Starting a Donut Business – Legal Issues
Business Advice from an Experienced Donut Seller
January 30, 2011 | 
Author Below is Part 4 of the email I received from a successful vendor who sells mini donuts and other items at his trailers. Thanks Dave for sharing this info with our readers!
Also, you never want to get too far ahead of yourself with making the donuts. I'll start the morning off with one batch, which gets me about 12 bags. When I get down to 2 bags, I'll start another batch. When I start frying, I turn my exhaust hood on, and the aroma gets drawn out of the trailer into the field. And this aroma draws people to my trailer! Smell sells when it comes to donuts! I've seen some vendors with smell-sensitive things like kettle corn or mini donuts who want to make their entire product first thing in the morning, so they can just sit there and sell and collect money for the rest of the day. Then they sit there and wonder why they can't move their product. Smell sells... trust me! Make them as you need them, that way the smell will keep drawing people to you, and people will get them nice and hot when they're best. And if people get donuts that they think are really good, they'll be repeat customers. It took me 5 years selling at the same location to build my business to where it now is. That trailer is a stationary unit by the way... it stays at the market year-round, and has not moved from that spot since 2006. I usually sell between 150 and 200 bags of donuts on a typical day now... I think my record day in 2010 was 236 bags. There are days I cannot keep up with the demand... I've got people placing orders and waiting, and I just keep making them as fast as I can. It takes the machine about 1 minute to make 1 bag of donuts. So there are mornings I'm literally making $3 a minute for hours. And that's just on donuts. I sell so much coffee that I needed to invest in a second commercial airpot coffee maker. I could not keep up with just one machine. I sell usually around 30 airpots worth of coffee in a morning. I also do tea, hot chocolate, iced tea, iced coffee, smoothies, canned soda, and bottled water. It is a relatively simple menu, but the trailer runs like a well-oiled machine, and everything I sell is very high profit. I buy bottled water cases at Costco... it amounts to about 15 cents a bottle, and I sell it for $1.50. On a hot summer day, I could easily sell 50-70 bottles of water. Another thing I should mention, which I think is a large part of why I have been successful there at the market, is because I keep my trailer very clean. People like to see that. I also like to use all professional signage... I think hand made signage is tacky and looks unprofessional. I got those "Dave's Donuts" signs made up last year at a professional sign shop. People want to shop at a trailer that looks professional and clean, and if you have a good aroma coming from it, that's a plus as well.
Back in 2007, a fresh squeezed lemonade stand opened up 2 spots up from my donut trailer. It was a simple setup, just a table and umbrella and ice bucket, but damn... they did a good business! They'd have a line on any sunny hot day during the summer. That space had been vacant for a while, and I was kicking myself for not starting up something like that on my own. I told myself, if and when the time comes that they close, I'll take over. Well, 2009 came along and they never returned. 2010 came and the spot was still vacant. So I finally took some initiative and talked to the market manager, and he agreed to rent me the spot to sell lemonade. So then I had to find a trailer, outfit it how I would need it for lemonade, and get it to the market ASAP because the hot summer days were quickly ticking away. I found a used 6'x10' concession trailer on Craigslist that I thought would do the trick. It's my only "real" concession trailer... a Haulmark, not a homemade job. And what a difference in quality! I will NEVER buy another homemade concession trailer. The Haulmark is very well built. No leaks, and a solid floor. Here's a video of what it looked like when I first bought it:
http://www.youtube.com/watch?v=3V2w5cNmDIU
Stay tuned tomorrow when Dave talks about the importance of your stand or trailer and why it should look good. He gives you some advice on where to find wraps and things to make it look its best!
Still wondering where to sell your donuts? Ever thought about selling them concession style? Below is an excellent site to get you started, it will help you answer a lot of questions you may have. There is no limit to the number of questions a future business owner can ask, this site really breaks it down for you. Definitely a good read.
Posted in Concession Business, Donut Equipment, Starting a Donut Business, Starting a Donut Business - Legal Issues | 
Tags: aroma, Auto, bag, business, coffee, concession, demand, Draft, everything, homemade, hood, info, lemonade, location, machine, menu, plus, record, Seller, selling, shop, sign, something, spot, table, tea, time, umbrella, worth, year | 
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Flea Markets Aren’t a Guaranteed Money Maker?
Below is Part 3 of the email I received from Dave. I am posting it for everyone to learn from, with his permission.
Posted in Concession Business, donut recipes, Starting a Donut Business, Starting a Donut Business - Legal Issues | Tags: amperage, bag, batter, board, coffee, cup, electricity, Everyone, flavor, Flea, hood, machine, mark, menu, permission, power, promo, ribbon, sausage, table, temperature, time, tin, waste, year | No Comments »
Selling Donuts – Email from Someone who is actually doing it
This is part 2 of the email I received from the concession vendor who sells everything from donuts to ice treats. He gives some advice on where to respond to ads and mentions a website that he uses and had success with. If you are interested in the selling your donuts concession style, you really owe it to yourself to check out the site mobile catering business... don't let the word "mobile catering" confuse you, it is just another way to say concession business.
Here is part 2:
Thanks Dave for all the first class advice you have given to me and our readers. Looks like you really know this business! Be sure to visit tomorrow for Part 3 of his email. Yes, it is quite an extensive email, thanks again Dave!
Posted in Concession Business, Donut Equipment, Starting a Donut Business, Starting a Donut Business - Legal Issues | Tags: Auto, balance, Belshaw, card, center, chowder, credit, Draft, egg, event, everything, good, HUGE, interest, lesson, manager, Nobody, operation, ribbon, selling, someone, spot, time, Vendors, waste, weekend, year | No Comments »
Mini Donuts are PERFECT for Concession Stands
The easiest way to make a profit is to choose selling concessions with low overhead such as mini donuts. These offer a fantastic opportunity to create easy, fun and favorite food for fairs, festivals or anywhere else hungry people are in abundance. Selling concessions with low overhead like mini donuts require very little start-up capital and are quite simple to run.
You will first need to create a business plan including short and long-term goals. Update this as necessary and allow it to guide you. Then you will want to determine the most profitable location. Also, if you happen to be able to travel any type of distance, you can consider taking your concession stand to regional or state fairs.
Even though selling concessions with low overhead are simple, you will still want to compile market data consisting of analysis and trends of the mini donut business. The easiest way to do this is to observe your competitors including set up and pricing. Chances are, you won't be the only stand selling mini donuts so keep your pricing competitive. Also, always be looking for any new industry developments.
Mini donuts are considered selling concessions with low overhead because they require a minimum amount of inventory. All you need to keep in hand is enough to meet demand. It is helpful to evaluate statistics including the average number of attendees where you will run your concession, this will help you determine your inventory needs. Supply companies can often help provide insight as well.
Even though mini donuts are labeled selling concessions with low overhead, it is still important to properly train yourself and your employees to reduce inventory loss and also guarantee happy customers.
Be sure to obtain proper insurance, you need to protect your funnel cake business and consider the safety of your employees and customers.
Mini donuts are the perfect food if you want to open selling concessions with low overhead. Your fryers are generally the most costly expense but there are also start-up packages that are available from concession stand suppliers.
Posted in Starting a Donut Business, Starting a Donut Business - Legal Issues | Tags: analysis, business, capital, Chances, donut, location, state, type, Update, way | No Comments »
The Downfalls of a Donut Business Franchise
We talked yesterday about the benefits of having a doughnut businessness franchise. Today we will discuss the downfalls of having a doughnut franchise. There are many reasons why going with a franchise may not benefit you or be best for your particular situation. The first reason why having a donut franchise May not be the best idea are the very high startup costs. Not only will you have a high startup costs, but the donut franchise will expect you to have a reasonable cash flow and high net worth. These two things alone will keep many people from being able to afford a donut business franchise. Opening a good business franchise usually requires that you have been successful in either another business or your job. Often times you can pool the resources of a few people in order to meet the requirements. It is never a good idea to get into a business, especially a franchise situation, when you are strapped for cash or do not have your financial affairs in order. Another downfall of the franchise system is you lose some level of control over your business. You will be told when to do it and how to do it, after all is not your brand, and you do not own the brand. If the franchise wants you to change the look of your restaurant, you will have to comply with their request. Anything that the donut franchise would want you to do, you will need to pretty much do what they say. You have little if any control over what they may request. You are at their mercy most of the time. Not only will the donut franchise control how you run your business, but they take a chunk of your revenue as a royalty. This royalty is rarely negotiated and is Told to you up front before you buy into the franchise. The cost of doing business under a donut franchise system is very high. You have the cost of the building, utilities and several employees to be concerned about. We want to keep things small and simple, this is why we are going with the single menu item donut business model. The cost or low end of profits can potentially be very high. When you start having to build buildings and being involved in a franchise it gets very expensive very quickly. You will need much more money in order to survive opening a franchise.
To Sell or Not to Sell – Should You Sell Something Besides Donuts
As we have already discussed the donut business can be quite profitable. When you are selling mini cake doughnuts there is a high profit margin and low overhead. Depending on where you are selling your doughnuts, the overhead can be very low or very high. We are planning on starting small, Getting a machine that makes the doughnuts, and finding a place to sell them. We are focusing our attention on two places, a popular entertainment area that has movies, restaurants and some smaller shops. It is one of the open mall concepts where everything is outside, and people walk around the complex.
Another place we are thinking about selling our doughnuts, is the flea market in our local area. As you probably can imagine there is a lot of traffic that flows through the flea market. Anywhere there is traffic you can be assured that you will sell a lot of doughnuts. The problem is, or what we have found, is getting into these places to sell the doughnuts. Once we get into the place of our choice, we plan on purchasing the doughnut machine and setting up shop there. That is the only thing that has stopping us from continuing this project. There are other ways we can get the doughnuts out into the marketplace, but we would rather have somewhere to sell the doughnuts right from the start.
So now that that is out of the way, should we sell anything else but doughnuts? We have thought about this, and each one of us have varying opinions. We all do agree however, that the menu should be very limited. We will not sell 100 varities of doughnuts, we all agree on that. It is just not in our business model, the more choices you give the consumer, the more overhead that you have. We have studied other businesses that offer small doughnuts, and they have a very limited menus themselves. We will probably model Our donut business After what they are doing. We have noticed that the doughnut shops that are in business today have been around for quite some time now. None of them have changed much, and have not added things to their menu. They offer one or two varieties of small doughnuts, and perhaps a couple varieties of drinks to go along with the doughnuts.
We have facts about offering milk, juice or coffee to our menu but we have mixed feelings about this. We are leaning toward just producing the doughnuts and offering two different kinds of flavors. We will most likely have sugared and cinnamon flavored doughnuts. Depending on our location, we may offer milk or coffee but we are afraid of the overhead cost of adding these drinks to the menu. We may do it as a market test and see how it goes. But as mentioned the more items you have on the menu, the more overhead that you incur. If the doughnuts do not sell as well as we anticipate, we could potentially have a lot of waste as far as the drinks go. If the doughnuts sell well, then the drinks will complement the doughnuts and we can start selling drinks as well. Basically, selling drinks will depend on the net sales. Then we will go from there.
Having Partners in the Donut Business
What will each partner bring to the table? Agree on how much money each person will contribute to the venture. If outside funding is needed, like to purchase donut making equipment, who will ask for it and assume
the responsibility for payments? There are also more things to consider than just money including time and property.
Partners need to decide how decisions will be made before it is ever required. Perhaps one should give certain responsibilities to the other knowing that there may be some unpopular decisions made. There are disagreements in every type of relationship, and a business partnership is no different. Will every decision require the consent of each partner? Perhaps the various responsibilities of each partner should be spelled out in written form.
Will partners divide profits equally? The split could depend on what each one brings to the table, how much risk is taken, and how much work each puts into the success of the company. As with everything else this should be worked out ahead of time to prevent any misunderstanding once the company begins to make money. On a similar note, partners need to decide who owns any copyrights, physical property, and intellectual property that is obtained or created.
Partners should develop contingency plans ahead of time for when the relationship ends. A partner may want out or one my die. Will one partner be able to buy out the other and how will the the assets being transfered be valued? An exit strategy should also be agreed upon if the company becomes too much to handle so that partners part amicably, fairly, and legally.
Partners need to agree on what constitutes a conflict of interest. One may engage in other business activities that could compete with the company or have other ventures that take efforts away from the potential success of the company.
In summary, a partnership can be mutually beneficial by decreasing risk and start up costs for each individual making the idea of a business a reality. There are also many points that need to be considered to keep the relationship healthy and the business moving forward. To not discuss and plan for the issues mentioned could mean disaster.
Benefits of Having a Donut Business
There are many benefits to having a doughnut business. We are focusing on the small doughnut business, and not the franchise donut business model. The franchise donut business model Is not an effective way to sell small doughnuts, which typically are just one product. People who sell small doughnuts may sell milk, coffee or a different flavor donut but that is the extent of what they sell.
One good thing about the doughnut business are the low startup costs. You can typically buy the equipment anywhere from $5000-$20,000, depending on the route you want to go. If you just want a small fryer to set up shop at flea markets or even in your kitchen selling doughnuts, then you can get by with investing $5000 or less. If you want a concession type stand for your doughnut business then you will spend $20,000 or more on start up cost. Donut stands are good if you are selling your doughnuts at festivals, fairs, carnivals, sporting events or any other outdoor activity. Having a doughnut concession stand is a good way to generate a lot of revenue very quickly.
Doughnuts sell! As long as you have a crowd or an audience for your doughnuts, they will pretty much sell themselves. It is hard to avoid the smell of the doughnut, this is what gets them to your stand. Once they are there people can barely resist buying your doughnuts. The overhead is low for making doughnuts. You will have very little cost on the ingredients and equipment. The return on investment can be quite high.
If you can find a good place to sell your doughnuts, with a lot of traffic, you will make money. You will need to keep in mind the rent you are paying and how much you pay your employees for their time. As with all business endeavors, you will need to keep check of all expenses. Another thing that you will need to find, is a good donut recipe. You can try the recipes that can be found on the banner below this post, that website also will teach you how to start and operate your donut business. It is an excellent way to get the support and ideas from someone without having to purchase a franchise. It is well worth the money to invest in the system.
Getting Your Donut Business Legal
When starting your doughnut business, it is important that you comply with all state and federal regulations. There are legal issues and every business, and you want to prepare yourself for anything that arises. Anything from employee issues, problems with customers, and organizing with the state and federal governments, can pose a problem if not done correctly. Especially, when you are in the food business you need to be very careful on the laws that you may be breaking. It is a matter of public safety since you are serving food. The good thing is you will only be serving one item in your donut business. We are focusing on the small doughnuts on this blog and not the many variations and flavors of doughnuts that can be found in traditional donut shops.
Before starting any business endeavor you will want to find a competent attorney to help you along the way. Just as you do not want to put trust in any one person, you will not put all your trust in this one attorney. You will need to get a second opinion at times, it is just wise to do so.
The first thing you will need to do is organize your business with your state. Most businesses are better off being organized as either an LLC or Corporation. These structures will put a barrier between your business and your personal affairs. Never take someone's advice, whether they be professional or not, as gospel. Learn each business structure and their benefits, downfalls for each one. Depending on who you talk to, you'll get different answers as to what your business structure should be. Many accountants will tell you that a corporation is better and attorneys will lean toward a limited liability company. Find out which one is best for you and go from there.
The operating agreement for your donut business will outline how you will operate, regulate and rule the business. It is especially important to have your operating agreement if there are more than one person in your company, for example business partners. You do not want any misunderstanding about how your donu business is run. A lot of conflicts can be resolved when you have a carefully crafted operating agreement. There have been many failed businesses that were a good idea but failed because of misunderstandings with the business partners. What if your partner goes bankrupt, dies, or perhaps becomes a compulsive gambler? What will you do and how will your business handle this situation? What happens if he or she just quits? These are all legitimate questions that need to be discussed in the operating agreement. You need to pay a lot of attention to the operating agreement, it can save you a lot of trouble in the future.
Be familiar with any contracts that your company may be involved in. It is worth hiring an attorney to review and make any contracts that are necessary for you to run your business. Do not wait until your company is sued to deal with contracts, learn all about them from the get-go. Contracts can be very technical and when things go awry you can find yourself in serious trouble.
Employment law is one of the big things that gets small businesses in trouble. Employment law can be devastating to your business is not done correctly. Everything from employment taxes, terminations, recruiting and hiring employees can cause a lot of trouble if not done correctly.
This is not meant to scare you from opening your donut business, These are just facts that you need to be aware of before venturing into the world of business. Pay mind to the old cliché, don't quit your day job. Always have a backup plan, perhaps have some money saved before you start out on your own.
