How to Make a Bakery Financial Plan

Proper financial planning is crucial to your bakery’s success. However, making a bakery financial plan can be daunting for many baking business owners. 

If you don’t know where to start, we got your back. In this article, we’ll go through the steps of creating a financial plan for bakeries and how you can set your business up for success.

What Is a Bakery Financial Plan?

A bakery financial plan reflects your current financial status and lays out your long-term goals and strategies to achieve them. It’s the final yet most critical part of your business plan and often the deciding factor for potential investors.

A financial plan includes key reports like the income statement, break-even analysis, balance sheet, and investment plan. These reports provide a comprehensive view of your projected performance and clarify the risks and rewards of investing in your bakery. Additionally, using figures, diagrams, graphs, and charts can make it clearer. 

Investors will also want a detailed breakdown of your first-year expenses compared to expected revenue. This includes fixed costs like equipment and supplies, as well as variable costs such as payroll and marketing. 

Transparency about your financials builds trust with investors and lenders, making your venture more attractive. Remember, evidence and clear projections are crucial when securing funding.

Looking at your business’s details—from income to operating costs and investments—enables you to assess its expected profitability and future cash flows. This visibility is essential for confidently planning future investments and expansions.

An updated financial forecast can also warn you of potential financing shortfalls in challenging times. This foresight allows you to make necessary adjustments or secure additional funding before running into cash flow problems.

Remember, a well-prepared bakery financial plan is crucial when you’re looking for financing. Banks and investors will request to see your numbers, so make sure they’re accurate and clearly presented. A strong financial plan not only supports your business but also gives those who might fund your bakery’s future confidence. 

How to Make a Bakery Financial Plan: The Complete Guide

Here’s a detailed guide on creating a bakery financial plan for your success:

1. Evaluate your current financial situation.

Before diving into the numbers, take a good look at how your finances are doing. This is like getting a snapshot of your financial health. Start by listing all your assets, like savings, equipment, or any existing inventory. Then, jot down your liabilities, including any debts or outstanding bills. Knowing what you own versus what you owe gives you a clear starting point.

Next, check your credit score. A good credit score lets you secure loans or attract investors. If your score needs improvement, consider taking steps to boost it. 

Another part of this step is to analyze your current cash flow. How much money is coming in, and how much is going out? This helps you understand your spending habits and areas where you might need to cut back.

Finally, set some financial goals. These could be short-term, like buying a new oven, or long-term, like opening a second location. Having clear goals guides and keeps you focused on what’s important.

2. Determine your funding requirements. 

Once you have a clear picture of your current financial situation, figure out how much money you’ll need to start your bakery. 

Start by listing all your bakery’s initial expenses. This includes big-ticket items like baking tools and equipment, renovations, rent, permits, and initial inventory.

Don’t forget to include working capital in your funding requirements. This is the money you’ll need to cover daily operating expenses until your bakery becomes profitable. It’s crucial to ensure you have enough funds to keep things running smoothly in the early months.

Additionally, consider different sources of funding. Will you apply for a business loan, seek investors, or use your savings? Each option has its pros and cons, so weigh them carefully. 

Lastly, create a budget that outlines how you plan to use the funds. This budget should be realistic and detailed, covering all aspects of your startup costs and initial operations. Having a clear funding plan will help you stay on track and avoid financial pitfalls as you launch your bakery.

3. Project your initial expenses. 

By projecting your initial expenses, you can clearly see the costs and profits from sales over time. 

Operating costs cover day-to-day expenses that are generally manageable once your bakery is up and running. However, budgeting for supplies, repairs, and marketing can be challenging. That’s why market research is crucial to accurately estimating these operating costs.

The daily operating costs for your bakery will vary based on your sales, bakery’s location, and business size. Here are some key operating expenses to consider:

Ingredients and Supplies

Cover the costs of local ingredients like flour, eggs, and sugar.

Staff

Include salaries, wages, and benefits for all employees, from bakers to sales and customer service. 

Rent or Lease

Budget for rent or lease payments if you don’t own your bakery’s building.

Utilities

You must account for electricity, water, and gas expenses, which vary depending on your bakery’s size and equipment.

Insurance Costs

Protect your bakery from risks like fire, theft, and liability with appropriate insurance.

Marketing and Advertising

Invest in efforts to attract customers, such as branding, a website, flyers, and social media ads.

Packaging and Labeling

Budget for packaging materials and labels for your products.

Accountancy Fees

Having a professional accountant helps manage finances and ensures tax compliance.

Taxes and Licenses

Be prepared to pay various taxes and obtain necessary licenses and permits.

Cleaning and Sanitation

Maintain a clean and sanitary bakery with cleaning supplies and possibly professional cleaning services.

Banking Fees

These include fees for maintaining a business bank account and processing credit card payments and loans.

Software Licenses

Pay for annual licenses for software programs that manage bakery operations, like point-of-sale systems.

Occupancy costs, such as rent or mortgage, loan repayments, and insurance, are fixed overheads. When creating a projected profit and loss statement, these costs will guide the sales and profits needed to keep your business afloat. Once you’ve done your research and projected your expenses, it’s time to think about a timeline for your profit and loss statement. Consider your location and market when calculating sales projections over time. For example, if your town sees a surge in tourists during the summer, you can expect higher sales during those months. On the flip side, if the town quiets down in the winter, you need to plan how your peak sales will cover the slower seasons.

Repeat this process for each month of operations, projecting sales based on key performance indicators like the season, marketing efforts, and local customer habits. Eventually, you’ll identify a month where your sales outpace your spending, marking your break-even point.

4. Pick a funding strategy. 

Choosing a funding strategy is a key step in starting your bakery, especially if you don’t have all the cash on hand. It’s common to look for financial support from various sources. Here are some options you might consider:

Loans from Friends and Family: This can be a more flexible option, but it’s important to approach it professionally to avoid straining relationships.

Bank Loans: This type of funding is traditional and reliable, but they often require a solid business plan and a good credit history.

Government Loans: This type of loan usually has lower interest rates and better terms than bank loans. 

Angel Investors: You can also find people who use their personal funds in exchange for equity. They can offer valuable advice and connections, but you’ll need to give up a share of your business.

Real Estate Loans: If you’re buying property for your bakery, this type of loan can help cover the cost.

Remember to weigh the pros and cons of each option. Look at the costs, terms, and what you’re comfortable with. Picking the right funding source can set the stage for your bakery’s success.

5. Create key financial reports.

Creating key financial reports is crucial for understanding and managing your bakery’s finances. These reports give you a clear picture of how your bakery is performing and help you make smart business decisions.

Cash Flow Statement

A cash flow statement shows whether your bakery has enough cash to keep things running smoothly. To create this report, track your sales, the cost of goods sold, and your overhead costs, like rent, salaries, and utilities. Be realistic with your assumptions and consider industry standards and current market conditions to ensure accuracy.

Income Statement

The income statement outlines your bakery’s earnings and expenses over a specific period. It starts with your revenue from sales, such as cakes and pastries, and subtracts your expenses, including ingredients, labor, and rent. The result is your bakery’s profit or loss. This statement helps you see if your bakery is making money and where you might need to cut costs. Keeping this statement updated will help you make informed decisions to boost profitability and ensure long-term success.

Balance Sheet

A balance sheet gives you a snapshot of what your bakery owns and owes. It’s divided into three sections: assets, liabilities, and equity. Assets include cash, equipment, and inventory. Liabilities are your debts, like loans or bills. Equity represents the owner’s investment and any profits. Investors use the balance sheet to understand how your bakery’s finances are structured and how much profit it’s making.

Break-Even Analysis

A break-even analysis shows when your bakery will start making a profit. It helps you figure out how many items you need to sell to cover your costs. First, identify your fixed costs (like rent and utilities) and variable costs per item (like ingredients). Determine your selling price and subtract the variable costs to find your profit margin. Then, divide your total fixed costs by the profit margin to find out how many items you need to sell to break even. 

6. Test your assumptions.

Financial plans are based on predictions, so real-life scenarios can differ. To prepare for unexpected situations, consider how various outcomes might impact your bakery’s profitability and sales. Identify the scenarios that could have the biggest effect on your business. 

Then, use sensitivity analysis and stress testing to evaluate how different situations might impact your bakery’s financial plan. This helps you refine your plan, manage risks, and make better decisions to keep your bakery on track.

Regularly review and update your plan.

Regularly reviewing and updating your financial plan helps you see what’s working and what needs to be changed. 

By monitoring your plan, you can spot trends and potential issues early on, allowing you to make proactive decisions. 

Frequently Asked Questions

How to make a financial plan for a bakery?

Make a financial plan for a bakery by evaluating your current financial situation, determining your funding requirements, projecting initial expenses, choosing a funding strategy, creating key financial reports, testing your assumptions, and regularly reviewing and updating your plan.

How to finance a new bakery?

To finance a new bakery, consider options like loans from friends and family, angel investors, bank loans, government loans, or real estate loans based on your needs.

How do you manage bakery finances?

Manage bakery finances by regularly reviewing financial reports, tracking cash flow, and projecting expenses to stay on budget. Update your bakery financial plan as needed to adapt to changes and keep your business on track.

Conclusion

Creating a solid financial plan for your bakery is key to its success. Stay on top of your numbers, adjust as needed, and keep your goals in sight. With a well-thought-out plan, you can turn your bakery dream into a thriving reality. Cheers to your future success, bakery owner!

About HICAPS

Over the years, HICAPS has helped bakers and businesses make delicious products by offering ingredients like ChiffonAide Cake Oil, Magic Whizk Whipping Cream, Red Velvet Flavor Emulco, and Instabake Brownie Mix. 

HICAPS also provides tools and resources to valued partners, such as the free “How to Increase Your Sales Amidst the Pandemic” E-book and free dealer locator that helps look for baking ingredients near me. 

Want more free tips and tutorials? Follow us on Facebook at Hicaps Mktg. Corp. and on YouTube at HicapsTV. Want to be one of our valued partners? Fill out this form. Looking forward to talking to you soon!