If you’re a budding baker, or perhaps you’ve watched a lot of the Great British Bake Off and are feeling inspired, then you might have decided to start your own cake business!
Many enthusiastic bakers have taken to selling their creations online throughout the pandemic to supplement their income, but what about if you want to take your hobby and make it into a full time business?
Well, if that is you, then this article has you covered!
Today, we’ll walk you through all the steps you need to take to start your very own cake business, covering:
- Market research
- Business model
- Setting up – licences, insurance, permits etc.
- Financial plan
Already an established business? Stay tuned as we’re writing a cash flow specific article for cake businesses later in the month.
Before you get baking, you’ll need to do some “boring” bits first, like understanding your target audience.
What is the target audience for a cake business?
Before you can get to this point, you need to ask yourself what your ultimate ambitions are for this business, are you planning on growing your business to dizzying heights? Or do you want to just keep it small as a side business from home?
Ultimately your ambitions for your business’s future will inform your target audience, and in fact, the rest of your business plan.
For the unaware, market research is essentially finding out information on your customers and your competitors. This step in your business plan is sometimes overlooked, but sets a crucial foundation for the rest of your business plan.
It’s very easy to say: “well I’m going to sell to people who like cakes” and “I’ve not got any competitors, my cakes are unique” and call your market research section done, but if you want to be successful, you’ll need to do a bit more than this.
Let’s start with where to find your customers.
How and where to find your cake business customers & competitors
The first person to ask is:
“Who is my ideal buyer?”
As I alluded to earlier, it’s not quite enough to say “people who like cakes” , you need to think deeper to segment your audience to inform your marketing.
What I mean by this, is that you can say “people who like cakes” but why would this person be buying a cake? Do they buy cakes regularly? Is it for a special occasion?
So, for example you could say, “I’m going to sell bespoke cakes to people who are having special occasions”.
This would help inform your target audience.
The issue with this is that, although you might have Bake Off inspired designs but if no-one in the area is willing to buy those, you might need a rethink and simplify your cakes to cater to the market.
Generally speaking, you’ll be looking locally for your customers. Transporting cakes long distances when you’re baking from home or a rented space nearby is a recipe for disaster, so best to stay local to begin with. A 10 mile radius of your bakery is a good starting point with some flexibility around this will help keep things local.
Perhaps the best places to look for your customers are social media sites, Facebook has great groups and filter options to help you find local people in your area, along with those that are interested in what you’re looking for. Try searching for your local community in the groups tab on Facebook and join a few of those.
Social media sites are a great place to start, along with other online communities for your area. As it turns out, these are also great places to search for your competitors too!
Because this strategy is so good for finding customers, you’ll also find your competitors lurking in these communities too.
Scour the groups for competitors, or use the search functionality in the group to return keywords like “cakes” to see if anyone else is doing what you’re planning on doing.
If you do find competitors here, take a look at their pages and see what they offer and who they are targeting – this will help inform your marketing and pricing strategies later in the business plan.
Next up, is your business model.
Business models for cake businesses
A business model, in short, is how you plan on making money through your business.
Typically, when you’re starting out, you’ll be selling direct to the consumer meaning that you’ll be making and then delivering the cakes yourself, without a delivery company.
This is great for when you are small as you’re essentially cutting out any form of middle man, which helps keep your costs low. The downside to this is that you’ll spend time delivering instead of baking, limiting yourself in terms of capacity. This isn’t such a problem initially as you’ll unlikely have the demand to outstrip your supply, no matter how good your cakes are!
When you start to grow, you will need to change your business model, this might be franchising with brick & mortar stores, or partnering with local cafes to name two.
Pricing your cakes
This is where we need to look back at our market research and understand what people are willing to pay for their cakes and what your competitors are charging for theirs.
Before you go ahead and price your cakes just under what your competitors charge, you’ll need to grasp a bit of theory first.
Undercutting competitors does work, but not always and it’s not as simple as this. Quality matters in baking and your cakes are rarely going to be like for like – and they shouldn’t be, you want to be unique to differentiate yourself.
Differentiation is key to charging a higher or lower price, if your cakes are too basic, people will just pop to the supermarket, if they’re too intricate, you might put people off with higher prices.
It’s key to find a balance between quality, design and price, and this is what will ultimately bring you customers, not just price alone.
Marketing your cakes
Your marketing strategy is where you have the opportunity to really drive your sales and gain customers.
Social media platforms play a key part here. Instagram for showing people your creations and Facebook for selling them, in the short term leveraging these platforms fully will mean you won’t even need a website.
Go back to the groups you looked at for your market research, and use the search function within that group to search for “cakes”, “birthdays”, “wedding” etc. and look for the most recent posts. Comment or interact with that person to build up a rapport and ultimately pitch your ideas – bear in mind others will be doing this too.
You can also set up a business page on Facebook too, share pictures of your designs and encourage customers to leave reviews and testimonials to help boost your organic reach.
With food being one of the most “Instagrammable” things on the planet, this is a perfect place to showcase your bakes. Take photos of absolutely everything you make and upload it to Instagram, utilize hashtags too to help extend your reach.
Branding plays a role here too, designing your logo and having a unique identity that customers can relate to is really important for the remembered state of your bakes.
We’ve got a full in depth guide to creating a brand here.
Setting up your cake baking business
As you’re selling food, which is homemade, this section is especially important to get right.
The UK has very strict guidelines for selling homemade food, from having the right training and preparation areas, to keeping food at safe temperature levels. It can be very easy to fall into one of these pitfalls, so we’ll be linking and referring to the experts here.
As always, if you’re unsure, check with your local authority, the last thing you want to do is ruin your business before it’s even started!
Register as self-employed
If you’re just starting out, you’ll likely want to structure your business as a sole trader, don’t worry you can change this later if need be, so registering as self-employed is the first thing to do.
Get this ticked off early, there’s no harm in just registering, you won’t pay any tax until you start declaring an income through the self-assessment system. You can tell HMRC you’re registering as self-employed here.
If you’re outside the UK, check with your local authority.
Register your premises
Whether you’re baking from home or from a bakery, you’ll need to register your premises before you start baking for customers. This will be checked by a member of the council, don’t worry, this doesn’t cost you anything, they’re checking to see your food prep areas are suitable and free from pests.
You can register your premises here.
Get the right food safety training
Even if you’re a master baker, you might want to brush up on your safe food preparation and hygiene rules.
To be sure, you might like to do a food hygiene course. Most of these can be done online, for example Food Safety Level 2 is a widely recognised and respected course, and is relatively cheap too at just £10+VAT.
This is completely optional but worth doing if you have time.
Cake baking rules & regulations
This is where things get a bit tricky and it can be easy to make mistakes, but relax, read everything carefully and understand what is required of you.
We have a full article on all the pitfalls that could leave you needing a solicitor!
Generally speaking these rules revolve around keeping food preparation areas clean and free from pests (this includes children and pets!).
You should check all the regulations on the government website here.
Do I need insurance for my baking business?
You’ll need two types of insurance to begin with.
- Public Liability Insurance
- Product Liability Insurance
These will cover you if one of your customers tries to sue you for whatever reason, you can see why these would be especially important in a food based business.
As your business grows, you’ll need more insurance types, such as employers liability insurance, you’d need this if you ever employ any staff.
Funding your cake baking business
The best thing about cake businesses is that when you’re starting out, you don’t really need any formal funding. People bake for fun, you can get all your ingredients at the local supermarket for relatively cheap – this is perhaps one of the reasons these businesses have boomed over the last few years.
Having said this, you might need to spend some cash getting the right tools for the job, mixers, large enough ovens, decorating tools etc. are all worth considering, but generally speaking, most people have what they need already at home.
You may need to apply for some funding as the business grows, this might be to move to new premises or to finance new equipment.
We’ll discuss this in the growth chapter at the end.
How to create a financial plan for a baking business
This section might not be for everyone, especially if you plan on staying small and working from home – but there are some minimum requirements from this section that you should take away even if you are going to stay small.
At minimum, you should list your income and expenditure, this will help you complete your tax return form when the time comes. It might also be worth investing in a business credit card, to help separate the business costs from your personal bank account.
Right, for those of you who are still here, let’s dive into the main meat of this section, the full financial plan – it sounds daunting but don’t worry we’re going to walk through it step by step.
For this section I’d recommend taking a free trial of Brixx to follow along, there’s absolutely no obligation to continue once your trial ends and it’s far easier than a spreadsheet.
Step 1: Setting up your plan
When you’ve created your Brixx account, you’ll be presented with your first plan screen.
Enter your plan name, when you’d like your forecast to start from and for how long, we’d recommend 3 years to start with. Keep tax off as you’ll be unlikely making enough to be paying tax immediately.
Choose your currency and leave “start with a basic plan template” ticked.
Right, now hit “create plan” and you’ll be shown this screen:
The Brixx interface is designed to be easy to use:
- On the left you have your components, which represent business activities, so this could be income from sales, staff costs, loans, assets etc.
- The middle shows the dashboard which builds automatically based on your inputs
- You can switch between the dashboard and your cash flow, profit and loss and balance sheet reports in the top bar.
If you’re still not sure how it works, you can watch this video to help you get started!
Now we’ve got our plan base, we can start to input our sales forecast.
Step 2: Sales forecast
Perhaps the most important part of your financial plan.
This is where you estimate how many sales you will make across your plan. It’s not just a guess though, it’s an estimate based on the outcome of your marketing efforts, market research, competitor research and your business model.
If you want to read more about creating an accurate sales forecast, check out this in-depth article we wrote.
Essentially the sales forecast is estimating how much product you’re going to sell across your business over the months and years.
It’s important not to overestimate sales, but what you can (and should) do is create multiple scenarios, a best, worst and base case, where you have sales forecasted more optimistically.
I’ll create an example plan along to guide you here.
The business I’m starting has 3 standard products which are not customizable, these are victoria sponge, coffee and a black forest.
I’ll also take orders for bespoke birthday cakes and cupcake platters.
You can see in the image below how I’ve set this up in Brixx:
Splitting your product lines out like this allows you to individually tweak the sales for each component. The bespoke cake creations will be charged by hour whereas individual cakes will be a set price across the board.
You can draw an estimate of how many sales you’ll make through your marketing, check out our sales forecast guide for our exact methodology.
Let’s just quickly run over how to enter your sales forecast in Brixx.
First click on any of the components, I’ll click on “Victoria Sponge”, which brings up this screen:
Here you can enter your income as either “per unit” with how many you expect to sell per month, or you can enter the amount of revenue you intend to make per month.
As I’m selling cakes, it might be more appropriate to enter the unit price and the amount I intend to sell each month.
I can then grow this each month across the years by a certain % by using the “fill” option:
Repeat this process for every component and you’ve got a quick sales forecast!
Step 3: Cost of Sales
Next you need to add any costs associated with selling your products. This would usually be any raw ingredients and delivery costs.
Adding costs of sales to your products is easy in Brixx, simply click “add a cost of sales component” inside any of your product components – this will automatically create a linked cost of sales component.
Enter this component the same way you would one of your products:
For cakes, I’d recommend using “cost per unit sold”. Try to be as accurate as possible when you add your costs up but you don’t need to be spot on.
Enter this and your costs will automatically be deducted in your reports.
Step 4: Enter any ongoing and monthly costs
This is where you’ll enter your insurance, utilities, any marketing spend you choose to do etc.
In Brixx, you can enter these in the “Operating costs” section.
If you chose to start with the basic plan template, you’ll have some options like in the image above, you can always delete the components you don’t need with the tick box on the left of each component.
Step 5: Assets
Assets are yellow coloured components. Now as you start from home, you’ll likely be using equipment from home, but as you grow you may need to enter new ones. But even if you buy a new mixer, it’s a good idea to enter this into your plan.
Here’s how you do this:
Any larger assets will depreciate as time goes on, like a car would, Brixx gives you this option, just toggle it on inside the component.
Now you’ve completed your data entry, head to the dashboard to have a look at how your projections are looking!
Here you can see a breakdown of your cash flow report in visual form, you can see months where the going might not be so good and can make adjustments accordingly.
Ultimately you want to take a look at the impact of decisions you make on your cash flow, profit and loss and balance sheet.
You could include a move to new premises in your third year if things are going well, so you’d create new components for rent and remove those associated to home. If you want to start employing staff, you can look at your forecast to see when you might have the cash to do this and when the demand will be high enough.
There are so many possibilities to try out, and Brixx makes it easy!