How to Open Your Bakery Business in California

State of California Business Outlook

California is the nation’s most populous state and home to more than 4 million small businesses. That’s 99.8% of all businesses in the entire state, and nearly half of the state’s entire workforce works for one of these small companies.

LLC Filing Discount: California has temporarily waived the filing fees for most business formations, including LLCs. The cost of filing California Articles of Organization had been $70, but is now $0. You’ll need to file before June 30, 2023, to take advantage of this free filing.

Baking Industry Statistics and Trends

The bakery industry has seen steady growth in recent years, hovering around an increase of 1% year-over-year. Today, the U.S. bakery market is a $150+ billion industry.

Explore bakery business ideas

There are numerous business ideas that can get your bakery started in a unique and innovative way. In California, a great idea could be a gluten-free or vegan bakery. There’s a large market these days for bakeries that cater to specific dietary needs. Next, decide whether you want to open a traditional bakery cafe storefront, a food truck, or even an online “ghost kitchen” style of bakery.

You must determine whether your bakery will be a counter-service spot or a sit-down cafe. There are also several segments you could focus on within the market, which include bread, rolls, cakes, and pies. For example, your business could focus on only wedding cakes or only pies, although this could limit your clientele. One way to get brilliant business ideas is to review our lists of home-based or small-town business ideas, many of which are related to the baking and food trades.

Name your bakery

Name your business so customers remember your brand. A company’s name is one of the most important parts of a business, but picking out an appropriate and catchy company name can be tough. You can check our list of bakery name ideas for inspiration. If you want to come up with your own name, start by making a list of keywords.

Use keywords to help create your brand

Keywords are the words and phrases that your prospective customers type into internet search engines to find companies like yours. Add other towns, states, and countries to your search to find bakeries outside of your marketing area to help you brainstorm your own unique brand name and see how other bakeries position themselves online.

Create a list of related keywords that you can use in your name (examples for a bakery could include cakes, bread, cookies, sugar, sweets, etc.). Then, consider including geographical keywords in your name, like the name of your town, county, region, or state.

Wordplay and puns can be fun methods of creating memorable business names. You can even create an acronym for your business or combine two words to create a compound business name. If you’re having trouble, we have plenty of resources available to help you name your business.

Research your California marketplace

Find out if your new business idea will solve problems that customers are willing to pay for by thoroughly researching the marketplace. Study the market, competition, location, and target clientele. Your competition and target clientele will be different in Los Angeles than they will be in San Francisco. Your location within your chosen city is a significant factor that needs to be determined as well.

Begin by studying the market, competition, and location to better target customers’ needs and wants. Analyze bakeries in your area by browsing online reviews or even visiting themselves. How are they thriving? Where are their businesses lacking? What will your bakery do to win customers from established businesses? Answering questions like these can help you determine whether the market needs a new bakery and how yours can fill that spot.

Test your baking business idea

Now that you’ve researched your idea, test its viability to be confident of its profitability before investing your time and money to launch your company. The best way to test your bakery products would be to showcase them at events like local farmer’s markets.

Find a place where you can gain access to a clientele similar to your bakery’s likely target audience. See how the people respond to your baked goods and make any necessary adjustments. For more guidance, we have further information on how to field test your business ideas.

Develop your business plan

Once you’ve determined what kind of bakery you want to open, you must start developing a business plan. This will establish your goals and help you discover ways to generate revenue, list expenses, develop marketing strategies, and look at your client base and competition. We have extensive resources available regarding what information should be included in your business plan.

The importance of writing the plan is not just the finished document but also the discovery of missing elements in your business concept you find as you prepare your business plan. During the process of writing your business plan, you may uncover aspects of your business strategy that don’t feel as viable as they did on the surface. Discovering these weaknesses now allows you the opportunity to improve upon them before launching your business.

Think of the business plan as a map for your entrepreneurial journey. You wouldn’t set out on a long hike across unknown territory without a field guide and a detailed map, and you shouldn’t approach business that way either.

Thankfully, there are resources available to accompany you on this journey. We have information about how your business plan can help you get loan approval and elements your business plan might be missing.

Plan your financials

This is the stage where you’ll calculate important financial projections to determine if your business idea is profitable, and how much capital you’ll need for startup costs and ongoing working funding.

The first step in assessing your financials is to establish your startup cost. Plan out everything you will need, from larger expenses like rent or mortgage payments, ovens, and refrigerators to smaller items like spoons, spatulas, and ingredients.

Determine your baked goods pricing

Most bakers base the pricing of their goods on the cost of ingredients and the time and labor that went into baking the goods. In order to start the process of determining prices, take a look at what the break-even point would be for your business. Then, consider these four expenses:

• Calculate the costs of ingredients and labor.
• Calculate your overhead — the amount it costs to run the business and sell your baked goods.
• Determine the desired profit margin for every baked good you will sell.
• Calculate the amount of startup cost that you want to pay off each week/month/quarter.

Once you’ve calculated these costs, you’ll start to get an idea of what your pricing can be. Then, you take a look at the market and determine what your pricing should be. Consider the following pricing strategies as examples.

Premium Pricing

This method is when you price your cakes and quiches higher than your competitors. This technique is often used at product launches to create a high-value perception in customers’ minds.

Market Penetration Pricing

This concept is to gain buyers by offering the lowest prices on goods to enter a crowded marketplace. It’s common for entrepreneurs to use this technique initially. If not planned and executed carefully, this is a dangerous pricing strategy because it limits your early profit margins and risks alienating customers when you eventually raise prices.

Calculate your bakery startup costs

What are the costs of starting a bakery? Your startup costs include the investment to open your bakery — such items as legal business formation, building renovations, and baking equipment. These are relatively easy to calculate, as they are costs that you can determine upfront with relative accuracy. And keep in mind that there are LLC services which can form an LLC for your new California bakery for free (+ state fee), reducing one of the expenses on your startup plate.

Ongoing expenses cover everything you need to continue business operations, including rent or mortgage payments, supplies, utilities, ingredients, employee salaries, and working capital. Some of these costs are more difficult to calculate because they have many more variables. As your sales increase, so will your labor and material, and inventory needs.

Conservatively forecast your sales and revenue projections to make sure your bakery will be a profitable venture. Not every business is an overnight sensation, so it could take some time to generate the revenue levels you might expect.

Next, you need to define working capital requirements. Working capital refers to the funds that help you meet the daily expenses and needs of running your business, such as payroll or paying for ingredients, tools, and supplies. You also need to have enough on hand to deal with any unexpected emergency expenses. If necessary, you can get a working capital loan.

Fund your business in California

Starting any business will require a certain amount of funds. You’ve got a business plan, and you’ve forecasted sales and expenses. Now, you need the capital to get your business moving. There are plenty of ways to fund your business, even if you don’t want to take out a traditional bank loan. For example, you can check out the California Capital Access Program, which supports lenders that fund small businesses.

The Small Business Administration can provide resources for funding your business, and there are various grants for new businesses. There are plenty of specific grants available for women-owned businesses and other groups as well.

You can also pursue investors, use your personal savings, use business credit cards, or look into crowdfunding options. Long story short, there are plenty of options if you’re struggling to come up with as much capital as you need.

Open a business bank account

In order to accept customer payments, cash, checks, or credit cards, your business will require a separate bank account from your personal or family bank accounts.

Please don’t run your business through your personal account. You’ll be making it harder on yourself since it’ll be tougher to manage transactions, reconcile checking accounts and prepare your tax returns.

All small business experts and the Internal Revenue Service recommend the separation of business and personal bank accounts. By opening a business account, you make this possible. Read our article about how to open your new business bank account.

Additionally, having a business bank account is a vital credibility factor to make your business idea a legit company and not just a dream. Also, for corporations, limited liability companies (LLCs), and so forth, a separate and individual bank account will be necessary.  

Depending on the bank and type of account required, several business days may be needed to get things set up, so don’t wait until the last minute.

Set up accounting systems

Whether you’re starting a sole proprietorship or an LLC, having the proper accounting setup is essential. It’s far better to have your bookkeeping established right from the start rather than find out down the road that you’ve done things wrong and now owe money to the IRS.

Depending on the particular business formation type you’ve chosen, there may be reporting requirements for accounting, especially payroll and taxes, that require regular and ongoing attention. Consult the IRS for your tax payment and reporting schedule.

Create your brand

Creating your brand is all about marketing. If you already made a business plan, you would have already established some marketing strategies. There are plenty of ways to market your business that will require payment. Here are some ways to promote your business for free:

• Create a blog: Some platforms that you can start your blog are WordPress, Weebly, Joomla, Drupal, or Wix.
• Social media: Promote your business on Facebook, Instagram, Twitter, and other social media platforms.
• Online groups: Sites such as Online Geniuses, Indie Hackers, Facebook groups, or even Reddit have booming communities that can provide advice and a space for you to gain some buzz for your business.

California Bakery Business Licenses and Permits

Nearly all California businesses will require a business license to operate legally. These are issued at the local level rather than the state, so you’ll need to check with your county or city government. In addition to the business license, it’s your responsibility to research what federal, state, local, and/or industry-specific licenses and permits your company requires, or hire someone to research these for you.

If you don’t have the time or inclination to do all this research, or if you just want the peace of mind to know that your LLC has all the business licenses and permits it’s legally required to have, our business license report service can do the work for you.

Licensing for at-home bakeries is very different than storefront or commercial baking operations.

License Requirements for Home Bakeries

California’s at-home bakeries must register for a basic business license, as the bakery is considered a business entity despite operating from home. You can choose to operate it with your own Social Security number and legal name, but you’ll need to get an inspection from your county’s health department first.

To protect public health, California has many regulations for home-based bakeries. Only certain foods are permitted to be prepared in a home-based bakery; see the California Department of Public Health website for a list. You’ll also need to complete a California Department of Public Health food processor course.

For more specifics, see California Health and Safety Code § § 114365 (2022) and 114365.2 (2022).

License Requirements for Storefront and Commercial Bakeries

The health permit is a legal requirement for all food establishments in order to serve the public with tasty tidbits. These permits are obtained from your respective county environmental health department and these departments also conduct periodic inspections of permittees’ facilities and equipment to make sure that they’re following all safety standards.

When you’re choosing a location for your business, it’s important to consult the zoning laws and get a zoning permit in most California counties. You can find out if your desired location is zoned for business in your area by talking to both the county and city government offices.

The California Retail Food Code is a set of rules in the California Health and Safety Code that establishes food safety requirements for operators, including hygiene, cleaning and sanitizing of equipment and utensils, food storage, and janitorial facilities.

People who work hard deserve to be compensated fairly. That’s why California labor law says that businesses with employees are required to abide by a minimum wage, set hours, and follow health and safety guidelines. Learn more on the California Department of Industrial Relations website.

Taxes – Sales and Income

Most business types in California will need to register to pay taxes with the California Franchise Tax Board. The California Franchise tax board requires all businesses registered with the state (such as LLCs and corporations) to pay an annual franchise tax of $800. For more information on how to register your business to pay its taxes, see the California Tax Service Center website.

Sales Taxes

California requires you to get a seller’s permit (also known as a sales tax permit) if you’re doing business in the state and you’re intending to sell or lease tangible property. You can register for a California seller’s permit online at the California Department of Tax and Fee Administration website.

California Sales Tax for Baked Goods

The California tax code can be confusing when you’re trying to determine which food and beverages are subject to sales tax. See the California Department of Tax and Fee Administration website for guidance.

Insurance Requirements for California Businesses

While you’re not required to purchase commercial insurance in the state of California — aside from workers’ compensation — it may be in your best interest to, or at least look into it. For more information on workers’ compensation, refer to the California Department of Industrial Relations. Commercial insurance can protect you from some of the most common losses experienced by business owners, such as property damage, business interruption, theft, liability, and worker injury.

The necessary steps to get business insurance are:

• Assess your risks.
• Find a reputable licensed agent.
• Shop around.
• Reassess every year.

Visit the Small Business Administration site for the different types of business insurance that are available, and learn more about commercial insurance at the California Department of Insurance.

Find bakery suppliers and negotiate prices

When searching for suppliers, make sure you take into account their location and their pricing. Find the pricing that works best for you, with a location that won’t cost an outrageous amount to get to you. Search for the best bakery suppliers in your area.

Marketing and Advertising

Branding

Branding your business involves more than just naming the company. It also involves having a logo, often a particular font, and even a slogan for your business. Also, company colors should be chosen. This is called your branding package, and it’s essential.

Get your perfect logo design

Can you think of a major business without a logo? Bet you can’t! That’s because major brands are built on the foundation of strong logos, the single most important visual element of branding.

Advertising

Advertising comes in many forms, from billboards to a website to a storefront sign. At one time, there was a focus on flyers, and today it’s social media. Regardless of the method, getting your business name out is essential to growing your client base.

Defining a solid strategy for advertising and setting an advertising budget is a significant step for any business. When new stores launch, they often have a grand opening event involving the media. The same is true for restaurants and many other businesses. This must all be considered at the beginning, especially if a significant startup event cost is involved.

How to Open a Bakery in Other States

Thinking about starting a bakery? Learn how to open your own bakery with these step-by-step business guides specifically written for your state’s requirements.

• How to Start a Bakery in Florida
• How to Open a Bakery in Illinois
• How to Start a Bakery in New York
• How to Open a Bakery in Texas
• How to Open a Bakery in Virginia
• How to Open a Bakery in Pennsylvania