Must Ask Questions When Buying a Donut Shop
Thinking about getting into the donut business? Brian Knoderer of Sunbelt Indiana says you must ask these critical questions.
Must-Ask Questions When Buying a Donut Shop
Donuts are a staple in the pastry business. With excellent margins and steady industry growth, it’s a business opportunity you shouldn’t glaze over. In 2019 alone, over 200 million Americans satisfied their cravings with at least one donut. If you’re considering buying a donut shop, now could be the time to enter the growing market. Continue reading below for guidance through the must-ask questions during your business search.
Your Guide to Buying a Donut Shop
Whether you have an interest in a locally owned store or becoming a franchisee, numerous factors come into play in a successful business transaction. Sunbelt Business Brokers has prepared a guide to assist you along the way. Here are six questions you should be able to answer before you consider purchasing a donut business.
- What is the average revenue of a donut shop?
According to IBIS World, the donut industry has experienced steady growth since 2014. In the past five years, the donut business has grown 3.1 percent. In 2019 alone, the donut industry in the United States is expected to experience a 1.4 percent increase, which will raise the year’s total revenue to an estimated $8 billion.
How much money a donut shop can make is based on the creativity and innovation you are willing to invest in your new business venture.
- How will you differentiate your donut store from the rest?
With the increase in demands for dietary options, an adequate way to set yourself apart is to offer health-minded varieties in your donut selection. While donuts may never be health food, you can expand your customer base by broadening your menu and offering gluten-free or dairy-free alternatives.
You may want to conduct market research to grasp the do’s and don’ts of the donut industry. Examine the leading franchises in the industry and see how your ideas and prospects compare. Consider how you can create a progressive marketing plan that includes the use of social media and enticing signage. Ingenuity can be a difficult task but devising new methods in your business plan to align with today’s trends will surely pay off.
- Why is the current owner selling the shop?
During your initial conversations with the current owner, you should ask why they are selling their donut shop. Among the most common reasons, small business owners sell because of retirement, burnout, or illness.
However, be apprehensive if the owner is selling due to financial reasons. While your business experience could transform the company, it could be a critical indicator that purchasing this particular donut store comes with high risk. Always be sure to complete thorough research before signing any documents.
- What does the sale include?
If you’re keen on staying at the current location of the store, you will need to inquire about the building. Ask the owner if he or she owns or leases it so you can get an idea for additional expenses. If the current owner has the deed, find out if it will be constituted in the purchase. Alternatively, if they lease the building, you will need to negotiate a deal with the landlord.
Like any other business, high-quality equipment cost accumulates rather quickly, so discuss with the current owner whether the shop’s materials will be included in the sale. Dependent upon their answer, you may need to determine the cost of purchasing the fundamental equipment required to start a donut business.
- What are the donut shop’s current expenses?
After you’ve established the real estate and equipment costs, you should inquire about the current owner’s average expenses. Ask to look over their financial documents, so you have a better understanding of the day-to-day costs of the store. If you are looking at franchise opportunities, find out what to expect in terms of the franchise fee and start-up cost.
- What is the asking price for the donut shop?
Lastly, you should ask the current owner their asking price and how he or she decided upon that number. If the owner used a professional valuation service, it’s most likely an accurate reflection of their current standings. However, that may mean the owner will be less inclined to budge during negotiations.
With proper planning, buying a donut shop can be satisfyingly sweet. As you start looking for donut shops for sale, be sure to ask these questions to set your purchase up for success. If you feel overwhelmed, get in touch with your closest Sunbelt Business Brokers office. Our business brokers are professionally trained to assist you through every step of buying your dream business.
Brian Knoderer is the President of Sunbelt Business Brokers. He has over 20 years of experience as a business owner and managing business transactions. As a seasoned intermediary, Brian has successfully represented companies in a broad range of industries helping business owners achieve their desired exit strategy or growth initiative.
Brian is also co-owner of Sunbelt Indiana and Managing Director of MMI Capital Partners, a franchisor focused investment banking firm.
Previously Brian was involved in several entrepreneurial ventures as well as having held corporate roles in Franchise Development for Prime Hospitality and Choice Hotels.
Brian is a graduate of Ball State University with a degree in Management Information Systems and earned his MBA from Butler University. He has received the Certified Merger & Acquisition Advisor (CM&AA) designation, holds both the Series 7 – General Security License and the Series 63 – Uniform Securities Licenses, and is a licensed Real Estate Broker. He has been affiliated with several organizations including the Entrepreneur Organization, a Member of the International Business Brokers Association, Venture Club, and a Board Member of The Entrepreneur Institute.