spoons – These can be used for folding ingredients together, stirring mixtures, and transferring baked goods.
  • Pastry brush – A pastry brush can be used to grease a pan or baking tray, or to add melted butter or egg wash to your products.
  • Rolling pins – Rolling pins are used mainly for pastries and biscuit dough. If you are baking pies, pastries, biscuits and cookies, you will likely need this item.
  • Chef’s knife – You will need at least one sharp knife that is high quality. Any items in your bakery that need to be chopped, cut or minced will require a high-quality knife.
  • Wire rack – This is used for cooling cakes, biscuits and other baked goods. The wire rack allows air to circulate around the food and helps it to cool faster.
  • Temperature probe – This can be used to check the temperature of cakes and other products to make sure they are thoroughly cooked.

 

Storage Equipment

All food must be stored correctly to ensure the health and safety of the consumer.

Your storage equipment requirements may include:

  • Mixers – Many baking businesses require several mixers. You will likely need a mixer with a variety of mixing accessories and attachments, such as different whisk attachments. You may also need to purchase a large dough mixer and a countertop mixer. The most common industrial type mixers found in a bakery are planetary mixers, horizontal mixers and spiral mixers. When deciding which mixer is best for your business, you will need to consider the size and capacity of the mixer, the power and the type of mixing they are capable of, for example, can the mixer, blend, whip and knead as well as mix?
  • A fridge and freezer – This is essential equipment for all baking businesses. Ensure the fridge and freezer are set to the correct temperature. Consider how much you will need to store when considering what size fridge and freezer you will need.
  • Shelves – These can be used to display shelf-stable items, such as sugar and flour. You will also need additional shelving in your kitchen to store equipment, accessories and utensils.

Other Equipment

  • Display cases – This is likely how you will display the majority of your products. You may need a refrigerated display case and one that is at room temperature.
  • Packaging – Your packaging should be of good quality and, if possible, recyclable. You may want to display your business name or logo on the packaging as a way of promoting your business.
  • Signs – You will need signs that state your pricing, allergens, whether a product is vegetarian, vegan or gluten-free, and signs that advertise any discounts or special offers.
  • Cash register and Point of Sales (POS) system – This can help you to record sales and manage the financial aspects of your shop. Your payment system should allow customers to pay by cash, debit card or credit card for their purchases.
  • Cleaning equipment – Cleaning equipment is essential in any business that sells food. Some equipment you will need to invest in includes a sweeping brush, a mop, cleaning products, cloths and sponges.
  • Aprons, hairnets/hats, and gloves – Having the correct clothing can not only help to protect your clothing from spills, splashes and singes, but it can also help to prevent food from being contaminated.
Bakery Business

Typical Pricing

There are many different costs associated with running a baking business. Being aware of the costs can help you to better plan your finances, calculate your initial investment requirements, and predict your potential profit margin.

Some typical pricing associated with setting up and running a baking business is:

Premises

This will be your biggest expenditure. The price will vary significantly depending on the size and location of the premises. If you choose to rent your bakery premises, be aware that rental costs are often calculated per square metre. They can range significantly, from £500 to £15,000 per square metre annually.

Renovation

You will need to make the premises fit for purpose and attractive to customers. This cost may be fairly low if you choose premises that are already designed as a bakery or café business. However, if the property requires a complete renovation, costs will be significantly higher. Renovation costs will also vary based on the size of the premises.

Equipment

The cost of equipment can vary based on which of the equipment from the list above you require. Some baking businesses choose to buy minimal equipment initially and then expand as their business grows. Equipment costs can range from £3,000 to £20,000.

Repairing and replacing equipment

This is an ongoing cost you will need to factor into your budget. Your equipment is an essential part of your business, and you will not be able to operate your bakery without it. You may need to pay for maintenance or repairs and if your equipment is no longer functional, you will need to pay to replace it.

Licensing costs

Licensing costs can vary depending on the type of baking business you run. Contact your local authority for more information on licensing requirements. You can expect to pay between £100 and £500 per year.

Ingredients and stock

The cost of ingredients and stock should not exceed 40% of your total sale price. Try and buy some ingredients in bulk to reduce the cost and shop around to find the best deals.

Marketing and advertising

Marketing and advertising may be more essential for some baking businesses than others. For example, a home baking business will need to advertise more than a bakery café. It is recommended that you spend no more than 10% of your annual revenue on advertising costs. Once your baking business is established, you may be able to reduce your advertising costs.

Running costs

Running costs are the costs associated with running your baking business. Most of these costs will be paid monthly, although some will be paid annually. Your running costs could include your overhead costs such as electricity, gas and water. If you keep the running costs as low as possible, this can help to maximise your profits.

Business insurance

A baking business will have a variety of insurance needs. This could include Public Liability Insurance, Employer’s Liability Insurance, Equipment Insurance, Contents Cover, and Legal Expenses Insurance. You can expect to pay between £200 and £1,000 per year for insurance.

Staff

Many baking businesses need to employ staff. This can include baking staff, cleaners, delivery drivers and counter staff. When calculating the costs associated with employing staff you should consider the number of staff and their hourly wage. You should also account for holiday pay and sick pay.

Safely Running a Bakery Business

It is imperative that you safely run your baking business. This can help ensure the safety of your employees, customers and the general public.

Some safety procedures you should follow at all times when running your baking business are:

Conduct risk assessments

Risk assessments should be carried out before setting up your baking business and at any other time you require them. If your business has five or more employees, risk assessments are a legal requirement. An additional risk assessment is now required for risks relating to Covid-19.

Pay attention to the Hazard Analysis and Critical Control Point (HACCP) principles

The HACCP principles help you to manage food safety hazards that could arise when storing, preparing and baking food. You can identify potential risks and implement measures to ensure these risks are reduced or removed. You should also keep records of any actions you take in line with HACCP.

Implement cleaning procedures

Having effective cleaning procedures is essential for food businesses. A cleaning schedule and cleaning policies should be in place that cover the cleaning of equipment, and surfaces, handwashing procedures, and cleaning the food preparation, baking and storage areas.

Safe storage of stock

As part of your baking business, you could be storing frozen, refrigerated and cooked food. This food must be stored at the correct temperature to prevent spoilage or deterioration. You should also ensure food is covered to prevent cross-contamination.

Ensure correct cooking temperatures

All cooking businesses, including bakeries, must ensure they are cooking at the correct temperature. This is to reduce or eliminate the risk of food poisoning. Ensure your oven or other cooking equipment is set to the correct temperature and use a food thermometer to ensure food is thoroughly cooked.

Keep up-to-date records

When you receive a visit from the Environmental Health Office (EHO), they will likely want to see up-to-date records of cleaning schedules, risk assessments, health and safety policies, allergens and temperature checks. Ensure you keep clear, up-to-date records in your baking business.

Legal Requirements

When setting up your baking business it is crucial that you comply with all legal requirements. Failure to do so could result in a fine, forceful closure of your business or, in serious circumstances, a prison sentence.

Below is a list of general legal requirements you will likely have to adhere to:

Apply for a food business registration

You must apply for a food business registration at least 28 days before you begin trading. You can apply for your registration on gov.uk, and it is free of charge.

Register as self-employed with HMRC

Running your baking business as an individual or as a self-employed person requires you to register as a sole trader. You will need to register the name of your business and keep records of all your income, profits and expenses.

Ensure all staff have food hygiene training

All food businesses must ensure staff are trained in food hygiene. If you receive a visit from the Environmental Health Office (EHO), a food hygiene certificate is the best way of demonstrating your compliance. It may also increase your likelihood of being awarded a five-star food hygiene rating.

Implement a Food Safety Management System (FSMS)

An FSMS is a legal requirement for food businesses. An FSMS is a systematic approach to controlling food safety hazards and ensuring safe practices are followed. Your baking business’s FSMS should be based on the principles of the Hazard Analysis Critical Control Point (HACCP).

Comply with allergen requirements

Food businesses are legally required to label their food products with information regarding the 14 allergens. If any of the food you sell contains any of the 14 allergens, this information must be visible to customers.

Apply for a music licence

If you plan to play any background music in your bakery, you will need to apply for a Licence to Play Background Music from the PPL PRS. You will need to pay an annual fee for this licence.

Comply with the Bread and Flour Regulations (1998)

The Bread and Flour Regulations must be followed by all baking businesses. The regulations state the nutritional value of bread and flour that must be adhered to.

Comply with the Meat Products and Spreadable Fish Products Regulations (1984)

If your baking business sells any meat products such as sausage rolls, meat pies or sandwiches, you will need to ensure you comply with this legislation. It concerns how you name and label meat products and the minimum meat content that is required by law.

Apply for a Waste Carrier Registration

If you need to transport any waste, you will need to register as a low tier waste carrier in England, Wales or Northern Ireland or a professional collector or transporter of waste in Scotland.

Comply with Fire Safety legislation

As the business owner, you will be responsible for fire safety in your premises. This could include conducting fire risk assessments, implementing fire safety measures, ensuring staff are both informed and trained on fire safety, and implementing emergency procedures.

Comply with employment legislation

Your baking business must comply with all areas of employment legislation, including recruitment, pay, working hours, holidays, sickness, maternity, paternity, discrimination and dismissals.

Baking Business Selling Food

Positives of Owning a Bakery Business

There are some great positives to owning a baking business:

Set up the business you want

As you are in control of the business, you can do anything you want with your bakery. You can choose which products to sell, the design of your premises, your price point, and the type of bakery you run. This offers you creative freedom and self-sufficiency.

A high markup on products

The cost of ingredients will be relatively low, meaning you will have a high markup on the products you sell. Your selling points will be significantly higher than the costs of the ingredients and food products. Even when you factor in any overhead costs, you should still have great profit margins.

You can be creative

You can make creative products with beautiful decorations. You can also be creative with flavours, textures and ingredients until you create your perfect products. People who love baking and being artistic will find the creativity involved in a bakery business rewarding. Being creative can make your work more enjoyable.

Connect with the local community

A bakery or café is often a pivotal part of the local community and can become a meeting point or hub for all types of people. You could also become involved in the big events and celebrations in people’s lives. You can become more involved in your local community and make new connections.

You can start small and grow your business

If you don’t have an external investor or a large capital with which to start your business, you can start smaller and grow your business in time. You can start a home baking business initially, which won’t require you to have premises or other employees. You could even bake part-time initially before working up to a full-time business. As your business grows and you begin to make a profit, you can invest your profits back into your business and purchase more equipment, hire employees or invest in marketing and advertising.

High demand

Bakeries and baked goods continue to be staples in the UK and are consistently in high demand. The bakery industry is one of the most lucrative industries in the country and is growing year on year. Food, including baked goods, is considered a recession-proof industry. Even in difficult financial times, bakeries still seem to succeed.

Great fun

Running a baking business can be great fun, especially if baking is something you are passionate about. You can be creative, do something you love, have face-to-face interaction with customers and have fun every day at work. Many baking business owners consider baking to be a vocation, meaning running their business is particularly rewarding.

Preparing Food For Baking Business

Negatives of Owning a Bakery Business

However, there are some important cons to owning a baking business you should be aware of:

It can be long hours

Bakers often have to start very early in the morning to ensure their products are baked, cooled and decorated before the bakery opens. You will then have to keep the bakery open long enough to sell your stock and make a profit. You will also have to consider the time it takes to order ingredients, clean and do your business accounting. This can be time-consuming and mean you work long hours every day. You may also have to work weekends.

It can be high stress

As the business owner and baker, you will have a large number of responsibilities. You will be responsible for every aspect of the business, including marketing, ordering ingredients, baking and running the business. This can be highly stressful, especially when your business first opens.

Ingredients can be expensive

Some baked goods require expensive ingredients. You may also need to use a large number of ingredients to create your products. This can mean your running costs are higher and profit margins are lower.

Potential for wastage

Baked goods have an extremely short shelf life, with some products needing to be sold the day they are baked and others only having a shelf life of a few short days. Any products that you don’t sell will then need to be thrown away in case they spoil or become stale. This can have a big impact on your profits.

Can be competitive

Not only will you be competing with other baking businesses, but you will also be competing with supermarkets, cafes and coffee shops. This can make it more difficult to make your baking business a success.

The food industry is highly regulated

No matter what type of baking business you run, you will need to ensure you adhere to strict health and safety laws and regulations. This includes regulations on handling food, cleaning, the use of equipment and cross-contamination. You may have to undergo specific training and be inspected by the relevant authorities.

High start-up costs and running costs

A baking business has a lot of associated costs including the cost of the premises, staff, equipment, ingredients and overhead costs. The high initial investment that is required can make it more difficult for you to start up a baking business. You will also need to ensure consistent profits to cover your monthly costs.

Up and down profits

Some days are likely to be busier than others. Many baking businesses also find that certain times of year are quieter than others. This can make it difficult to predict your profits and plan how much stock you need to bake.

Planning Your Bakery Business

An effective well-designed business plan is essential to ensure the success of your baking business.

When planning your business, there are several important considerations you will need to make:

What type of baking business are you going to run?

Deciding what type of baking business you are going to set up is the first step when planning your business. This will impact your premises, staff requirements, your target customers, and the types of products you sell. Consider your local competition, your budget, and your own baking and business skills when deciding what type of baking business you will run.

What baked products will you sell?

You could decide to focus on one specific product, such as occasion cakes, French patisserie or pies. Alternatively, you could offer a large variety of baked products. You also need to consider whether you will offer gluten-free, vegan or allergen-free products.

Where will your baking business be located?

Your location will have a significant impact on the types of customers you are likely to attract. It will also impact your premises’ rental costs.

What are your equipment requirements?

What equipment do you need to start your baking business? Calculate the costs of renting the equipment rather than buying it. Consider if there is any equipment you can buy later on, once your business is more established and you have begun to make a profit.

What local competition do you have and what are their price points?

Being aware of other baking businesses can help you decide what type of business to run and how much to charge your customers. If your local area already has several successful bakeries, you may want to focus on an untapped niche and target different customers.

How will you finance your business?

Can you finance the business yourself or will you need to source outside investment? Calculate your start-up costs and running costs and estimate when you are likely to start turning a profit to help you figure out how you will finance your bakery.

What are your business objectives?

Business objectives are crucial for creating a successful business plan. Your business objectives highlight the targets and goals of your baking business and help you to create a one-year, three-year, and five-year business plan.

Your business objectives should be SMART:

  • S = Specific
  • M = Measurable
  • A = Achievable
  • R = Realistic
  • T = Time-bound

Have you complied with all legal requirements?

Ensure you have filed all your paperwork and have complied with all legal requirements before starting a baking business.

Download our business plan

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