262 - Digging Into the Profit and Loss of a Brick and Mortar Business with Desiree Kelly, The Makery Cake Co.
On today’s episode of the podcast I dig deep with Desiree Kelly, president and founder of The Makery Cake Co. into her bakery’s profit and loss.
Desiree has a microbiology degree and got into cake decorating by offering to make her sister’s wedding cake with no experience (Desiree had only just made a cake for a BBQ that previous weekend). She took some cake decorating classes while getting her MBA. Her teacher noticed how much she liked it and advised she get into cake decorating. She went on to open her own bakery in 2006, The Makery Cake Co. shortly after graduating.
She went to the SBA for a $250,000 loan she received. When applying, the she was asked if her husband would be working or joining separately, a poorly communicated way of asking if she would have supplemental income as she was building this business.
To come up with her numbers, Desiree visited bakeries and was surprised how collaborative everyone in her Denver area was and how owners would share revenue numbers with her and she also used national database research. She got quotes on the physical space for buildout estimations and the landlord didn’t make her sign anything until she got the funding. Desire found a space that had been empty for about 3.5 years and the landlord tested it to make sure there were no residual chemicals from the previous dry-cleaning business.
What made things difficult was Desiree received a buildout bid around $69,000 and when the project was completed it was $123,000. She was left with $13,000 in cash and wasn’t sure how the business was going to survive. Desiree didn’t have to pay taxes for a few years because she was not profitable and at that time there was loss carry-forward on her S Corp.
About five years into the business, Desiree did away with her bakery case about seven years ago because it was not making good margins, only about 10% because things were being thrown away. She found people expected to pay less if it was in the case than they would if it was made custom for them even if it was the cake. She went all custom and it made people want it more when they couldn’t have it right away. On an occasion cake, the margin is about 30% and on a wedding cake the margin is more like 40%. Wedding cakes start at a base price bundled with delivery and upgraded flavors all for one set package price whereas occasion cakes (like birthday), have more choices.
Diving into Desiree’s P&L, we are only covering January 1 through November 19, 2022 so these are not year-end numbers.
Total income - $446,000 (projected year-end revenue $500,000). This is a typical year. compared to prior years, last year was similar to this year and 2020 was a crapshoot.
Home consumption - $202,000 In Colorado, you don’t tax items you pick up from a grocery store and eat but you do tax items that are catered. Home consumption is a birthday cake you pick up but delivered is not considered home consumption. About 40% of total revenue
Parties - $1,200 When The Makery opened it was heavy into hosting birthday parties. It got to the point where they could not support the size of the parties, sometimes serving up to 72 kids in a weekend, so they moved the parties to at-home parties, which reduced popularity because people didn’t want the mess in their house of the cake decorating and then with COVID it stopped until and moved to videos and kits which is what makes up the $1,200
Resale to vendors - $24,000 Venues in Denver will sell the cake to the couple and buy it from The Makery as wholesale and then send the couple to Desiree to design it. (In talking with wedding planners, some have shared with me that they want to offer all-inclusie packages including the vendors and then they would pay out the planners which makes your business model complicated and need to properly charge for all the admin work on the back end. I don’t typically recommend it because of all this backend work and also for liability purposes.
Software mentioned during this segment:
Maroo –An online payment platform that’s free for wedding professionals and their clients. Maroo offers a budget tracking dashboard for couples to keep on top of paid and scheduled payments in one spot and allows them to pay in all kinds of ways from ACH transfer to credit card and even Buy Now, Pay Later with 0% APR up to 12 months.
Rock Paper Coin – A client management platform simplifies proposals, contracts, invoicing, and payment processing for businesses of all types and sizes in the event industry. Vendors, want to become a member? Sign up using code BRADEN.
Sales – This is a negative number and includes a few refunds to customers but mostly stand rental refunds of the deposit the couple paid up front and get back when cake stands are returned.
Wedding cakes - $207,000 This is 47% of overall revenue. With smaller cakes and cutting cakes becoming more popular, this comes to about 200 cakes in a year with most income coming from May to September.
Services - $21,000 This is delivery costs and wedding cake design sessions. When we weren’t charging for our design sessions/tastings there were a lot of no-shows. Deliveries are often done by one team member and are done mainly in-house because if something goes wrong, it can’t be fixed by a courier system.
Cost of Goods - $53,000 Because it is so low, Desiree does not track her cost of goods very closely with a goal to stay under a certain amount. Instead of focusing on cost of goods to determine cake price increases, Desiree focuses on her team costs because she increases pay every six months.
Talent (payroll) – $227,000 This includes Desiree’s team (made up of a customer service person who manages clients and frees up the bakers to work and bakers which can be up to eight people pretty much full time in the summer during busy season) and Desiree’s personal salary of $55,000. For the first seven years Desiree was not paying herself. Now as an S Corp, she is required to take a reasonable salary. Desiree tracks closely when the slow weeks will be to communicate with her team so they can plan accordingly if that requires another part time job for them or when they’ll be busier.
Retirement funds paid – Desiree offers retirement to employees who have been working with her for over a year and it build per hour so it is both available to part and full time employees.
Worker’s Comp - $5,000 Bakeries are classified as a dangerous environment which can make worker’s comp high. Desiree had to use it twice.
Liability insurance - $3,000 This number goes up because of delivery. If the bakery did not offer delivery this cost would go down.
Computer software - $6,200 Desiree loves automation and drip campaigns and having all her software integrated from payment to website so while this cost may be higher than it needs to be, she uses Infusionsoft and does not want to take the time or money to redesign it and move something else. Her email list is between 9 and 10,000 leads.
Marketing - $23,000 total Under this is website optimization and social media, which includes the company Desiree pays to manage her Google Adwords and tweaking keywords on her landing page.
Sales tax – Before opening the bakery Desiree took a class on sales tax with the Department of Revenue. When you deliver an item, you have to charge the sales tax at the delivery point so that is how states started getting their revenue from Amazon. Because Desiree is a vendor for 251 wedding venues in Colorado, she has 251 sales tax settings in her Square account for each venue so couples know the sales tax at their venue. Desiree’s sales tax for the state of Colorado was 146 pages long, then there is sales tax for Denver and sales tax for the Centennial municipality. It is a time-consuming process, even with the automated spreadsheet Desiree has in place.
Net Operating income – (-$6,000) Last year was great because of backlogged 2020 weddings. This year, everyone’s wages went up but the cakes were being paid that were ordered at a 2021 price. 60% of the money that comes through the door goes out to the employees and Desiree. Luckily Desiree had business savings to help offset this. In years past, this was $80,000 which is where Desiree feels most comfortable. When there is a net positive, Desiree still does not usually pay herself profit distribution and instead keeps it for savings because she does not feel like $30,000 in the bank for savings is enough.
Desiree found that when she stopped doing the baking and decorating herself it made the business run smoother and flourish when she didn’t have her employers waiting on her to give direction. She found that if she’s not taking care of the backend of the business and growing it she’s not doing the business any favors, even if it means not getting to work on cakes and do the part that she loves. Desiree still meets with couples, helps with the designs, especially of elaborate cakes, and works on the cakes that go to sponsorship events she attends.
Get in Touch with Our Guest
Desiree Kelly – President of The Makery Cake Co.
Visit The Makery Cake Co. website