The Bakery Project Part 1: From an idea to reality

Amy North · 04 April, 2018

Welcome to the first feature in The Bakery Project, a new series that explores some of the ways to start or expand a bakery business, giving British Baker readers the chance to learn from those who have already done it

Baking a fantastic loaf or making a show-stopping cake takes different skills and knowledge than running and building a successful business – but it is possible to do both.

And if you fancy turning baking into your bread and butter, the first step is taking a leap of faith.

Dissatisfaction with work, a passion for bakery, identifying a market opportunity or the desire to be challenged are just some of the reasons people have made the jump from office jobs to self-employed business owners.

“I had spent 25 years in financial services in central London and after the financial crash in 2008, I became disillusioned with my industry,” explains Glenn Stephens, owner of Rex Bakery in Little Chalfont, Buckinghamshire.

But it would take time before his vision of running a business would become reality.

“Around 2012, circumstance meant I was going to leave my employer, so I decided to change career. However, I was really bad at making bread so, with hindsight, I guess I also fancied the challenge.”

Despite having no bakery experience, Stephens identified a business opportunity – his local bakery had shut down, leaving a gap in the market. So then it was a matter of working on his baking skills (see box out, p27).

Friends and family were worried I was picking the most uncertain times to give up a well-established and well-paid freelance career to gamble on starting up my own business
Duncan Glendinning, Thoughtful Bakery

The recession was seen as an opportunity by Duncan Glendinning, who opened the Thoughtful Bakery in Bath in 2009.

“Most of my friends and family were worried I was picking the most uncertain times to give up a well-established and well-paid freelance career to gamble on starting up my own business,” says Glendinning. He saw things differently.

“In the baking industry, those who mean business can often come up against stiff competition from lots of smaller cottage industries, or hobbiest bakers. I knew the recession would discourage all but the most hardened and committed entrepreneur bakers, so that gave me a clear sense of what the playing field was looking like and whom I was in competition with.”

For Oxford-based Modern Baker, founded by Melissa Sharp and Leo Campbell in 2015, “it wasn’t about baking, it was about healthy”.

“We wanted to get into the healthy food business and the longer we pondered we realised there was no point doing (and I don’t want to be disrespectful) nut butters or birch water,” says Campbell. “We wanted to go straight into the biggest food group in the UK, which is dietary carbohydrates.”

Once an opportunity has been identified, how do you take advantage of it? Like most things in life, it comes down to money, but perhaps not as much as some would think.

“If you have a garage for production, like I did, there are no rental costs and if you use mainly second-hand kit, you can build a decent bakery for about £20,000,” notes Stephens.

Rent or a mortgage on a property could add significantly to these costs but this, and the cost of equipment, will vary depending on your prospective output and scope of operation. And beware of the common pitfall of under-budgeting.

There are many avenues to be explored for entrepreneurs seeking a cash injection, from the more traditional self-financing and bank loans to the relatively new idea of online crowdfunding (see box out, p28). Deciding what is right for you, and your investors, depends on your financial situation and market knowledge as well as experience.

The first step is likely to be approaching a bank or more traditional lender. A credible financial plan is needed – that means detailing what you are trying to achieve, short and medium-term goals, what it will cost to get started, including necessary cash flow and production costs, and how you will generate income once the business is up and running. Interest rates vary depending on the size and length of borrowing, as well as your individual circumstances.

Online specialist Money Supermarket suggests investigating business account overdrafts, usually available for 12 months, or credit cards or cash flow finance that enables companies to borrow against the value of their unpaid invoices and against assets, such as property or equipment.

Dan Nemeth, owner of Seasons Cakes in Ingleton, North Yorkshire, says his bank manager “just didn’t see” his vision, so he opted instead for a £12,000 loan from Cumbria Asset Finance. Nemeth started his business as a sandwich production company, but struggled to get the quality of bread he wanted from local suppliers – and took the decision to remodel his business to fill that gap in the market.

But for some, traditional financial routes are off the table.

“If you apply Dragons’ Den logic, nobody is going to invest in a guy with no experience in the food industry, of food production, retail sales or making bread who wants to open a bakery,” adds Stephens. “I didn’t ask a bank to lend directly against my business idea. Being a novice meant I had to take the risk entirely on my shoulders.”

Modern Baker was also self-financed and while neither Campbell nor Sharp had commercial baking experience, they had the business know-how from previous ventures.

“I’m not inexperienced in starting businesses, but we still knew it was going to be very, very hard,” Campbell recalls. “If you have the right idea, the right insight and the right experience, you will always get funding and the truth is investment money is relatively easy to find. However, we decided to self-fund to start with and, when we had proved our concept, we would then talk to investors.”

For those who don’t have the personal finance to back a project, crowdfunding offers an alternative. It’s a platform many bakeries have had success with, including Biscuiteers and Stoneham Bakehouse.

The latter raised £23,455 in just two weeks, opening its doors in March 2017. As a social enterprise – it’s a community-supported bakery in the Poets Corner area of Hove – it was also able to apply to the Santander Changemaker Match Fund, which provided £10,000 towards its target.

There are a host of crowdfunding sites from Crowdfunder to Crowdcube, Seedrs and Funding Circle UK.

Crowdfunder, for example, sees backers from the general public pledge money towards your project. Those seeking money can do this via two methods – ‘all or nothing’ which means you only receive pledges if the target is hit, or ‘flexible funding’ allowing you to keep all pledges.

Crowdfunding isn’t free money and it doesn’t come easily
Duncan Glendinning, Thoughtful Bakery

Platforms often charge a fee, which might be a percentage of funds raised.

Thoughtful Bakery also found crowdfunding to be lucrative, raising £55,000 in less than nine days in order to move the business from a relatively inexpensive countryside production unit into a city centre retail space.

“Crowdfunding isn’t free money and it doesn’t come easily. That said, for smaller businesses with a short trading history, poor credit rating or covenant strength, it may be a more accessible route to funding than conventional ones,” Glendinning says. “The benefits are that, if done correctly, you don’t just welcome the investment funds of the backers, you also welcome a new pool of experience, contacts and more that you can tap into to help grow your business.”

Growing is great, but be sure to do so at a manageable pace – taking on too much too soon could lead to problems down the line.

“People underestimate what it takes. It’s not just a loaf of bread – you need to be doing 200 loaves a day minimum, plus baps, pastries and everything else,” warns Nemeth. “The scariest thing for any bakery is to say no to a customer, but you can’t do everything.”

One way to keep on top of things, he suggests, is to bring in bakery consultants. “There are so many aspects of baking that people don’t realise. You might be mad busy and you might have loads of customers, but at the end of the day it comes down to the bottom line.”

Writing a business plan

While there are many approaches to writing a business plan, the Federation of Small Businesses recommends it should have seven sections, and an appendix, including information such as your CV. The seven sections are:

Executive summary

Summarising your business and what you’re trying to achieve, it should include: its current stage of development; where you want to take your company; why your business idea will be successful; strengths of your business plan.

Business description

Describing your company and detailing its different elements. Include: how your business operates; its target market; your products and services and how they will meet market needs; customers your company will serve; what will make it a success.

Market strategies

Showing you know your market, this should include: description of the industry including trends and future outlook; size and forecast growth of market; characteristics of your customers such as demographics, needs, location, and purchasing trends; market share you can gain; your pricing structure and gross margin targets.

Competitive analysis

Explaining how you will differ from your competitors and issues that can help or hinder you, such as: current and potential competition; your competitors’ strengths and weaknesses, strategies that will give you an advantage; barriers to market such as lack of investment or experienced personnel.

Design and development plan

Describing your products or services and including: details of your products’ design and development; how you will market your products or services; what budget you will have to achieve development goals.

Operations/management plan

Showing how the business will function, including: management team responsibilities; organisational structure; tasks of each part of your company; capital and overhead expenses such as rent, supplies and leases.

Financial factors

Providing an accurate picture of your company’s current value, and showing your ability to pay bills and earn a profit. It should include three key areas:
Income statement – How your business will generate money each year, including income generated by your business, cost of goods, gross profit margin, operating costs, net profit before and after taxes, and total expenses.
Cash-flow statement – How much money will be needed to meet your business obligations, when it will be needed and from where you will access it, including information such as cash sales, receivables, total income, and costs for research and manufacturing, overheads, and marketing and sales salaries.
Balance sheet – A summary of all the preceding financial information, given on an annual basis, and split into three areas:

Assets – current assets like cash and inventory; and long-term assets like property you own and long-term investment.
Liabilities – these are current liabilities like accounts payable and taxes; and long-term liabilities such as payable bonds and mortgage.
Equity – the difference between total assets and total liabilities.

Do you need to be an experienced baker to open a bakery?

Becoming the owner of a successful bakery business takes hard work, close monitoring of finances and passion – what it doesn’t necessarily take is years of hands-on baking experience.

Sure, a more traditional path of studying at bakery school followed by employment in bakeries big and small would be advantageous. But some take a different route.

“Many will laugh, but when I started, while I had bucketloads of passion and enthusiasm, I lacked any commercial baking or catering experience. I hadn’t even stepped foot in a bakery production space prior to kitting out my own,” says Duncan Glendinning, owner of Thoughtful Bakery (pictured above).

“If I had the chance to do it again, I would take the opportunity to visit bakeries, do unpaid work expe-rience and gain as much insider knowledge as possible.”

On the plus side, he says the bad decisions and mistakes he’s made are lessons that can be handed down to those just starting out.

Glenn Stephens from Rex Bakery also set out into the bakery world without any prior experience.

“I was a total novice so needed help,” he says.

To rectify this he undertook an Advanced Bread Making Course at the School of Artisan Food that was run by Wayne Caddy. This, Stephens says, assured him that he was on the right path.

Looking back now, I wish I had paid somebody to teach me how to make the basics.
Dan Nemeth, Seasons Cakes

Stephens was put in contact with a local baker through Caddy to gain more experience. “I offered free labour for washing-up duties,” he explains.

“They agreed to one night and I ended staying for three months through to March 2012, working three nights a week and learning the processes to manufacture on a small scale.”

Dan Nemeth, of Seasons Cakes, trained as a furniture maker and designer. During college he had worked as a bakery assistant in Asda, and taken part in agricultural shows and competitions when he was younger, but an accidentin which he chopped off his finger saw him revisit his passion for baking.

“I set up a business making sandwiches and that evolved into baking again,” Nemeth says. “It’s all about practising and making mistakes. But looking back now, I wish I had paid somebody to teach me how to make the basics.”

Show me the money: funding a new business

There is a wide variety of ways to fund a new business venture, but some of the most common are:

Personal savings

You could fund the beginnings of your business using personal savings to help pay for equipment or support you financially as you shift into self-employment. But it is important to note this could leave you at financial risk if something goes wrong.

Investors

This is where people can buy a stake in your business in return for funding and, hopefully, a return on that investment in the future. Investment can come from sources including friends or family, investment bankers, and fund managers.

Loans

Many banks offer small business loans to start-ups to help get them off the ground. These loans can often be repaid simply, with repayments tied to transactions or as a direct debit each month.

Government funding

The government provides new businesses with access to start-up funding. Start-up loans range from £500 to £25,000 and can help a business get established, covering the initial costs of purchasing equipment and preparing to trade.

Government grants

Start-up grants are non-repayable lump sums made available to businesses. These grants have to be applied for, so it isn’t guaranteed that a firm will receive the funding they provide. Grants range from schemes to encourage businesses to take on apprentices or fund training, to helping with building repair or promoting growth.

Crowdfunding

Websites such as GoFundMe or Kickstarter allow members of the public to donate or back a project in return for early access or specialised rewards. It’s important to note that if a crowdfunding event doesn’t reach its goal, such as raising a set amount of money in a month, you will receive none of the funding. [Editor’s note: with the exception of ‘flexible funding’ – see main story.]

Source: Federation of Small Businesses