When I decided I wanted to try starting a second business, I considered opening a home bakery. I’ve always loved making tasty desserts for friends and family and thought selling treats at the farmer’s market could be a profitable venture.
Home bakery businesses have low overhead because they can be run right out of your own kitchen. You don’t need to have a lot of money saved for startup costs either. Depending on whether or not you need to purchase baking equipment like a stand mixer or dough proofer, your initial investment could range from a couple hundred to a few thousand dollars.
However, the more I researched home bakery businesses, the more I learned about their downsides. Bakeries have low profit margins, and home bakeries have extra restrictions on how much they can earn and where they can sell their products. To help you decide whether or not this business model is right for you, here ere are some of the reasons why I chose not to start a cottage food business.
Lower Profit Margins
The main reason I passed on starting a cottage food business is lower profit margins. Generally home bakeries have profit margins of 20% or less. Food inflation has made key ingredients like butter, sugar, and flour more expensive, which cuts into profits even further.
It’s not uncommon for woodworking businesses, which can also be run out of your home, to have a profit margin of 60% to 80%. Because I have so much wood on my land and a bunch of tools, I decided to start making wooden crafts instead to try to earn more money.
Limits on Earnings and Where You Can Sell
Home bakery businesses are popular because they have low startup and overhead costs. But at a certain point, you’ll have to expand your business to a commercial kitchen, which will raise your operating expenses substantially.
Many states limit the amount of money you can earn from your cottage food business. Wisconsin, for example, has an annual limit of $5,000, while Illinois caps sales at $1,000 per month. Some states like California and Missouri have higher limits of $50,000 per year. About half of states don’t have any earnings maximum.
Many states also limit who you can sell your products to. Depending on the laws in your area, you may only be able to sell your products directly to consumers and not to other businesses like restaurants and grocery stores. These restrictions might limit your ability to scale and expand your baking business.
Baked Goods Spoil Quickly
Another downside of operating a home bakery is that baked goods spoil quickly. Desserts like cakes, cookies, and pies only stay fresh for a couple days. If you don’t sell them within that time frame, you’ll have to toss them in the trash and take a loss on them.
The highly perishable nature of baked goods is one of the main reasons I decided not to start a home baking business. I knew it would be tough to forecast how much inventory I needed to meet demand without overshooting the mark. I didn’t want to end up with lots of desserts I couldn’t sell, which is why I chose to start a woodworking business instead. Products made from wood don’t have a limited shelf-life and can be stored until they sell.
Food Safety Regulations
The last reason I decided against starting a home bakery business is food safety regulations. In many states your home kitchen has to be inspected before you can sell products out of it. If you’re like me and you don’t enjoy cleaning, it may be challenging for you to maintain a spotless kitchen.
Depending on local regulations, you might need to create separate food prep and storage areas for your business within your home kitchen. If you have a small kitchen like I do, it could be a challenge to make room for both your personal day-to-day cooking and your baking business.
Some states don’t allow you to have a dog in your kitchen area or even in your home if you plan to sell food, which is another drawback. I have a dog named Jax who follows me everywhere. He would be very unhappy if he was banished from the kitchen while I was in there baking!
Another thing to keep in mind is that you might need to renovate your kitchen to comply with local laws for home bakeries, which adds to your startup costs. You may need to install additional sinks, add a sprinkler system, or update your ventilation system to get your kitchen ready for business.
Food safety laws exist to protect consumers and keep them safe and healthy. But they’re a bit of a hassle to follow, so I decided to start a crafting business instead to avoid all the regulatory oversight.
If baking is truly your passion, starting a home bakery business may not be a bad idea. You’ll have low overhead and startup costs, allowing you to bootstrap your business. However, you should be aware of the challenges of the cottage food industry such as lower profit margins and earnings restrictions and keep them in mind as you work on launching your business.
Would you ever start a home bakery business? Why or why not? Let me know in the comments section below!
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Vicky Monroe is a freelance personal finance and lifestyle writer. When she’s not busy writing about her favorite money saving hacks or tinkering with her budget spreadsheets, she likes to travel, garden, and cook healthy vegetarian meals.