Man. I've been licensed this year so keeping more careful records about profit and spending.

I'm finding that although I feel like I'm charging enough money, my profit levels really aren't what I'd like to see for the amount of work I put into the cakes. Especially once I count in insurance and other expenses...it goes lower...by the end of the year once I count in mileage and internet access and the laptop I just bought, I probably won't have much profit at all! (Good for taxes I guess...)

How can this be? I know I end up getting alot of party cakes, which average $100-$200 a pop, rather than weddings which can be $500 and up. But like for instance, I accidentally combined July and August figures since I went on vacation but...just did those and I got $1482.00 in income, but ended up spending $963.62 in costs!!!! (That counts my quarterly insurance payment). I know its probably uncouth to share that, but its different every month (and that was over two months but I was away for two weeks of it) but I want to know if I'm doing something wrong?!

How do you guys make a living anyway, those of you, like Indydebi? How do you pay your people and your rent and put food on your table?

I don't mind too much as this is "extra money" for us, not a way of life... but I sit back and look at the numbers and I'm like..."Man...I thought I was doing better than this."

I did have a really good month but I got some wedding payments during that month. Next month should be decent because I have a big wedding coming up then.

I guess my problem is I don't get many weddings?

I understand exactly what you are saying. I stay fairly busy and just hired an employee because of that. I am curious what people have to say about this topic. I think the first year is tougher because you spend much more money getting started. I definately do not spend 1/5 of the money I needed six months ago. Anyway, I am wondering the same thing right now.

Any business advisor will tell you not to expect a profit for at least three years.

Don't expect to make any money the first few years..shoot,if you are breaking even, you are doing great! (my first year I had a loss of over $5000.00 and my accountant said that was a low amount!) As you build up materials like cutters and your laptop and things like that, and build up your skills (you will get faster at doing the cakes) and find resources for materials that are cheaper and get more cake orders that will allow you to buy in bulk, you will do much better!!!! I just did my third quarter stuff and I was shocked to see I had spent 30K this year on materials, insurance, equipment, etc....I turned to my DH and said Gads, where did it go?? It does add up!!! I doubt this is something you get rich on, you just gotta love it I guess.

YOu know I've heard about not making a profit in teh first 3 years too, and as hard as that is to swallow - it makes sense.

When you start out, you have TONS of start-up costs, still building the customer base, and testing out the market.

If your doing this out of your house the three year thing doesn't exist. I would work on to see if you can cut the cost of recipes, or raise prices. It's the evil of business cost of manufacturing VS the selling price of the product.

Mike

So you are saying you would make a profit faster when running it from home? The big drawback from running it from home for me is you have to use a regular oven, instead of a nice big bloget or something, that will bake a ton of cake in an afternoon. So you can't take as many orders. And you can't get a big fridge so you have to buy your eggs by the dozen instead of by case...cant buy flour in bulk, etc. that all adds up no? There are a lot of companies like pfeil and holing that won't give you free shipping if are a resident (not their fault, its because UPS and FedEx etc charge more for delivery to a home then a business)..things lke that. I think its a wash...

I would have to respectfully disagree with you Mike.

I am at home but because of local regulations I had to have the same equipment and requirements as any other bakery in town so we built it. I am in debt and I hate the stress of the bills but there was no other way to go if I wanted this business.

I didn't have a steady clientele and still don't. Sometimes I am swamped, other times nothing.

I am thinking about an inexpensive place to rent because at home there is a major lack of visibility, there are no walk in customers, etc.

I think the three year thing can apply depending on how much you had to invest, not whether you are home or not.

I am just learning how it is possible to make more money than I at one time could have imagined...and to spend more money than I ever imagined I could in 1 month.

I think it just depends on your area. I had to have a totally separate space, all commercial equipment.

I make cakes and cookies primarily, cheesecakes and pies. I don't have equipment to fry, I don't even have a cooktop or stove because I would have had to buy a hood and those things are super expensive!

Maybe in other places you can have home appliances, that would have been nice!

I think it will take me 3-5 to really show a profit especially if the economy doesn't improve for a while.

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!!

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!!

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