Bakery Investment Capital and Finances

This is Part 10 from 125 Building Blocks for Your Bakery Business

Bakery Business Raising Capital

Open a Business Bank Account

Bakery Business Bank Account

Before you invest in supplies and sell your first product, it is wise to set up a separate checking account for your business. This will allow you to track your income and expenses for your tax returns. It is not prudent to mix your business transactions with personal ones.

Below a certain threshold, your bank is likely to impose a monthly charge on a business checking account. Inserting either loan money or some of your own personal funds into the business account to be used as start-up capital is the path to avoiding those charges. Visit your local bank and meet with a banker to ask about your options.

Open a Business Line of Credit

Bakery Business Line of Credit

As long as you have good credit, you should be able to use your business bank account to open a line of credit for business-related purchases. Ideally, only use this resource to defer payment for the first thirty days so that you don’t accrue any interest charges. Keep in mind that you may not be able to acquire a credit card associated with your business bank account right away. Some banks require that you prove your business is profitable before they will issue a line of credit.

Track All Your Expenses

Bakery Business Expenses

You should be running all your income and expenses through your business account, tracking the nature of each transaction so you can see how much you are spending and on what. At the end of the year, this will be necessary in order to file your tax returns. It is also important for analyzing your expenditures.

Track your Revenues

Always keep track of your revenues according to products or services sold. If you sell an extended menu of cakes, it’s vital to know which cake is your bestseller and which is your worst seller. You also want to know which is most profitable and which is least profitable. With this type of information at your fingertips, you can adjust your prices accordingly and offer discounts only when you can afford to do so.

Hire an Accountant

Bakery Business Accountant

Filing taxes for your business is not as easy as a personal tax return. If this is not your area of expertise then you might consider hiring an accountant. In your first few years of business, when you are likely to report a loss, an accountant can help carry over your initial loss from investment from one year to the next.

An accountant can also instruct you on how to log your miles covered making cake deliveries or purchasing ingredients and supplies. They will be able to calculate the portion of your household, when relevant, to performing your job. This only applies if a portion of your home is dedicated completely to your business, such as an office, supply room, or second kitchen.

Prepare to Lose Money

Bakery Business Loss

The old adage, “you have to spend money to make money” applies to business start-ups too. If you don’t have capital to invest in your business, you will be at a major disadvantage. It means you will have no cash for making large purchases which means you will have no choice but to shop for all your ingredients and supplies at retail cost, which will cut into your profit margin. If you hope to profit within the first three years with a home baking business, at minimum, you will need $10,000 of investment capital. This money is needed to invest in the following:

If you plan to open a retail shop, a worthy amount of starting capital is at least $100,000.

Maintain Employment

It is not uncommon for small business owners to maintain full or part-time jobs during their first 1-3 years in business.

The benefit of maintaining employment elsewhere as you grow your business is that it mitigates the risk factor. You can maintain a steady stream of income to finance your business venture without going broke in the process of launching.

The disadvantage to maintaining a job while you run your own business is that it has the potential to be exhausting. A day job will get in the way of your own business responsibilities. It will sap your energy and attention. Working two jobs puts a considerable strain on your sleep schedule and social life. It will lower your quality of life. If you are in a relationship and/or have kids, you will have less free time to spend with those people.

There will come a time when it may be necessary to quit your day job in order to focus on your business. For many, this blind leap of faith is a terrifying prospect. However, it may be the only way to give your business the attention it needs in order to have a fighting chance at success. Only you can know when the time is right. I only recommend doing this if your business is on an upward trajectory, in other words, has a proven track record of steady growth and potential.

Seek Secondary Sources of Income

If you are lucky enough to have a supportive spouse or a secondary source of income (such as investments) to support you while your business grows, that’s fantastic. It will help you in terms of providing time and resources to get the ball rolling. It will allow you to take more risks.

If not, that’s okay too. Restrictions and pressure can also be great motivating factors. If you have a comfortable financial cushion and don’t need your business to be profitable, then you will be less inclined to design a profitable business model. On the other hand, if your livelihood depends on turning a profit, then profit will become an obsession.

Crowd Fund

Bakery Business Crowd Funding

If you have a big circle of friends, family, and existing customers, you might consider running a crowd-funding campaign to raise money for your business on a platform like Kickstarter. Offering your own products as your prize is a sensible reward.

For local donors, you might consider offering tickets to your opening event, an IOU gift certificate for a specific item that you plan to roll out in your store, or prizes amassed by other companies who donate their time/products of their own to help your cause. Make sure that you position your crowdfunding campaign in such a way that is a win-win for both you and your donors.

For long distance donors, make sure your goods are sturdy enough to ship. Alternatively, devise some gift ideas that don’t involve perishable food.

Secure a Loan or Grant

Bakery Business Loan

If you choose to apply for a bank loan, you will need good credit. You will also need to write a business plan. (If you follow all the steps in this book, you will have the majority of the information you need to write a business plan.) You will use that plan to prove to the bank that it’s worth their while to lend you some starting capital.
Government organizations such as SBA and nonprofit associations such as SCORE offer small business loans. You may also find mentorship opportunities and programs designed to assist you in writing a business plan. Search to see if there is a SCORE chapter in your area. Some locations offer business classes at a very affordable cost.

As an alternative to a bank loan, you might consider teaming up with a private investor such as a wealthy relative, friend, or venture capitalist, who can loan you money in exchange for a percentage of ownership of your business. If you have poor credit barring you from receiving a loan, this may be your only option.
In addition to loans, there are many grants available to small businesses. You will need to research your state and federal databases for the options that are most applicable to you.

Win Prize Money

Bakery Business Prize Money
Television production companies are always looking for new recruits to compete on their competition shows. If you are a fierce competitor with talent, willpower, and luck, you may just walk away with a cash prize as well as bragging rights. Go here to read about my experience filming reality television.

Financial Capital Exercise

  • How much savings do you have for investing in your business?
  • Investigate your options for financing.
  • How long can you afford to work without turning a profit?
  • How many months or years can you afford to work for yourself without collecting a paycheck?
  • Devise a backup plan in case of failure.

This is the end of Part 10 from 125 Building Blocks for Your Bakery Business. Return to the Table of Contents or proceed to Part 11 – Bakery Ingredients and Packaging Purchasing

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