How To Make $100k/mo From DONUTS

Newsletter · Aug 25, 2024

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An entrepreneur's recipe for sweet success

3 min Read

Hold on to you pants, today will be fun! I break down in super simple terms "zero out of pocket" and "Zero down"... Yes, there's a difference. AND I talk about how a man built a multi million dollar DONUT business by using similar strategies in the 70's.

In the SMB world, you hear the idea of "Zero dollars down" and "Zero dollars out of pocket" often, so lets break these down for a hot second...

But first, a real life scenario for reference:

In the 70’s and 80’s a man by the name Ted Ngoy grew a donut empire here in Southern California to heights that kept even Dunkin Donuts out of this market for decades. Ted became known as the “Donut King”.

Ted acquired donut shops all over SoCal using creative financing.

His target was small mom and pop owned shops in good locations. The owners wanted to retire and continue to make a stable paycheck and he wanted the shop for as little down as possible.

He would negotiate terms where they would carry the note (seller carry or seller financing) and he would pay them as if he was paying a bank.

Just better terms for him and no need for a traditional loan.

Most cases it was zero dollars out of pocket. But in some cases, zero dollars down.

If he defaulted, just like a bank, the sellers could take back the shop and sell it to someone else. Win win for the sellers.

Ted did this 50+ times, completely taking over the market and taking home $100k+ / mo personally.

Furthermore, once he acquired a new shop, he implemented simple SOPs that worked and put a manager in place to run the shop while he grew the company and collected

Ted has an absolutely incredible story! I talk about it more in this video here.

Let’s break down different ways to get creative and terminology real quick.

First: Zero dollars down and Zero dollars out of pocket ARE NOT THE SAME.

Zero dollars down is where the seller isn't going to receive any cash up front and it'll be most likely structured as a SEED deal (more on that in a sec)

Zero dollars out of pocket is just zero of YOUR cash. The seller will be receiving money in some way.

Maybe even 100% of the it. (SBA + other investors would be an example)

Making a deal work with zero down or zero out of pocket is TOTALLY possible. It's just a matter of knowing that it's possible and working through the deals you're looking at with these creative structures in mind.

SEED Deals:

Sweat

Equity &

Earn in

Deal

The basic idea is that you'd exchange something that you have other than money (time, skill, expertise, connections, network, etc.) for ownership in the company.

This isn't going to work with every scenario, but understanding that this is even a possibility is KEY.

A subsection of a SEED deal is BASELINE

You bring in whatever value you can and then set a baseline with the seller that you will take a % of anything OVER that baseline.

Example:

The seller is making $300k. That's the baseline you decide on. Seller keeps that $300k.

You bring in your value, increase profits and now there's $500k SDE. You agree to split that 50/50. You make 100k, seller makes 100k.

There might also be a management fee on there like 5% or 5k a month.

This isn't cookie cutter, there are a ton of ways to play around with it.

THE POINT:

SBA loans are cool, but that's only ONE way to go about an acquisition.

I strongly believe that the more well versed and creative you are with putting a deal together, the more deals you'll close.

Guys like Ted Ngoy did just that. He got creative. Had the conversations, took shots and found some incredible success.

I'll leave you with this:

"The brick walls are there for a reason. The brick walls are not there to keep us out; the brick walls are there to give us a chance to show how badly we want something. Because the brick walls are there to stop the people who don't want it badly enough. They're there to stop the other people."

-- Randy Pausch

In case this email got you all fired up to buy a donut shop, here are some SWEET deals... pun intended ;)

#1 Donut Shop in Broken Arrow, OK

📍 Broken Arrow, OK

💰 Asking Price: $275,000

💲 Cash Flow: $75,000

📊 Revenue: $520,000

💼 EBITDA: $70,000

📅 Established: 2019

🔗 LINK

#2 Good Day Donuts - White Center, WA

📍 White Center, WA

💰 Asking Price: $160,000

💲 Cash flow: N/A

📊 Revenue: $360,000

💼 EBITDA: N/A

📅 Established: 2018

🔗 LINK

#3 Specialty Coffee & Donut Shop

📍 Warren County, Iowa

💰 Asking Price: $485,000

💲 Cash flow: $182,236

📊 Revenue: N/A

💼 EBITDA: N/A

📅 Established: 2014

🔗 LINK

💬 My thoughts on these deals:

Before you do anything, you need to understand that this is not a "get rich quick" play for ONE shop. This could be the start of something awesome like Ted Ngoy did, but with one shop, It wont be enough.
Understand how many employees these shops have and how well they operated with you not being present
Are these good markets that you could pick up other shops in the area and expand?
What do these locations look like? High traffic or hidden behind other buildings?
At one point secret shopping would be worth doing/ camping out to watch the busy times of the day for the shops.

If you have deals you're looking at and want help breaking them down, I'd be happy to take a look. You can email me screenshots of the listing with the name cut off if you want to keep it confidential.**🤫

And if you are working on a deal and need help taking it down, I can help connect you with someone in our network that might be interested in investing with you. Myself included if it fits our buy box.

Until next time...

Stay in the fight,

My best tweet of the week: