How to Start a Donut Shop

Start a donut shop by following these 10 steps:

1. Plan your Donut Shop
2. Form your Donut Shop into a Legal Entity
3. Register your Donut Shop for Taxes
4. Open a Business Bank Account & Credit Card
5. Set up Accounting for your Donut Shop
6. Get the Necessary Permits & Licenses for your Donut Shop
7. Get Donut Shop Insurance
8. Define your Donut Shop Brand
9. Create your Donut Shop Website
10. Set up your Business Phone System

We have put together this simple guide to starting your donut shop. These steps will ensure that your new business is well planned out, registered properly and legally compliant.

Exploring your options? Check out other small business ideas.

STEP 1: Plan your business

A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:

• What will you name your business?
• What are the startup and ongoing costs?
• Who is your target market?
• How much can you charge customers?

Luckily we have done a lot of this research for you.

What will you name your business?

Choosing the right name is important and challenging. If you don’t already have a name in mind, visit our How to Name a Business guide or get help brainstorming a name with our Business Name Generator

If you operate a sole proprietorship, you might want to operate under a business name other than your own name. Visit our DBA guide to learn more.

When registering a business name, we recommend researching your business name by checking:

• Your state's business records
• Federal and state trademark records
• Social media platforms
• Web domain availability.

It's very important to secure your domain name before someone else does.

What are the costs involved in opening a donut shop?

You must have a location from which to make and sell donuts, you need basic equipment and inventory supplies to get you started, you need advertising to get customers in the door, and possibly a website, POS system, and insurance, and you’ll likely need some money set aside for licenses and food service training and certification (e.g., ServSafe). A successful donut shop location, depending on the area you choose and how many cars and foot traffic pass by the location can set you up well financially. Most donut shop owners lease a small retail space that is less than 1000 square feet. In most small and midsized towns you can expect to spend around $6 per square feet of rented space. Ideally, you want your cost to be between 10 and 12 percent of your overall cost. So if you rent a space that is 1000 square feet, and it costs you $6 per square foot, you’ll end up spending $6000 per month on your lease. To put this into perspective, you’ll need to generate just under $50,000 per month, to fall in line with this 10 to 12% range. When putting together your business plan, you’ll need to devise a strategy for selling $50,000 worth of donuts and coffee each month. This will start you in the right direction as far as knowing where to price your donuts, what selling strategies you’ll need to come up with, and how many dozen donuts per day you’ll need to sell. Knowing all this will ensure that you start off on the right foot and know what has to happen to stay in business.

 

A business plan is the most vital step you must take if you want to operate a successful donut shop for the long haul. Do not skip this step!

What are the ongoing expenses for a donut shop?

Donut shops must pay for rent, as discussed above, but also for equipment. Equipment costs between $15,000 and $20,000 assuming that you buy your equipment new.  There are advantages to buying new equipment that many people don’t think about. For one, there are the tax advantages. Equipment depreciation can be deducted from your business tax return. There’s also the benefit of knowing your equipment will last for years to come as you build out your donut empire. And a good POS system is also necessary. A good POS system can range in price depending on which company you decide to go with. We’ve put together some great reviews on POS systems to help you decide which fits your donut business best. Budget at least a few thousand dollars for these POS system expenses. Employee labor costs will likely cost your business $10 to $15 per hour, depending on locality. Certain miscellaneous expenses might be incurred as well: You may need a truck to haul donuts to gas stations and other businesses that you partner with. You may need some money set aside for remodeling the commercial space, meaning you may have to pay around $20,000 to $30,000 to perfect your restaurant’s brand. If you take this route, you will spend between $50,000 and $100,000 or more to get yourself set-up to open and sell donuts. We recommend having a cash reserve of one year’s worth of rent and utility expenses set aside to cover the fact that a business takes time to acquire customers. After one year, you should be generating enough income to cover these most basic costs and if you’re not, you may want to revisit your business plan and tweak it accordingly to ensure you do what you need to do to get these costs covered. One year, though, will provide you with a financial safety net that will take a lot of the pressure off of you so you can run your donut business worry-free.

Who is the target market?

The ideal client type are coffee drinkers and early morning school and business commuters that require caffeine and sugar to help them start their day. Examples of such clients include university students, business professionals, parents of school age children, and churches on Sunday morning who need several dozen donuts to feed their parishioners. Many businesses make great customers too! Fire stations purchase dozens every week for their people. Corporate office buildings will often stock employee breakrooms with donuts. Factories will quite often bring in donuts for their line crews. You just have to think outside the box and start to understand who your ideal customer is. One of the best things you can do is go talk to someone else who is already operating a donut shop and ask them who their ideal customer is. Listen to what they say, because this will also be true for your own donut shop business.

How does a donut shop make money?

Donut shop businesses make money by charging customers for their primary products, which are donuts and coffee. The price of a donut is between .80 cents and $1.25 and is usually based on the size, type, and quality of the donut. Alternatively, it is possible to charge for larger quantities where you give a discount to customers who purchase a half-dozen or dozen donuts. The average cost of a half-dozen donuts is $5.95, while the average cost of a dozen is $9.99. It may sound like you’re not really making a lot of money selling such a large number of donuts, but keep in mind that the average cost to make a donut is just .12 cents. This is a substantial markup when you stop to think about it. You will need to sell a lot of dozens per day if you plan to stay in business though, due to the costs we mentioned earlier (rent, advertising, etc.).

 

A little known donut shop secret is that coffee is where the brunt of the profits comes from. A single cup of coffee averages out to $2.70. The cost to make that one cup averages out to .27 cents. The add-ons are where the real money’s at though. Add milk and chocolate or some flavored syrup to the coffee and the same cup sells for $3.95 per cup. The add-ons are an insignificant cost, but they mean huge profits for your donut shop business.

 

What you really got going for you is the fact that sugar, which is what donuts are packed full of, and caffeine which is what coffees packed full of, are both addictive stimulants that people can hardly live without. Selling these two items together, well, you stack the deck in your favor, as people will keep coming back again and again, day-after-day, to your donut shop to get their daily fix of sugar and caffeine. It’s been proven that sugar is more addictive than heroin and cocaine.

How much can you charge customers?

You can charge customers more if you’re positioning your brand as an upscale elite brand or less if you decide to target the working class. The exact price hinges on several factors, how much you need to make to reach a certain income average, your costs, and your desire to keep customers happy and coming back to your donut shop. In general, a customer will pay between $7 and $10 per person for donuts and coffee. If they are buying for a group of people, this number goes down as they’ll take advantage of cost savings by purchasing a dozen or more donuts. Coffee is a fixed price though, so the price isn’t discounted if someone purchases four coffees over say just one cup. There is no discount for purchasing additional beverages, just discounts on the donuts.

How much profit can a donut shop make?

A donut shop business can make upwards of $50,000 or more in the first year. Stick with the business and you can earn $100,000 or more in subsequent years. Continue to build your brand, develop your customer base, and sell franchises, and you might reach the $1,000,000 mark or higher after a few short years.

How can you make your business more profitable?

If you want to drive profits with your donut business you have several options. A donut shop business that gives customers the option of other menu items, like for instance breakfast sandwiches, a small lunch menu, etc., can add to your profit margins. There are other actions you can take as well, where you can partner with convenience store chains and get your donuts into these businesses on a daily basis to generate more brand visibility but also more sales. Some donut shop owners decide to partner with food-truck vendors and doing so can be a great way to rake in more profits. The sky's the limits as far as ways you can generate profits with your donut shop business. Certainly you can use your imagination to come up with other innovative and strategic methods for generating your business.

STEP 2: Form a legal entity

The most common business structure types are the sole proprietorship, partnership, limited liability company (LLC), and corporation.

Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your donut shop is sued.

You can form an LLC yourself and pay only the minimal state LLC costs or hire one of the Best LLC Services for a small, additional fee.

STEP 3: Register for taxes

You will need to register for a variety of state and federal taxes before you can open for business.

In order to register for taxes you will need to apply for an EIN. It's really easy and free!

There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.

STEP 4: Open a business bank account & credit card

Using dedicated business banking and credit accounts is essential for personal asset protection.

When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.

Open a business bank account

Besides being a requirement when applying for business loans, opening a business bank account:

• Separates your personal assets from your company's assets, which is necessary for personal asset protection.
• Makes accounting and tax filing easier.

Get a business credit card

Getting a business credit card helps you:

• Separate personal and business expenses by putting your business' expenses all in one place.
• Build your company's credit history, which can be useful to raise money later on.

STEP 5: Set up business accounting

Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.

Make LLC accounting easy with our LLC Expenses Cheat Sheet.

STEP 6: Obtain necessary permits and licenses

Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.

State & Local Business Licensing Requirements

Certain state permits and licenses may be needed to operate a donut shop business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.

Trademark & Copyright Protection

If you are developing a unique product, concept, brand, or design, it is prudent to protect your rights by registering for the appropriate trademarks and copyrights.

Learn more about trademark and copyright protection

STEP 7: Get business insurance

Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.

There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.

Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.

Is this Business Right For You?

Donut shops are perfect for those who have a passion for sweets, a creative side, and a solid work ethic. Donut shops typically have an assortment of standard treats, but it can take a special dish, or a unique take on an old classic, to really solidify your business as a local hotspot. If you plan on baking many of these goods yourself, culinary knowledge becomes incredibly important and should be a top priority. It is up to you to decide how to run your business, if you feel you have gaps in your knowledge, it is important to educate yourself or find others that you trust to fill those gaps.