I was curious if anyone would honestly tell me how they work this out.

Perhaps you could PM me since I feel like any mention of potential impropriety will result in a firestorm and I really just wanted to know honestly how you can rent space for, say, $25/ hr. and bake & decorate the entire cake there, on their clock, and make any money at all. It sort of boggles me a bit. It takes me hours to make, bake and decorate cakes. If you have a bakery with tons of cakes and buckets of frosting/fondant, it's not that time consuming to throw together a smallish cake.

But if I get an order for a small wedding cake, say 50 people at $3/ serving, and I do EVERYTHING related to that cake in a kitchen at $25/hr, I would barely break even - maybe I would make enough for a coffee from AM/PM!

So I was hoping to hear if you all do this and simply charge much more to account for the kitchen rental time (difficult to imagine, in this economy), do you break the rules and cook the cakes there but decorate at home? (And yes, I completely understand about how this totally defeats the purpose of health codes, licensing, etc..... )

I do not judge, whatsoever. I simply wanted some truth so I can determine my next step - that's why I figured we could PM since many may hesitate to put something here that is not totally by the rules for fear of getting ripped a new one.

Any help or advice is appreciated.....

I have the exact same question. I just this afternoon found a commercial kitchen that will rent to me for $20 an hour. Cheaper than where I've found elsewhere but... Once you add all the time it takes to make and decorate, business liscence, insurance... it seems like I would never break even unless I was only doing huge wedding cakes which of course would take more time and eat more profit...

I too would really like to hear from kitchen renters on how they make things work!

As in any new business venture you usually don't show a "profit" for the first couple of years. When your orders increase and business picks up than you will show a profit, but it is not unusual to show a couple years of "loss". I never rented a kitchen space, but I imagine this will be the response you will hear.

Mike, in the beginning, let's say you have fixed costs of $5,000 a month ... rent, utilities, insurance, loan payments. In the beginning, you may not be bringing in a $5000 income. So you are showing a loss the first few months.

As your business grows, your fixed costs ... rent, utilities, insurance ... remain the same $5000, but now you are bringing in $7500 or $10,000 a month income. You are showing a profit.

Your Supplies-Expense column will grow proportionately with increased orders (you buy more supplies such as flour, eggs, etc., with more orders), but your various Fixed-Costs column remains the same.

Yes, Debi that's simple, BUT. It doesn't matter how much business you have if your spending 25 an hr, and only making 24 you better not take in any more business. You better find a way to cut costs.

After your initial investment, you should be making money. Take that initial out of the equation. You should be making money, you have to. The only reason for a business to lose money the first few yrs is to pay off the initial investment. Your actually not losing money your building equity in your equipment.

Mike

Mike the point I was trying to make to the OP is......to not be discouraged in the beginning of any new business venture if you are just breaking even. Many new businesses show a loss. She's concerned that renting kitchen space may not be the way to go because she'll "barely break even" on some of her orders. I know way back when, when I was just starting, I "barely broke even" for the first couple of years, because I was investing in equipment and paying my loan on my kitchen. This was to my benefit in the end. Same thing went for my Hair Salon.

I guess what I'm really saying is that patience and smart business decisions are the key. It's not just about renting kitchen space, taking a few courses and buying a Wilton starter kit.

I rent kitchen space but I pay monthly, not hourly. It took almost a year for me to start making a profit because I didn't consistently have enough business to cover all my costs and make a profit. However, now that I've been in business almost 2 years, I make more profit because I have more business. Your fixed costs may remain the same. But if you gross more, with the same fixed costs, you'll net more. If you can't charge enough to make a profit then I'd say, don't do it. Wait for a better opportunity or else try to bargain for better terms. If you do it you have to be very organized in order to work as quickly and as efficiently as possible.

No offense to Mike but I, too, was baffled by what you were saying. I am sort of addicted to that show 'Recipe for Success' and they almost always talk in the long term and often they are 'in the red' for several years until they build up a clientele....they always make it sound like making a profit right off the bat is not realistic. Am I missing something?

I wouldn't say making a profit is "unrealistic" ... but more along the thought of taking a loss the few year or two is common. Just don't panic if your books show you in the red the first year or two ... that just means you're normal!

With my rent, utilities, insurance, loan payments, payroll, payroll taxes, accountant fees, advertising, etc., I have to CLEAR over $10,000 a month just to pay my bills. If you had my shop with my overhead, could you open your doors on January 1st and CLEAR $10,000 by January 30th? Most can't. But as the word gets out and your business grows,' you eventually reach that level.

That's all anyone is saying. It just takes time for your income to grow and pass your fixed expenses. Some CAN open their doors and hit the ground running. Just don't be depressed if you don't.... it's normal.

Maybe the way I'm saying it, it's coming across clear. Yes, I understand the fact of paying off equipment, and noncontrollable expenses. The OP was wondering about if she is paying 25an hr that leaves her enough money for a cup of coffee. To me that is losing money. Under that scenario no matter how much business you bring in your still going to lose money. If your barely making "coffee" money how can you grow, you can't. There is only two things you can do, cut expenses, or raise prices. For the sake of math. If you making $1 per cake, yes you made money. Now if you sell 10,000 cakes you will make $10,000. The problem being who is going to produce the cakes?

Mike

Maybe the way I'm saying it, it's not coming across clear. Yes, I understand the fact of paying off equipment, and noncontrollable expenses. The OP was wondering about if she is paying 25 an hr, that leaves her enough money for a cup of coffee. To me that is losing money. Under that scenario no matter how much business you bring in your still going to lose money. If your barely making "coffee" money how can you grow, you can't. There is only two things you can do, cut expenses, or raise prices. For the sake of math. If you making $1 per cake, yes you made money. Now if you sell 10,000 cakes you will make $10,000. The problem being who is going to produce the cakes?

Mike

Mike, that does clear up a little bit for me what you are saying .... renting per hour vs. renting per month with unlimited access will have different costs and different results.

Some things that can increase productivity and decrease overhead is having enough orders to fill the big oven ... baking 2 wedding cakes that serves 200 in one hour vs. baking one birthday cake that serves 40 in one hour. It's going to cost the same for the oven time, but the income is greatly increased and the overhead is covered.

I think one area too where I get what Mike is thinking, but not what he's saying...in some of the examples being given, the initial money that's making you operate at a loss is still an investment because you are getting something for your money. Whether this be purchasing your appliances, getting your licenses, inspections, etc...some of these are one time expenses and once gone are gone and you have something to show for it.

If OP is paying all of her profit to kitchen rent, then it's not an investment, there's no long term gain. To gain in the long run, she would have to be baking and decorating more cakes at a time. And since you can only go so fast and do so much at one time...this will always limit the potential profits.

I think there is another way to look at this situation.

If the rent is $25.00 per hour, let's multiply that by a workday of 8 hours. That would be $200.00 a day. If one had a monthly rental fee, then one would have access to the space about 30 days a month. That does not mean one would work everyday, but they would have the option to be there 30 days if they so desired. So lets multiply $200 x 30 days. That comes out to $6000.00 a month for rent.

That seems like very high rent to me.

Let's not even begin talking about those of us who spend 60 hours a week working!!

There are certain things the HD will turn a blind eye to. It depends on your local HD and inspectors. I think for some, it is acceptable to do all the mixing and baking from the commercial kitchen, and decorate elsewhere.

I would ask around in your area.

If you must decorate there, it cuts your time to bring help with you. I often bring my kids to scale ingredients, do mixing, fetch things for me and wash dishes. The more you can accomplish, the more you profit.

Do as much as you can at home (non-edible gumpaste decorations, etc.) and that will save you a lot of time as well.

Thank you Brandisbaked, i was wondering about that too. When I looked at the rental spaces in my area (per a link on a prev post) I was wondering if more than one person was allowed in the kitchen. If so, my 16 yo sis could get her food service card and work for slave labor for me. Fetch and carry, measure, weigh, color fondant, that type of thing.

Well, my dilemma amount to this; because I am not advertising, I only get the occasional cake order. I would like to advertise, thereby getting more business but need to find a kitchen to rent. But because I do not have multipe orders to multi-task which would allow me to make multiple cakes in the hour, it would be costing me money.... although someone (thanks Deb!) had a great idea of making extras to pop in the freezer and that would work great.....why didn't I think of that??

Now this is all based on a costly hourly rental and not something more feasable like $10/hr. Which is why I figured there had to be more to this idea since I wasn't able to understand how you could make any money if every single steo of baking, decorating and mixing, etc. was done 'on the clock', so to speak.

I still would like to find something where I can bake in exchange for use of their kitchen because I didn't start out as a decorator - I started out baking stuff for the family - taught by my Grandma. Tons and tons of (thankfully) T&T baked goodies, cookies, scones, breads, etc. that have nothing to do with 'cake' but would be great for a cafe offerrings.

Well, thanks to all who responded to me and those who PM'd . I really appreciate your time and honesty regarding this. I have some ideas in neighboring towns so I think I will approach them after the New Year with some business proposals....the worst they can say is no, right?

Happy New Year, everyone

** and now I am off to make 6 dozen cake balls for a New Years Party!! Cheers ~

I went through all of this myself and really didn't want to pay by the hour - especially when some of the time is gumpaste or fondant decorations. I worked out a great deal where I pay monthly rent - regardless if I have any orders or not. Then, I pay a percentage of each cake also. That way, the more I make, the more they make but they know they are going to get something, even if I don't make a cake. The base rent is paid at the beginning of the month and then at the end of the month, I figure their percentage of the cakes and pay that with the next month's rent.