Bakery Valuation

Bakery Valuation

The bakery industry has deep roots in the economy with a number of established players.

A growing albeit paradoxical trend in the bakery industry, consumers are hungering for both healthy baked goods and comfort foods.

Large bakeries may employ over 100 employees and do some $50M in business each year. Yet a typical retail baker is a small business with just one location, an average staff of 11, and $5,500,000 in annual revenues.

Key Operational and Financial Parameters

To be successful and increase their business value, bakery owners pay special attention to a number of key factors:

Equipment. Good automation helps reduce direct costs including labor. However, new equipment can be very expensive, which deters new competitors.

Labor costs. Bakers often work during early hours. This tends to increase labor costs due to small available labor pool and higher health insurance costs.

Product differentiation. A growing trend is toward production of specialty baked goods such as artisan breads, and products for the health conscious consumer. Small bakers can excel in this market place which tends to be fewer prices sensitive.

Cost-effective materials procurement. Successful bakers manage their material costs to within 20% of gross sales.

Effective distribution. Making your products available on time through the right outlets to the target market is essential for success.

Price your products and services. If you can legally charge for food in your area with your current setup (for example, some states restrict home bakeries), the answer is a simple formula:

Price = Ingredient Cost + Labor Cost + Allocated Overhead Cost + Profit

To price ingredients, you need to know how much you are spending per unit on each ingredient and how many units of each ingredient are in your recipe.

Revenues arise from how many pieces had been sold per day from many items of Bakery products such as drinks "coffee, juice, smoothie", cakes, muffins, doughnut.

For large, multi-site bakeries, the Discounted Cash Flow business valuation method is the preferred choice.

For instance:

  1. Prepare a startup table which will include information about exp. & assets incurred by Bakery before starting up the business operations.
  2. Revenue and Cost is the most important part of business. Profit and loss of Bakery will totally depend on revenue and cost. Prepare assumptions to calculate revenue and exp.
  3. Prepare projected profit and loss statement on the basis of revenue and total cost incurred by Bakery.
  4. Prepare projected cash flow statement by breaking the analysis down to operating, investing and financing activities.
  5. Prepare a projected balance sheet & give effect of assets and Liabilities incurred by Bakery.
  6. Prepare a summarized report which contains a yearly overview.
  7. Calculate (Breakeven point) by preparing the breakeven analysis to know in which year Bakery achieving BEP.
  8. Calculate financial ratios to evaluate various aspects Bakery operating and financing performance such as efficiency, liquidity, profitability and solvency.

Many small bakeries are family owned with business ownership passing from one generation to the next. Nevertheless, bakeries do sell so there are business sale comparable you can use to estimate the market value of these businesses.

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