Small Business Ideas – Start Your Own BakeryDo you have food-focused small business ideas? Maybe you’ve always dreamed of owning a café or a restaurant…or a bakery. Erin McKenna’s start-up story shows what it really takes. New York Magazine recently printed her story in the article “Start Your Own…” A few years ago, Erin found out that she was allergic to wheat and dairy products. She decided to cut sugar out of her diet, so she needed to find some alternatives to satisfy her sweet tooth. Living in New York, Erin couldn’t turn to the city’s finest bakeries, including Magnolia. She concluded that, instead, she would open her own sweet shop that would offer vegan cupcakes. She opened the bakery in New York City’s Lower East Side and named it BabyCakes NYC. In the article, Erin says that she “wanted it to be really adorable and scenic and big on atmosphere.” She dreamed it would be “[a] destination place.” Here is a rundown of the start-up costs Erin faced: • Security deposit - $4,000 • Construction costs - $28,250 • Initial inventory costs - $3,000 • Kitchen equipment costs - $2,500 • Permit fees - $255 • Total start-up costs - $38,005 In addition, these are the monthly operating costs Erin faced: • Rent and utilities - $2,800 • Staffing costs - $5,143 • Inventory costs - $3,000 • Insurance costs - $700 • Total of monthly operating costs - $11,643 In order to just break even, Erin would need to sell 130 cupcakes per day at $3 per cupcake. Before opening a business, most retail business authorities suggest that you have enough money to cover monthly operating expenses for three months. Initially, Erin didn’t have the start-up money that she needed. In addition, the profit margins for BabyCakes NYC are fairly low. When she found a deal on storefront property, she signed the lease before her loan was finalized. In the end, her loan fell through. How did she open her doors, let alone stay in business? According to New York Magazine, she used her mother’s savings and called in favors from all of her friends. “She ended up with $12,000, just enough to open her doors and keep recruiting investors (she has nine now).” Financially, how is Erin doing now? “She says she’s not in debt, but she is one plumbing problem away from disaster (or a tenth investor).” She has a difficult time making profits. She is $500-per-month short of breaking even. This is because her vegan treats require expensive ingredients, including coconut oil and agave nectar. It costs Erin $2 to make each cupcake, but she sells them for only a 50% markup. To keep costs down, she works twelve hours a day. In exchange for a few months’ worth of free labor, she signed over five percent of the business to her assistant baker. Now her assistant baker earns $600 per week. Erin’s sister works at the bakery full time, earning $500 per week. Everyone is paid in cash, so Erin doesn’t rely much on bookkeeping. Erin clearly has a tough time keeping her business afloat. What lessons can you take away from BabyCakes NYC that would make your small business ideas more successful? First, have a plan for financing your small business ideas. Don’t rely on a loan that may not come through when you start entering financial commitments. Second, carefully consider the relationship between your costs and profits. Opening a business that you know will barely break even is setting yourself up for tough financial times. Consider adding other items to the menu that would bring in more profits. For example, coffee usually sells at a 500% markup. Third, keep good accounting records. Dealing in cash may make your daily life simpler, but it won’t help your business. You need to be able to analyze where your money is going in order to make decisions that will increase your profits.
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