Working capital is key to bakery growth in 2022
Despite the continued impact of the COVID-19 pandemic, 2021 has been a year of hope for many small business owners. A recent report from Bank of America small business owners found that entrepreneurs are regaining economic confidence, with 60% of those surveyed expecting revenue growth through the end of the year.
As we head into 2022, you may be looking for ways to optimize your bakery operations to increase your income or recoup losses. Working capital can be the key to affording things like additional manpower, increased inventory, or equipment upgrades. Whether your goal is to increase cookie production, open a new traditional bakery, or purchase delivery vehicles, having enough cash can go a long way toward long-term growth.
If you’re unsure whether raising capital is the right decision for your baking business, we’ve gone ahead and outlined some of the most common signs that you’re ready to fund growth.
8 Common Signs Your Growing Business Needs More Funds
1. Your equipment can no longer meet customer demand.
Receiving an overwhelming number of sales orders is usually a good problem, unless you can physically meet the demand. Funding can be spent on upgrading equipment, whether it’s repairing or replacing existing devices or expanding what you have.
In addition, today’s constantly evolving technology offers huge ways to alleviate tedious management functions such as bookkeeping and accounting. For example, equipping the business with a secure point of sale system will certainly improve the way orders are taken, recorded and managed.
Better equipment and better technology always come at a price, but the rewards are worth it. You will no longer have to spend hours manually doing administrative tasks and instead can devote that time to tasks such as baking, creating new recipes and marketing.
2. You are understaffed
As a bakery owner, you know the holiday season is seeing an increase in orders. You might be well equipped with the best tools and equipment, but you are short of the manpower needed to meet the increased demand in peak season.
If your staff truly feels the burden of increasing demand without the necessary support, they may start looking elsewhere. Funding can be spent on hiring more people, either on a permanent basis or for peak seasons.
Take the time to assess the roles and responsibilities of your staff. If you have a person who prepares, takes the orders, and managing logistics, maybe it’s time to hire someone who can focus only on logistics and take the burden off the baker.
With more funds under your belt, you can increase your payroll. This money can be used to pay for temporary or full-time employees, as well as outsourced talent who can take care of your taxes, advertising, or insurance coverage.
3. You have a growing customer demand in a new market
If your first brick-and-mortar bakery is gaining momentum and you receive inquiries from different cities outside of your own, it might be time to expand your operations. Business expansion will mean different things to different owners. This could mean renovating an existing space, acquiring more parking spaces, or opening another brick and mortar bakery.
If you have the opportunity to expand your reach and open a new commercial space in a different location, funds will be needed, but they don’t have to be a barrier. Getting the right small business loan can help you market your products to a new market.
If you are considering opening a new bakery, ask yourself the following questions:
- Is there a large enough market for your business and the products you offer?
- How many existing bakeries are already in the desired location?
- Can the new market afford the price of commodities?
- What would be the operational expenses related to the maintenance of the new branch?
- How many funds would it take to set it up?
Knowing the answers to these questions will help you determine if now is the right time or the right place to open a new location.
4. You have too much debt
Going into debt is a huge financial burden on business owners, whether you run a small bakery or a large business. Growth decisions are hard to make when money is tight. Plus, having near-negative cash flow can hurt your credit score, which can be detrimental if and when you need to apply for loans in the future.
That being said, taking out a loan to pay off your existing debt can be very helpful. This is also known as debt consolidation – when you get extra funds to pay off outstanding balances. This allows you to pay lower fees and reduce additional costs.
Debt refinancing is a great way to pay off all of your loans on terms and conditions that work in your favor. It also prevents you from further damaging your credit rating as you only pay one loan instead of managing multiple accounts. For those who want to approach 2022 with a cleaner slate, taking out a loan to pay off debt is a proven way to maintain healthy cash flow.
5. You don’t have enough money for emergencies
As a small business owner, you know firsthand how difficult it was to navigate the evolving effects of the pandemic and keep operations in an unprecedented time. While some owners have been able to use government funds to support their operations, many have been forced to shut down permanently.
A wise owner of a growing business knows the importance of keeping an emergency fund. Emergencies, by their very nature, are unforeseen. We can’t predict when they will happen, but we can prepare for them when they do. Maybe your business is not ready for growth right now. You may want to raise funds for the sole purpose of saving capital in an emergency fund so that you have it as a cushion when you need it.
A business line of credit is a good resource for this purpose. It allows the borrower to withdraw money from their account at any time, and you only have to pay interest on the money you withdraw. If you don’t need the money, you can keep the revolving funds in your account and you won’t be charged a cent.
A business line of credit is perfect for unforeseen circumstances such as immediate equipment repairs or when there is a sudden need to increase inventory. The money can also be used to pay contract professionals you hire for projects like marketing or interior design.
6. You see the need for a delivery vehicle
Providing delivery services can expand your customer base, especially in this post-pandemic world where many people are working from home. If you have not been able to afford a vehicle to make the deliveries yourself, funding may be allocated for this purchase.
Many small businesses rely on outside services like Uber Eats to make their deliveries, but you lose quality control when using a third party. Items may not be properly secured or temperatures in the vehicle may not be optimal for transportation. If a cake arrives upside down or cupcakes arrive with dripping frosting, you could lose the customer for good.
Having your own company delivery vehicle is beneficial to your industry because your products – which are often purchased for special occasions – require a certain level of care in transporting them. Plus, you’ll have control over your delivery schedule to make sure items arrive, not only at their best, but on time.
7. You don’t have enough customers
Reaching more customers is integral to growing your business. According to Inside the business community, “We’ve been in the consumer age for some time, but the pandemic has accelerated their takeover, putting them firmly in charge of 2022 and beyond.”
You must identify yourself What this is what your target customers want (i.e. personalized baked goods, faster delivery times, etc.) and or they are. It can mean physically – looking for opportunities to collaborate with ambitious brands or have a presence at cool events – but it also means digitally. Young consumers rely on social media for seemingly everything, which makes it the perfect place to advertise and market your business and products.
If you’ve never budgeted for marketing and advertising, now is the time to do it. You can use funds to hire a marketing or social media consultant to help you strategize to effectively reach your target market and execute your plans well.
8. You lag behind the competition in terms of expertise
One key to progressing in business and in life is learning new skills. However, enrolling in continuing education can be expensive, especially if you’ve just recently opened your first bakery.
Don’t worry, you can use outside funds to improve your skills or learn new cooking techniques. Skill enhancement ensures that you stay on top of industry trends customers want, whether it’s innovative recipes, popular seasonal flavors, dessert mixes, or cool new decorating techniques.
Aside from the aesthetic, there may be new cooking techniques that will make the job easier, or some ingredients that you can use to keep costs down. If you have enough funds to pay for further education and training, you will be better equipped to provide better customer service.
Having more funds is a game-changer
As a new business owner, there are growth opportunities all around you, but you will need capital to take advantage of them. Setting business goals lays the foundation for your future growth, but funding is what allows you to meet those goals and propel your business forward. With small business loans, you will be in a much better position to expand your bakery and prosper in 2022.
About the Author
Matthew Gillman is a corporate finance expert with over a decade of experience in commercial lending. He is the founder and CEO of SME compass, a specialty finance company providing training and financing options for business owners.