Sugar and spice and everything nice – that's what bakeries are made of, right? The model looks easy enough when it seems like a new cupcake bakery opens every week.
Private research firm AnythingResearch.com listed bakeries and baked goods as its eighth fastest-growing industry hospitable to small business this year, saying "growth may be the result of people cutting back on larger entertainment expenses (e.g., vacations) and choosing instead to spend more on daily indulgences."
Without the right recipe, however, dreams of getting a bakery off the ground could crumble like a cookie. This guide will show you how to perfect your recipe for success.
How to Write a Bakery Business Plan: Conduct a Market Study
There's little doubt that bakeries are big. Bakeries, pastry shops, and bagel sellers are growing at a rate of 5 percent, according to AnythingResearch.com. To figure out if a bakery can provide you with a sweet payoff, however, you've got to have a plan.
Start with an in-depth market study that profiles the target customer base, current sales in the market area for the product category, pricing and product features of competitors, plans for differentiation in the proposed products and expected sales, recommends Kirk O'Donnell, vice president/education at the American Institute of Baking.
Next, after determining a research-based sales estimate, look at cost structure, which O'Donnell says starts with building and equipment. He suggests the following questions:
• How much building space is needed?
• What is the cost of the building space?
• Do you need flexibility for expansion?
• What is the specific equipment needed?
• What is the cost of installation of equipment?
• Will you need vehicles for transportation?
Once these costs are known, then costs of ingredients and packaging can be determined from sales projections and current commodity costs, O'Donnell said. But don't forget staffing needs, transportation and distribution. Determine the number of people needed for production, sales, and their projected salary and benefits.
Finally, estimate all overhead costs and sources of income to help determine your required financing.
Sound like too much work? Maybe you can follow the route taken by Paul Sapienza, owner of Sapienza Bake Shop in upstate New York.
"I took over from my dad who didn't ask for one," he says, laughing.
Dig Deeper: Industry Profile: Bakeries and Baked Goods
How to Write a Bakery Business Plan: Software or Business Professional?
No need to worry about your lack of business school credentials. Online resources can assist in formulating your bakery business plan such as this sample on Bplans.com. The "Cupcakes Take the Cake" blog had an active discussion about a year ago featuring a video log of Cincinnati's Funky Brick Bakery efforts to launch its business. And there's software, such as Business Plan Pro, to help you along.
Neither O'Donnell nor Sapienza is completely sold on the software, however.
"The software that I have seen for bakery management normally focuses on inventory management, scheduling and record-keeping," O'Donnell says. "In other words, (it's) a help in managing a business, but not in writing a business plan."
Sapienza, vice president of operations for the Retail Bakers of America, recommends paying a professional to write the plan or asking a b-school professor for advice.
Kevin VanDeraa, owner of Cupcake in Minneapolis, opted for a hybrid approach when developing his plan. He used software and took advantage of the local chapter of SCORE, which prides itself on being "counselors to America's small businesses."
"Partner with a small business association. There are a lot of free resources," VanDeraa says. Most importantly, he suggests viewing the plan as an evolving document, not something to be filed away once the business gets going. "Go back to it and compare your estimates to your actuals," he says, "and you'll have a more realistic sense of how to move the company forward."
Dig Deeper: How to Write a Great Business Plan
How to Write a Bakery Business Plan: What's in a Name?
Never underestimate the pull of a good name.
When Adriano Lucas opened a New York City bakery called The Best Chocolate Cake in the World, the press, well, ate it up. The mini-chain, which only has one U.S. location, got mentions in both The New York Times and New York magazine before its grand opening in June. Hoards of hungry choco-holics consumed 400 cakes during opening weekend alone.
The key to a good name, according to BabyCakes NYC owner Erin McKenna, is one that strikes a good mix between "warmth and comfort."
"The name needs to be short and immediately identifiable to the product, not trying to sound too girly or precious," she said.
For VanDeraa, picking out the name was the hardest part.
"I wanted the name to convey both coffee shop and bakery, to imply you're going to get both here," he says. "I had to give it up for a while. I was just calling it 'Minneapolis coffee shop.'"
Inspiration struck while he was having margaritas with friends. Cupcake was an immediate hit. "I was really lucky," VanDeraa says. "It was before the trend."
Dig Deeper: How to Choose the Best Name for Your Business
How to Write a Bakery Business Plan: Let Them Eat (cup)Cake?
Of course, VanDeraa is referring to the cupcakery explosion.
The much-hyped "Sex and the City" movie sequel helped to put cupcakes in the news again. Hello Cupcake in Washington, D.C., even had a cupcake/movie tie-in with specialty treats inspired by each character.
The popularity of cupcakes is good news for owners like McKenna, who opened her second vegan bakery, BabyCakes LA, in January. But even good news has its limits, she said.
"I don't think cupcakes are the problem. The press swooning over them so much that people want to by nature reject them is the problem," McKenna says. "If someone's going to open up a cupcake bakery, I don't think they should play up the adorability of it. Just have more a focus on the food."
Van Deraa found in his market research that a standalone bakery concept didn't appeal much to his target audience. They wanted soups and sandwiches, too, he said.
He adjusted his model. In addition to baked goods, Cupcake also serves breakfast all day, quiche, paninis, salads and soups. And six different categories of cupcakes – simple, gourmet, premium, party line, baby and celebration.
The diverse offerings drive the business year-round, he says. In winter, customers come for the soup. Many come in daily for their morning coffee. Some have never even tasted the cupcakes, he said.
"It's helped us as a business to have more offerings especially if there's a diet fad," he says, with a laugh. "That was a big stroke of luck."
The bakery-and-restaurant model – like Panera Bread and Dunkin Donuts – is the more profitable model for most owners, Sapienza says.
"I'm aware that Mrs. Fields and Famous Amos started in the kitchen, but very few make the leap (to a successful business)," he says, adding that "cupcakes might be the exception to the rule."
Whatever model you choose, don't forget to add the following to your recipe: two cups of passion, an extra serving of hard work and an ounce of luck.
Dig Deeper: Building a Cupcake Empire