Americans love doughnuts, whether they're highly conceptualized artistic masterpieces or humble fritters purveyed by the local corner store. With so much love going around, opening a doughnut shop would seem to be a piece of cake. However, potential shop owners must realistically appraise their financial situation and be prepared for stumbling blocks before those doughnuts hit the shelves.
Business Structure and Concept
If you are starting a doughnut shop from scratch, choose the business structure that coincides with the tax and legal liability you wish to take on -- such as a sole proprietorship or a corporation -- and register it with your state and/or city. Determine what kinds of doughnuts you will specialize in and whether you will sell other food items. If you are interested in a franchise, inquire with companies such as Dunkin Donuts, Krispy Kreme, Winchell's and Yum Yum.
You must find start-up financing for your doughnut endeavor. Funds should cover any construction costs, doughnut-making equipment and recurring costs such as rent, utilities, payroll and marketing. Bakery equipment website Used Donut Equipment warns that even if you manage to get a loan, start-up costs are often more than anticipated due to wrenches such as construction delays. If you are seeking a franchise, the franchisor will instruct you on its policies about financing. Keep in mind that franchisors will expect you to meet rigorous net worth and available cash requirements, including initial franchise fees and royalties.
Product Inventory and Equipment
Doughnut franchisees have an advantage over independent store owners in that the franchisor provides training and materials needed to launch the business. If going solo, you'll have to create your own recipes and secure your own supplier. Figure on acquiring individual ingredients and/or ready-made mixes, mixing machines, doughnut frying equipment, coffee grinding and brewing equipment and financial tracking software. Used Donut Equipment suggests working with a local HVAC technician to install ventilation hoods because each locality has different specifications.
Location, Permits, Insurance, Staffing
Anne Rucker, the owner of Bogart's Doughnut Company in Minneapolis, Minnesota, advises prospective doughnut entrepreneurs to start small, selling first at a farmer's market before opening a shop. This allows you to build a following and test your recipes while giving you time to scope locations. Contact your state and local governments about zoning issues, business permits, health and fire safety inspections and insurance requirements well in advance. Make sure you have sufficient space to hold and receive large supplies, such as heavy flour sacks. Hire workers who take customers' orders and those who bake the doughnuts. Kick off opening day with free samples.
Timothea Xi has been writing business and finance articles since 2013. She has worked as an alternative investment adviser in Miami, specializing in managed futures. Xi has also worked as a stockbroker in New York City.