Cakes come in all shapes and sizes and so do cake businesses. Upscale cake businesses include wedding cakes and custom-decorated cakes for special occasions. A retail brick-and-mortar bakery is another option. Delivering gift cakes by mail is a viable business. Providing gourmet cakes to restaurants on a wholesale basis is another alternative. Starting a small in-home bakery is possible as long as your kitchen meets certain health standards. Teaching others how to bake and decorate cakes requires less of an investment than some of the other cake businesses.
Licenses and Permits
Exactly what you need depends on the location and type of cake business. Different states and cities have varying requirements. Most have websites where the specific information is available. You most likely will be required to obtain a business license from the state and city, a food handler’s license and a sales privilege license to collect sales tax.
If you’re baking cakes, the kitchen, equipment, storage facility, oven, refrigerator and location must be inspected to meet safety and health standards. If you’re thinking of starting your small cake baking business in your home, your kitchen still will have to be approved. In many cases, a home kitchen isn’t acceptable at all. If that’s the case, you will need to find a location that is approved and do the baking there. A restaurant that only offers breakfast and lunch is one option. A church with an inspected kitchen is another option. Renting a facility is a third option.
The mixer you use to bake a few cakes over the weekend for friends and family will soon burn out when you’re faced with baking 100 dozen cupcakes a day. Industrial strength equipment is a necessity. In addition to mixers, you’ll need bowls, baking pans, measuring cups, a restaurant-quality dishwasher, freezer, ovens and refrigerator to hold the dozens of eggs, gallons of milk, quarts of cream and other ingredients. It might be possible to economize on a cooktop or stove.
Purchasing supplies from wholesale vendors will help you save considerable money and boost profitability when your small cake baking business has to buy hundreds of pounds of flour, sugar and other ingredients. You’ll also need packaging materials for the cakes including boxes, liners, lace doilies, tissue paper and food-quality bags. When deciding on vendors, review their product prices, delivery times and charges, and minimum purchase requirements. The least expensive vendor may have delivery charges that are higher or have minimum purchase requirements you can’t afford.
Pricing and Profitability
Several methods are available to price your cakes. Before you do that, scout out your competition. Customers may pay a premium for your cakes but there is a limit. Wedding cakes cost from about $2 per guest at the grocery store bakery to $15 per guest, with the average being around $4, according to 2012 data from Wedding Stats and The Knot. Price your cakes by adding up all the ingredients and adding in an hourly figure for your time, plus a profit margin. If the cakes will be sold wholesale to a restaurant, for example, keep in mind that the restaurant usually marks up food three times what it cost. That $6 slice of chocolate mousse on the menu cost the restaurant $2. Your price can’t be much more than that $2. Retail cakes are marked up double the cost. Another way to price your cakes is what the market will bear, and that’s where your competitive research comes in.
Check with your insurance agent to see what added coverage you need. You’ll need liability insurance to cover any product problems. The customers of your small cake business may be friends and family who wouldn’t think of litigation. However, you need to be prepared for the possibility that your cake is served to a guest who decides to pursue legal action. Paula Spencer, author of “Start a Cake Business Today,” says product liability insurance is critical whether you bake in your own kitchen or rent a commercial kitchen. You may also need to change the coverage on your vehicle if you now use it for commercial purposes such as delivering the cakes. Insurance is a good idea to cover the loss of inventory from fire, floods or even an insect infestation ruining your sugar and flour. Accidents happen to employees, so increased workers’ compensation insurance is an alternative.
Even a small cake business needs a marketing plan that defines its marketing niche — potential customers — and strategies to reach that market. The strategies may include brochures, a website, publicity, business cards, tastings, attending trade shows, social networking and word of mouth.