A friend and I have been talking about opening a cake business (we are aware of the potential issues with friends in business, etc. and are not asking for your input on this right now). A local bakery who right now just does donuts, pies, basic stuff , etc. has contacted us about working with them so they can offer 3D cakes/ wedding cakes, etc. We met with them this morning to discuss an opportunity. Keep in mind that neither my friend or I are "business people" and will be talking to our local small business network to get their guidance as well.

Here is what the bakery owner proposed:

We would get full use of their facilities/ equipment etc.
We would fall under their insurance
For "our cakes" (cake orders we get on our own) the bakery would get 25% of the sale (percentages are NOT set in stone)
For "their" cakes (cakes ordered through the bakery) they would bake the cakes for us with their ingredients and all we do is decorate and we would get 35% of the sale (we would set the price)
We would have full access to the bakery at all times

For "their" cakes they would issue us a 1099 at the end of the year for our percentage.

What do you think? What other questions should we ask?

The couple of things that jumps out at me is:
What are the limits for the number of cakes a week?
Who is taking the orders?
How do you plan to grow as a business after a couple of years?
What is your exit plan if this does not work out for you and your friend?

Best of Luck in this venture!!!

What are the limits for the number of cakes a week?
Who is taking the orders?
How do you plan to grow as a business after a couple of years?
What is your exit plan if this does not work out for you and your friend?

Still ironing out the # of cakes
We will both take orders- but they will refer to us anything that is not your simple round BC with a border
Growing business- not sure yet but will work on that after our small biz meeting
Exit plan is in the works[/i]

Just some random thoughts for you:

Why are they interested in doing this? Maybe they can't afford a decorator right now. But if you build a clientele for them....who keeps the clients if you part ways? In other words, do you get to put your name on the cakes separate from the bakeries name?

I personally would try this. If it didn't work out, nothing is lost on your end. I think I'd work on how you can work together instead of how you can grow your own business off of this. I don't see how they can project how many cakes orders they'll generate until you actually do this for a while.

Have you put pen to paper to actually work some fictional numbers and see how much this might or might not profit you?

You all might disagree on cake prices. What if they charge a lot less then you would expect for a cake?

They might not write orders well, so will one of you be there everyday while their open to give customers qoutes?

If your covered by their insurance, your their employee.

Stitches- some great thoughts.

This is still so early on in the thinking stages. We will have our own biz name and they would advertise something to the extent of " Now offering cakes by ABC Cakes (not our name, just an example).

We would obviously form a contract and would be able to keep our clients if it didnt work out.

For orders, they would take basic orders like if someone wanted a round BC cake wth a border and Happy Birthday on it. Anything else would be referred back to us to contact. They have a staff member that is primarily there for baking that has minimial experience but enough that she could take orders.

We could get our own insurane if we have to.

As far as pricing- they are working on theirs but for basic cakes we would agree on the price, for our custom cakes we get to set the pricing.

What jumps out at me is they get 25% of your cake order, which is for just using their equipment. That is steep, it may be cheaper to just rent space somewhere.

6 dollars a serving, they supply the cake. How about other supplies, cake boards fondant etc? Exactly how complicated can the decorations be for the $6.00. What about cakes which would entail hours of work creating sugar flowers? If it is anything goes --then you are in trouble; but if you can charge extra beyond the $6.00 for very elaborate decorations which would go into your pocket not the bakeries, then it might be a good idea. You would have to be very clear about pricing of the decorations.

So on a $200.00 cake order they get, you keep $70.00. If it takes you 3 hours to do the cake your getting paid aprox. $23.00 per hour. Which is a pretty good wage.


If you generate a $200.00 cake order and it costs you $25.00 in ingredients and supplies. That's $200. less their 25% of $50.00. Then subtract out your costs, you keep $125.00. If it takes you 3 hours, your making $37.5 per hour. That's an incredible wage.

But if you own your own business your over head is going to consume a lot of your profit. If you don't have a lot of orders it could consume all of your profits. Plus you risk loosing your investment.

I think this sounds like a great deal for you!

Thanks for the input.

Narie- I am not sure where the $6 per serving came in, around here that is too high I think. But I did think about excessive work and flowers, etc. I do agree that there needs to be something in our agreement that we would get a higher percentage for those decorations.

Stitches-I do think it sounds like a good deal and possibly a good opportunity to get started. Thanks for all of the input.

Sweetooth- OK, I was writing a response to the "Amazing Opportuity" - which is where the $6.00 per serving came from. When I signed into respond, I picked the wrong topic to answer. At least what I said made some sense to your situation.

No problem Narie. I am just so sleep deprived (from doing a cake of course) that I was confused how that came up. But yes, you brought up some good points and they are definitiley worth addressing. Thanks for your help.

So as a business, if someone complains about a cake and asks for a refund, does it come out of the bakery's pocket or yours?

It should come out of both pockets I think. It's your job to decorate, yes.......but as a responsible person you should also never decorate a cake that isn't up to high standards. Like wise, if you do bad work, they should comment to you about your quality. Be in it together for both of your benefits.

Never look the other way, always be responsible. There should never be returns because of problems, only mistakes......and they happen..........so you each take responsibility..........I think.

bump

The refund question is another I had not thought of and an good one to cover. Thank you for that. I knew in the excitement of the possibility there would be things we forgot to ask and that is why we posted this on the boards. YOu all are so helpful. Keep the ideas, suggestions, questions coming.

Define what their customer is and what your customer is. Sally Sue comes into the bakery and wants an ornate cake. They refer her to you. Sally Sue is their customer and they get the 25%.

Sally Sue is SO entralled with the cake that she comes back to talk to you about a cake for her parents anniversary.

Is the anniversary cake a bakery order or YOUR order? Is it "once a customer, always a customer" or is there a time when the customer crosses the line from bakery client to your client?

Supplies for your cakes: Can you order thru them or combine orders with their supplier for volume discount pricing? Will you have your own storage space for YOUR eggs and YOUR flour? What about private storage space in the 'frig/freezer? This area could get dicey if it's not spelled out right away.

What insurance are you operating under? Is it their liability insurance? Are you covered on their workers' comp insurance? The answer to this one may help answer the question in the next paragraph.

A 1099 indicates "independent contractor". There is a set of rules on what determines an independent contractor and part of it is who has control of the job? You can't just CALL someone an indep contractor so the employer can get out of paying some taxes .... the job has to fit certain criteria set up by the IRS. Since this job classification cuts in on the IRS's income, the IRS spends a LOT of their budget investigating this job classifcation. (I've just done quite a bit of research on this).

Thanks Indydebi- I knew I would appreciate your insight.