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An Introduction to Bakernomics

One of the common discussions I've had with bakery owners, especially small bakery owners, is how to make their businesses sustainable. And by sustainable, they usually mean 'able to stay open even if I take a day off.'

It was a point I rarely got to at my own bakery, so you can imagine that it's something I think about often.

Consider the following scenario: You're renting a space and paying down some equipment. You've got two employees - someone baking with you full time and either a front counter person (retail) or a packer/delivery driver (wholesale)

Also, let's assume that as baker/owner, you are working a full bake shift in addition to running the business.

That's the dilemma. You can manage to defer / rearrange the 'business' duties to get some vacation time, but you can't miss a bake shift without the entire house of cards crumbling.

No bake shift = no products. And no products = no money, no wages, no rent payment.

We Are Different, But Have Much In Common #

Every bakery's situation is different. I get that. However, there must be some general principles that all bakeries, heck all businesses, follow that can transfer from place to place.

That's what I want to work through with you, in public, over the next several posts. I'll build out a framework here and you can build on it, make it better, point out my flawed assumptions and so on in the comments.

By the time we're done, we should have a model that makes sense. More importantly, we might even identify a few internal boundaries that are blocking us from finding a solution.

Make sense? Let's start with some math.

Wait, what? Math?

Yes, math. We're not going to solve this unless we run some numbers.

Gather The Numbers #

Alrighty. Let's pull some numbers together.

I found that I could get a better mental picture of my bakery if I looked at the weekly numbers rather than monthly numbers. Each month has a different number of days and anywhere from 4-5 weeks in it and all that variability makes my head hurt.

So, weeks it is. Look at your books (or ask your bookkeeper) and find the following averages per week:

  1. Gross Sales (average gross sales per week)

  2. Cost of Goods Sold (ingredients and packaging for all those yummy products)

  3. Net Sales (a - b easy)

Still with me? Now let's look your operating expenses. Convert these to weeks if needed, but let's get them all down.

  1. Rent/Lease

  2. General admin costs (everything from Utilities to Telephone to gas for the van and post it notes)

  3. Loaded Labour costs (wages plus every extra thing, from CPP/Social Security to worker's comp premiums)

  4. Loan Payments (if any)

Add up 1-4 to get your average weekly Operating expenses

One more thing: What pay are you taking home? Let's call that Owner's Compensation.

How's your profit looking? Subtract all those Operating Expenses and Owner's Compensation from Net Sales. It's likely a small number but hopefully it's positive. Even if it's negative, it is what it is.

While you're digging through the numbers, let's figure out some customer and product details too.

  1. Average number of customers per week

  2. Average spend per customer

  3. Average number of products sold per week

  4. Average price per product

If your product line is diversified and you want to split it by group, go for it. Same for customers if you have retail, beverages, subscription, wholesale, catering, etc.

That's it for now. Just gather the numbers.

Final Thoughts: On Wages and Tracking Numbers #

All the finance texts I've read say that production labour (that is, your bakers) should be up in the cost of goods sold area. But I don't buy that. In the short term, labour is a fixed cost. You're not sending bakers home without pay if business is slow, are you? You can't hire a baker just for the week you're on vacation, right? Treat hiring and paying bakers as an operating expense for this analysis.

Now, what if you can't gather this information? There's no nice way to say this, but that's a big warning flag. The first step in fixing a problem is knowing where you stand.

So much of the stress we feel as small business owners is this feeling of being on a runaway train. It's time to start driving the train instead. Time to make understanding the numbers a priority.

How are you feeling so far? Are you screaming 'Yeah but!!' at the screen? "So what??' Don't know where to start with gathering this stuff? Let me know in the comments. It will help guide the next post!