How to Start a Baking Business: The Five-Step Guide

Have you always wanted to make money with your muffins, cash with your crumpets and pounds with your pies? For a passionate baker, starting your own baking business can be a rewarding and exciting experience.

But where should you start?

With NerdWallet’s five-step guide, you can learn about the key ingredients every fledgeling bakery needs to get started. It covers legal requirements, budgeting, financing and starting a business from your own home. Read on to learn more.

Why start a baking business?

Work for yourself: Starting your own baking business means you can decide when you work, who you work with and how your business takes shape. This means you can shape your working life around personal commitments such as childcare.
Make money from your hobby: If you have a passion for baking then this could be the perfect avenue for you to spread joy to others. Having your own baking business means more time to refine your skills, create new recipes and enjoy the baking you love.
Bring people together: Cafés and bakeries can become key parts of local communities, either by hosting events or simply providing exciting and unique products.
Work from home: If you don’t want to run a customer-facing business, a small-scale commercial bakery can offer the opportunity to work from home.

Start a baking business in 5 steps

1. Research and choose your market

Before starting any business, you will need to conduct market research. This process will allow you to assess your potential customers and competitors, giving you a clear idea of the direction you want to steer your business in.

Use the internet to examine rival companies’ offerings, talk to people in the industry, visit similar companies and find out as much as you can about customer preferences.

These are two key questions to keep in mind:

Is my product or service in demand?
Who am I targeting?

After completing your research, use it to help you decide the type of business and product you want to create. Some different types of baking businesses include:

Bakery cafe: A bakery cafe gives customers a space to sit and enjoy their food and drink on-site. Challenges associated with this kind of business include finding premises, employing staff, sourcing furniture, decorating the space and offering a broad range of options. For example, while a bakery cafe might offer freshly made cakes, pastries and bread, it might also serve sandwiches, soups and other simple dishes.
Counter service: This is a stripped-back version of the bakery cafe. A counter service bakery will likely need less staff as menus are generally smaller, more specialised and served on a takeaway basis. As with a bakery cafe, creating an attractive atmosphere is essential as you will need to tempt customers in from the street outside.
Commercial bakery: If you want to sell directly to businesses rather than members of the public, starting a commercial bakery could be for you. A commercial baker will win contracts with shops, restaurants, cafes and catering companies, using wholesale deals to bring in a regular and more consistent form of income. There’s also less need to be showy, as you can operate out of a commercial kitchen without the need to worry about attracting passing customers inside, and you will not need front-of-house staff.

2. Create a budget for your baking business

A business plan and budget are essential for any new business. They will outline how much money you will need at each stage of your journey, as well as the goals and objectives you need to be aiming for. You will likely need a business plan to apply for a loan.

For a detailed guide, read our article on how to write a business plan.

Next, you need to put a budget together. Make sure to account for all one-off and recurring expenses. For a baking business, some important costs to consider include:

Premises: You might be running your baking business from home, but otherwise you need to find premises to rent or buy. These are locations you will use to bake and/or sell your products, so they could include a market stall, a high-street shop or a commercial kitchen.
Equipment and furniture: You are probably going to need more than a rolling pin to get started. Fridges, mixers, food processors, ovens, trays, tins and pans can add up and be expensive, so this is a key area to consider. You might also need to source things like tables and chairs for customers to use.
Renovations: If you are opening a high street bakery or cafe, investing time and money into creating an attractive storefront and welcoming premises can be key to attracting customers inside.
Food and supplies: Calculating how much you will need to spend on ingredients can be one of the hardest parts of making a budget for a baking business. You may refine this element of your budget over time, but start with sensible estimates of how much your regular supplies will cost.
Bills: You are going to need electricity, water and gas to run your baking business, so make sure you factor in their cost. You might also need to pay other regular bills, such as internet, security and insurance.
Qualifications: There is no need for any formal training if you want to start a baking business. However, some qualifications might offer the opportunity to gain valuable new skills and the Food Standards Agency urges people starting food businesses to get a food hygiene qualification. Get in touch with your local authority to find out which courses might be best for your business.

For a detailed guide, explore our five-step guide to creating a small business budget.

3. Register your baking business

A key part of registering your business is deciding on a business structure. Here are the main options to choose from:

Sole trader: Operating as a sole trader makes you the full owner of your business and the sole beneficiary of any profits. You and your business will not be legally distinct, which means you will be responsible for any losses made by the business. You will need to register for self-assessment.
Partnership: In a partnership, multiple parties band together to share a business’ responsibilities, risks, profits and losses. The different types of partnerships are business partnerships, limited partnerships and limited liability partnerships.
Limited company: Starting up a limited company will make you and your business separate legal and financial entities. Limited companies keep hold of any profits and ownership of the business is split into shares that are held by shareholders. Register as a limited company at Gov.uk.

» MORE: Should I register as a sole trader or limited company?

As well as the above decisions which apply to anyone starting a new business, you may also need to obtain certain licences and be aware of certain rules that apply to businesses that work with food.

Register with local authorities

If your business is involved in the sale, cooking, storage, handling, preparation or distribution of food it is mandatory to register with your local authority. Make sure to do this 28 days ahead of your opening. It’s important to bear in mind that this registration is free and cannot be turned down by authorities.

Food safety and hygiene inspections

Food hygiene inspections are something that can be sprung upon you at any time following your registration with local authorities. As such, you need to keep the hygiene of your preparation areas and procedures consistently high, as these will be assessed in each inspection.

If you perform badly in these inspections, you can be banned from using certain equipment or processes, which can be enormously detrimental to your business. Any bans can be lifted if future inspections witness clear positive progress, but it is best to never fall short in the first place.

The best way to be prepared for these visits is to gain food hygiene training and develop a good understanding of UK food safety rules.

Other key rules and regulations for baking businesses

Here are some other key rules that may apply to your business:

Music Licence: This is required if you want to play live or recorded music to a public audience at your place of business. Costs of the licence vary depending on the applicant, with applications taking place through the PPL PRS website.
Food labelling: Product labels must contain an ingredient list if they are made of more than one ingredient. If your product contains any of the 14 key allergens, these must be labelled clearly with a different style, font or background colour.
Food Safety Management System (FSMS): Most businesses that prepare food are required to have a written FSMS, which outlines how employees will control safety hazards and ensure food is safe to eat.
Bread and flour regulations: There are rules about the required nutritional value of flour, which can mean flours need to be fortified to meet requirements. Flour produced in the UK is required to meet these standards, so you might need to be careful about adhering to these rules if importing flour from abroad.

4. Fund your baking business

With a budget, business structure and licences understood, it’s time to get down to the serious business of funding your baking business. Here are some of the best options:

Personal savings: If you use your own money you can retain full ownership of the business, but only some have enough cash hanging around to fund a new business venture.
Friends and family: You might be able to persuade friends and family to back your business. Even so, make sure to create a formal written agreement so that all parties understand and stick to their obligations.
Small business grants: You may be eligible for one of the non-repayable and partially repayable start up business grants available in the UK. There are also specific grants for businesses in Scotland, Wales and Northern Ireland.
Government business loans: You may also be able to secure a government business loan.
Business loans: A common source of funding is a business loan, but these can be hard to secure if you have bad credit.
Angel investors: Wealthy individuals who invest in new businesses are known as angel investors. Remember, they normally only invest in exchange for equity or convertible debt.
Crowdfunding: Some companies can source start-up capital in the form of many small investments from a big list of individuals. This is known as crowdfunding and is most easily done through an online campaign.

Remember to also have somewhere to put this start up capital. Setting up a business bank account is a key step for a new business owner, as it can make it easier for you to keep business and personal transactions separate. Sole traders can technically still use their personal accounts, but the moment you incorporate as a limited company or partnership, you are required to open a business bank account.

5. Promote your baking business

The final key step is to find some hungry customers to buy your baked goods. Here are some great ways to get your products flying off the shelves:

Word of mouth: Make sure your family, friends, acquaintances and everyone else know about your new business. Encourage them to tell everyone they know about the delicious new baked goods you are selling.
Business cards and flyers: Get your name out into the neighbourhood by putting leaflets through letterboxes and pinning them up on notice boards. Distribute business cards to anybody who will take one.
Host a grand opening: If your business has a brick-and-mortar location, why not make a splash with your official opening? This might mean selling your goods at a cut price for a day to celebrate your new venture.
Be a vendor: You can use events in your town or city to spread awareness of your business and its products. Contact farmer’s markets, festivals and event organisers to organise a stall, though note that you will have to pay pitch fees.
Do delivery: Can you get your food directly to customers’ doorsteps? People love convenience, so this can be a great way to supercharge your business. If you are selling fresh food to order, sign up to Deliveroo, Uber Eats and Just Eat. These companies take a commission on each order and may charge sign-up fees.
Social media: A Facebook page can build an online presence that allows you to interact with customers directly, while using TikTok, Instagram or YouTube could lead to increased popularity through viral content. If you think of good video ideas and can manage to film and edit them in a clean and eye-catching way, your baking business could be a viral hit.
Ask for reviews: If people enjoy your products, you want to make sure they leave reviews on sites like Tripadvisor or Google Reviews.

Starting a baking business from home

You can start a baking business at home, but there are several steps you should take when setting up:

Register with local authorities: You still need to register your food business, even if you are running it from your own home.
Inform landlord or mortgage provider: Many mortgage or rental agreements prohibit the use of a residential property for business purposes. Contacting the right parties can ensure you do not fall afoul of these agreements.
Tell your insurer: Running a business from home could invalidate your home insurance policy. Make sure to tell your provider.
Be ready for inspection: Once your home is registered as a food business, you can expect a visit from an environmental health officer for an inspection.
Business rates: Find out if you need to pay business rates on the part of your home that is being used by your business.

What insurance do baking businesses need?

While there might not necessarily be legal requirements for baking businesses to obtain insurance, there are several different types of insurance it can be wise to have.

For example, taking out Public liability insurance will cover your business against claims made by members of the public. This will protect you against issues arising from accidents, injuries or damage to people’s property that takes place at your professional premises or because of your or your employees’ actions.

Product liability insurance offers a similar type of protection but is focused on your product. It will cover you against damage caused by your baked goods, such as illnesses suffered by customers due to a bad batch.

Insurance is a legal requirement for a baking business if you are employing someone. Any business with employees needs to obtain employer’s liability insurance, which protects the business against claims made by employees about accidents and injuries they suffer in the workplace. If you fail to obtain this after hiring employees, you can receive a significant fine.

Buildings and contents insurance is not a legal requirement, but it will protect you against loss, damage and theft of your important equipment and property.

If you plan on delivering food or sending it to customers’ doorsteps in any way, goods in transit insurance might be a good idea. This will protect you against loss, damage and theft during the transportation process.

Image source: Getty Images

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Why start a baking business?