Making a profit - Page 2

Lennette,

So essentially you have a bakery but get a break on "rent". I wouldn't necessarily class you as a "home business" even though you are....(if that makes any sense whatsoever).

I think that there are a lot of things that affect profit in business a shopfront will normally bring in more trade because there is greater exposure but generally there are higher costs rent etc we own our own restaurant and some of our equipment is 3 phase and it really chews up the power our electricity bills are always over $2000, wages are another big cost for us but without the staff we couldn't do the sales we currently do, as for ingredients/purchases we get somethings cheaper wholesale but also somethings are cheaper at the supermarket (believe it or not).

For businesses at home they would save on rent, wages but there may be other costs that are higher. The more regulated it is in your area the more compliance costs you would have.

I know people say you don't make a profit at first (& when we bought our restaurant we bought an established business so we make profit right away) but I think I would be looking at your figures minusing off your set up costs & one off costs and then looking at the rest of the figures checking whether you would be making a profit that would give you an indication of whether to are likely to make a profit once you get over the start up hump.

I apologize in advance for how long this is going to be.

There are so many factors ......

I think the biggest thing that gets overlooked is the very real expenses when going from a home-baker to a shop-baker. PLEASE NOTE: I'm not starting the home vs shop baker thing here.... I'm speaking from my personal view point, my personal experience, and my conversations with many folks who have made the transition.

As a home baker, a person may intellectually know there is rent and add'l expenses involved if/when they move to a shop, but until you are paying those bills, you don't really comprehend how much it is for:
-That $1150 monthly rent that goes up to $1525 when the landlord FINALLY gets around to figuring common areas maintenance fees for the year ... and then expects you to pay 3 months worth all at once because they screwed around and didn't get it done for 3 months.
-the $100 monthly dumpster bill that you don't have at home.
-the semi-annual fire inspection bill
-the payroll taxes,
-the bill to the accountant for doing the payroll,
-the actual and very real higher utility bills at a comm'l location (because god knows the utilities set their rates based in the "fact" that we business people have a ton more money just laying around doing nothing!),
-the equipment you never thought you needed ... like the $1000 grease trap, or just how much it REALLY costs, like the $8000 hood over the stove/oven ....
-the quarterly "cleaning out the grease trap" bill
-the $50 price tag for a comm'l mop bucket. (FIfty bucks??? For a freakin' bucket??? Are you kidding me????)
-the $2300 annual commerical auto policy on two vehicles when you were used to paying $900 annually on 3 vehicles on your personal policy,
-the liability insurance,
-the equipment insurance,
-the worker's comp insurance,
-------Note: I have to put back $10 every single day of the year just to pay my annual insurance bills
-any loans you took out for the equipment/construction
-any add'l credit card pymts that you ran up to make ends meet on those slow months.
-the $700 for all the soaps you need to run the bathroom, the kitchen sinks, the comm'l dishwasher, the floors, etc. (although to be fair, these have lasted me 6 months).
-the $2200 to fix the store's air conditioner because it turns out that's NOT a landlord responsibility (and the AC guy does not take monthly payments!)
-$3000 for the sign over your store (that I don't have yet),
-the cost to join the chamber and networking groups to get your name out fast and to a lot of people (it's called "advertisng" - and in case you're wondering, this money is the best advertising money I have ever spent!)
-the $45 a week linen bill for towels and aprons because you just do not have time to take them all home and wash them yourself anymore,
-the expense of buying more and more duplicate pans and equipment because higher volume means you can't do it with just two 8" round pans anymore
-and then figure that all of this is due and payable even when you don't have any orders ... the landlord still wants his rent and the power company still expects to be paid for electricity. A person no longer has the luxury of just paying the household electric bill and figure they "got a month off". No, no, no, ..... add to this the extra expense of gas and spending money on supplies to make those free samples to take to area businesses to try to get your name out and drum up add'l business.

It's a sticker shock to many ..... what a person thought was "good money" and/or "a decent profit" at home based on the pricing and volume they are doing from a home kitchen can throw them into bankruptcy in a shop kitchen if they don't do good market analysis and give their pricing and volume a reality check and if they don't have a good marketing plan.

It seems there is always something you need to buy, to update, to upgrade, to replace, to fix, to stock up on.

Here's a silly one .... I NEVER thougth about a sweeper for the shop (I have carpet in the front office area). I dont' want to spend the money to buy even a cheap one for the office, but I hate dragging my home sweeper back and forth between home and the shop.

Again ... this is NOT about being a home hobbyist, a home-based business, or a shop business. It's just a list of expenses that a comm'l space tends to have (repeat, TENDS to have) that a home-based business may or may not have and/or may not have been thoroughly considered.

P.S. Anyone who is frustrated with the management part of running their business has to buy the book "The E-Myth" by Michael Gerber.

Go to Amazon and order it TODAY!!

I just read the first few pages on amazon and it's sucked me in. I think I need to have this book!

That is my thinking as well. I can't bake as many cakes in my regular oven (even though it is a convection) as I can with a commerical oven and I can't mix as much cake and buttercream in my kitchenaid as I can in a 20 quart mixer. But you can't have these at home...and you have to depend on word of mouth, bridal shows and the internet to get word you exist. A store front, people drive by and see your store! But it is true, you don't need as much to do a startup, but your potential for how MUCH profit, as Mike states, goes way down when you are doing it at home..

Amen, Indy... I have all those bills now too. Luckily, I also have the sales to cover them (barely!!) BUT I can't get a good assistant to save my life so I pretty much make everything myself. And lemme tell you honeys, its a hell of a lot more work that it used to be at home!!

I hear ya! Since school started, I don't have my 2 girls coming in 10-3 anymore and let me tell ya, these 2 young ladies kept me going! They handled all of the cookie production, which free'd me up to do the marketing I needed to do. Now they can't come in until after school (3-5) and I MISS THEM!!!!!!

Indydebi,

Very informative post! Thank you for taking the time to share that with everyone.

last week after my bills were paid, my help made more money than me...LOL

sometimes i think i need gordan ramsey to come over and tell me what to do.

except it wouldn't make a fun show, cause my place is clean...some of those places they show on kitchen nightmares...will give ya nightmares....

since i'm single, and this is my sole income, no husband or anything...i couldn't do this if i had a big car payment or morgage to pay.

some weeks i do gangbusters...then just squeek by the next week.

ps....last week after working so hard i could barely walk...and bringing home so little....add to that the surprise tax bill.....i really felt like throwing in the towel...i'm in my 7th year...but of course i won't.

if the dang government and utility companies would cut us some slack...it would really be so much better...

then you get the cheapos who waste your time talking yer head off over an order...then are appaulled at the price and say.."gee i'll have to call you back"...i could made the dang cake in the amount of time it took to talk to ya....grrr!

And then you have to think about people up here where I live and if you want a location that will get you any decent foot traffic and exposure.. the rent is $7000/month.. yes you read that right $7000 PER MONTH.. and that's not including utils and taxes and insurance. I am lucky that we can have residential bakeries here. I am looking into converting my garage into a commercial kitchen.. but that's a while off.

I think.. so long as you are breaking even.. you are doing better than most. Maybe it's time to up your prices???

totally feeling your pain! on paper I make good money.
then after I pay my $600.00 electric bill this month, and my $1100.00 rent and my $500.00 in advertisment plus other bills I make less then my min. wage employee. BUT I love what I do, and keep doing it because I am too stupid to quite. or I mean, I will make a nice profit one day.
my biggest mistake was not realizing the actual cost of having an actual storefront....although I wouldn't trade it for the world. there are so many other things to think about than just paying the rent.
I need to get faster at decorating so I can spend less time on each cake....and to charge for the "extras" that the customers want. I'm getting better though.

good luck all!

melody

Debi GREAT POST Those are the "incidentals" that get forgot, or are unknown about. I hope everyone that thinks about opening a store front reads your post.

Lenette, I also need a separate space apart from the house. I don't need commercial equip though.

Mike

Ugh! The lowest rent over here in the metro NJ, near NYC, is $4000. Oh I'm sorry, I mean to write $3950. Woo. That's much better and a heck of a lot less expensive!