If you’re looking to write a persuasive business plan for a bakery, you have come to the right place!
There’s nothing like the smell of fresh baked goodies! Cookies, cupcakes and cakes are common at business functions, birthday parties and a variety of other occasions. It’s no surprise that companies like Magnolia Bakery, Georgetown Cupcake and Cake Crumbs are flourishing in the growing market of baked goods. Grand View Research predicts a compounded annual growth rate of 3% through 2024 for this market. Avid bakers want a share of the pie.
Developing a persuasive business plan for a bakery
Turning a hobby into a career is a desire for most of us. BUT it takes more than passion to make a startup successful. Investors know eight out of ten startups fail. Operating a profitable bakery requires a precise focus on tasks that do not relate to ingredients or design. A business plan needs to reflect your awareness of all the operating decisions you will need to make as a business owner. Here are the items your business plan needs to include:
Generally the financial plan concludes a business plan. The goal of the financial plan is to:
- forecast the growth and profitability of the business,
- indicate how investor’s funds will be utilised and
- what return investors will receive for funds (ROI).
Here at Porsud, we generally encourage the financial plan to be developed at the final stage of the business plan. However brick and mortar businesses are dependent on local passers-by and on-site investments rather than global market trends. Therefore, it makes sense to begin with the financial plan.
The first goal is to develop an income statement. This financial model forecasts revenue, cost of goods, gross margin, operating expenses, interest and depreciation, taxes and, finally, profitability.
It is a good idea to break the first year into months, then summarise the first year and apply a growth assumption for year 2 and year 3.
The assumptions behind the income statement will make or break the bank. The business assumptions will either confirm that your business will be profitable and that you, as a business owner, are aware of all operating items, or will deter investors from supporting your venture. Be precise, be realistic and support your assumptions.
How much revenue you will generate depends on your business model. Most bakeries are reliant on passers-by, rather than online or over-the-phone orders.
To predict revenue, you must know the location of the business and the number of passers-by per day. If the landlord cannot provide that information, stand in front of the desired location for 1 – 3 days and count passers-by. Count in the morning hours, as workers pick up food on their way to work, during lunch and early evenings. Test the difference between weekend activity and work-week activity.
Once you have that number, assume you will convert 1% to max 3% per day.
Next, predict the average order size, based on your menu items.
Run the financial model with the most conservative assumption.
Cost of goods
Ideally, you know what items will be on the menu and where you will source the ingredients. Know the cost of ingredients for each menu item and predict the average cost per order. Multiply that by the number of orders you expect, based on the traffic assumptions. Are you using cupcake liners? Include that in the cost of goods as well.
Gross profit and margin
Next subtract cost of goods from revenue to derive gross profit. Then divide that number by the revenue to calculate gross margin. Ideally, your gross margin is between 60% – 80%.
Operating expenses are made of items needed to run a business, besides ingredients. Here are the general sections for a bakery business plan.
- Equipment: be specific here. Include a detailed breakdown for commercial oven, fridge, utensils, stand mixers, customer counter, seating area, cash register, aprons, kitchen cabinetry, shelving, coffee makers, etc. Some of these items will be depreciable. Identify of these expenses are considered recurring and which are upfront expenses. Down the line, the business should be able to fund recurring expenses on its own.
- Labor: again, be specific here. What positions will be filled? Dishwasher, baker, customer service, cleaning support, etc. Define their hourly wages and number of working hours.
- Marketing: determine whether you need a marketing budget. Initially, you will need a logo, some menus, a banner, maybe a website, etc. On-going, you may need a small advertising budget. Ideally, you can keep this minimal and rely on free, local press.
So far so good? Great! Sum up total operating expenses. Next, subtract this from gross profit to derive operating profit. This is also known as EBITDA (earnings before interest, taxes, depreciation and amortisation).
If you are taking out a small business loan, note the interest expenses each month. Deduct this from EBITDA.
Depreciation & amortization
Some of the equipment will be depreciable, meaning, they lose value through wear-and-tear. Depreciation expenses will be deducted to derive taxable income. The greater the depreciation expense, the lower the taxable income. According to BizFluent, the national restaurant association supports a 15-year depreciation schedule for commercial kitchen equipment.
How much you owe in taxes depends on your earnings after interest, depreciation and amortisation and your state.
This is the magical number that investors will look for. Certainly, investors do not expect a bakery business to be profitable in months 1 – 3. Upfront expenses tend to be higher than revenue.
The balance sheet will indicate the assets, liability and equity that make up your business. First, determine whether you will have any liabilities (i.e. loans). Second, identify which assets, such as ingredients and equipment, your bakery will possess. Finally, reflect the equity expected or already invested. Show the balance sheet trends over a 3-year period.
Cash Flow Statement
The cash flow statement informs investors how funds are used. The cash flow statement distinguishes between operating, financing and investing items. Plan to show a 3-year trend.
Finally, be prepared to show investors basic stats about the business such as:
- return on investment,
- payback period,
- number of customers needed per day to break even, and
- average order size, etc.
Business Plan, other sections
Next, plan to cover the following sections in a business plan for a bakery.
- Product – explain your business AND the value proposition.
- Market analysis – including local trends, demographics, etc.
- Competitor analysis – your competition is not just the artisan bakery 15 miles away, but also the local Walmart and Dunkin Donuts.
- SWOT analysis – what are your strengths, weaknesses, opportunities and threats to operate the business?
- Management team – what makes you an expert baker? How much experience do you have in this industry and do you have any startup experience? Hone in on on this section. Essentially, this is the second most important section of a business plan for a bakery.
- Go-to-market strategy – do you have a plan for how you will reach your market? Are you planning to reach out to local offices for a first-order coupon? Important is that the result of the market analysis and go-to-market strategy support the financial forecast.
- Executive summary – this is a one page document that summarises all aspects of the business plan. Important is that you mention what type and amount of funding you need and for what stake in the business.
How do you feel about developing a business plan for a bakery? If you need more support, feel free to reach out to our team. We can write a business plan for a bakery for $400 to $800. The price depends on what information is already available and the business model. Contact our team to learn more.