How to Start a Coffee Shop
If you're a coffee lover with an entrepreneurial spirit, follow these concrete steps to start your own coffee shop.
When you’re planning to start your own business, your first decision is what that business will be. You’ll need to sell something that people want to buy – and with Americans drinking more than 400 million cups of coffee per day, you may decide it’s time to start a coffee shop. Here’s what you need to know- from inception to hiring staff to opening your doors.
1. Create a Business Plan
As with any business, one of your very first steps will be to prepare a comprehensive business plan. A business plan serves as a blueprint for the future and a playbook for the present. You’ll need your business plan to secure funding for your start-up, to open business bank accounts, and to woo potential investors and partners.
Your business plan allows you to put in the writing all the steps you need for your venture. It can seem overwhelming if you’re new to writing business plans, but there are resources which can help. Here’s our practical advice on how to put together your own business plan for your start-up.
Essentially, you know that you want to open a successful coffee shop. Your business plan is going to set out the steps you need to take to make that happen and help you spot potential obstacles before they arise. Writing a business plan forces you to think critically about your needs and abilities and decide on concrete steps toward your goal.
2. To Franchise or Not to Franchise?
Coffee shops are a market saturated with franchise opportunities. A franchise is a license to do business as a certain brand; you own the business but you use the brand’s name and systems. For example, you could open a Seattle’s Best Coffee Café franchise. Franchising has many benefits – namely, you get a business plan and blueprint to run the business, so it’s a “turnkey” approach to starting a business. You also get the benefit of an established brand name and you may get training and access to vendors and suppliers. The downside is that a franchise can be extremely expensive to buy into, and may be out of reach for budding entrepreneurs or those without stellar credit.
To give you an idea of the range of costs of buying into an existing franchise, listed below are various franchise costs . As you can see, many require a hefty financial commitment right from the start:
- Total U.S. franchises: 58
- Cost range to launch: $185K to $472K
- Total U.S. franchises: 246
- Cost range to launch: $190K to $379K
- Total U.S. franchises: 68
- Cost range to launch: $396K to $590K
- Total U.S. franchises: 317
- Cost range to launch: $512K to $890K
Alternatively, you can simply open your own shop. This option is less expensive and gives you the flexibility to decide on everything in the store – your business hours, what you sell, where you source your coffee beans, your décor, your prices, etc. Of course, you don’t get the benefit of an established brand or a ready-made business plan. The trick is to be meticulous and realistic in your own business plan and budget to avoid overspending and make sure you’re set up for success.
3. Secure Funding
Now that you have a business plan and have decided whether you plan to franchise or pursue an independent shop, you’ll need to find financing to get your business off the ground. There are many available options for a start-up, from traditional bank loans to microloans to grants.
Here’s our guide to securing lending for small business entrepreneurs. Shop around, take your time, create a business plan, meet with lenders, and then decide on the best financing terms for you. Whatever you do, make sure you fully understand and are completely comfortable with the terms of your financing – there’s no such thing as a dumb question when your business is on the line.
4. Find A Location
Coffee shops are small transaction, high volume businesses. A cup of coffee isn’t that pricey, but you’re going to sell a lot of them. You’ll want to scout locations that can accommodate bustling pedestrian and auto traffic. Consider the area’s demographics – who will your customer base be?
An urban space may be the right fit for a music and late night spot. A suburban spot may cater to commuters or parents home with children during the day. Determine whether the locations’ existing prospective customer base is in line with your vision.
No matter which space you go with, your coffee shop needs to be located where customers can easily find you – especially in the mornings! You want your shop to be part of their must-stop morning routines so they get their java fix from you, and only you. For example, you might want to start a coffee shop near a school to catch the parents who are dropping off their kids or near an office park to draw in the morning commuters.
5. Meet The Licensing Requirements
For legal and licensing purposes, your coffee shop will be a restaurant serving drinks and food to your customers. As such, you’ll need certain licenses and permits like any other restaurant. The health department will be inspecting regularly to make sure you’re met all the health and safety code requirements. The rules differ by state, but you’ll probably need to take a food safety certification course before you can get health department approval.
Most states also require you obtain an Employer Identification Number (EIN) and a sales license. This number is used by the IRS for tax purposes.
This stage of the process may be time-consuming and you may have to jump through some bureaucratic hoops to get it all done. There may be additional county- or city-level requirements to address, as well. The trick is to be proactive – check in regularly with the relevant government agencies to make sure your applications are being processed in a timely fashion and that you’ve met all the requirements.
6. Will You Need A Liquor License?
Some coffee shops also want to serve beer and wine in the evening, especially if they plan to have live music. If this is part of your plan, you’ll need a liquor license in addition to your standard restaurant licensing.
Regular licensing for a restaurant can be a pain, but liquor license applications are much more rigorous and costly. Some areas also limit the amount of liquor licenses available, so you’ll need to consider that when you’re choosing your location. If you do plan to sell alcoholic beverages, you’ll need to plan for a longer wait time for the license.
7. Tools Of The Trade
You have your business plan, your funding, and your licensing requirements handled. You’ve found a location. Now it’s time to stock up on the equipment you need to run it. That may include:
- Espresso grinders
- Commercial coffee grinders
- Coffee brewers
- Commercial blender
- Commercial refrigerator
- Running water and water filtration system
- Commercial dishwasher
- Serving implements (coffee mugs, cutlery, dishware, etc.)
- Payment systems: Credit card machine, cash register
- Office supplies
Depending on the products you plan to offer, you may need more specialized equipment. If you’re going to sell food, you’ll need all of the commercial kitchen equipment to prepare and store it. You may opt to lease or purchase this equipment, depending on your needs and budget. Whatever equipment you do lease or purchase, ensure it fits into your existing space before you commit!
8. You’ll Need Suppliers
What’s the most important aspect of starting a coffee business? That’s obvious – it’s coffee! You’re going to need an awesome coffee roaster supplier to make your coffee shop work. You want one who’s dependable, available by phone or email for questions or problems, and prompt with deliveries and invoices.
When you’re looking for a wholesale coffee vendor, you may want to consider the sourcing of their coffee beans (i.e., whether they’re fair trade and what part of the world they’re from). You may also want to offer special blends to your customers – can the wholesaler accommodate your needs?
If you’re aiming for an upscale customer base, you may also consider buying raw beans and roasting them yourself. The equipment is going to be much more expensive, but you’ll have a lot more control over the quality of the final product. Plus, the whole area will smell like freshly roasted coffee – and that’s great advertising!
9. Staff Up
You’ll need to hire a staff to run your coffee shop. You’ll need someone to work the register, someone to make the coffee and prepare the food items, someone to handle the books, and someone to manage the enterprise and oversee staff and operations.
All of these roles could be filled by you, alone, as you get off the ground, but you may want to hire someone early on so you can train them from the beginning. That way you have reliable backup if you get sick or want to take a day off.
You don’t want to start a coffee shop, have a flood of customers, and then get bad reviews because it took 30 minutes to get a cup of coffee in each customer’s hands. Hiring a great staff is easier than you think – here are our tips to get you started.
10. Price Your Products To Sell
Pricing products for a new business can seem a little daunting – how do those decisions get made? You’ll need to take a couple of factors into account. First, what are your costs? You’ll need to charge enough to make a reasonable margin. Next, what are your competitors charging? Check out other coffee shops in the same area or similar areas and see what their customers are paying. You can either make your prices a little cheaper or brand yourself as a high-end option and charge a little more.
Pricing is not a once-and-done decision. Your pricing will constantly be in flux. Factors such as product supply and demand, customer requests, the growth of your business, and seasonal business all determine what prices you should charge for each item. Evaluate your prices consistently and adjust them to reflect the current financial pulse of the business.
11. Quality Is Key
You want to focus on making your coffee THE BEST so your customers are loyal. You have a simple product to share and everyone is familiar with it, so your focus should be on making that simple product the best quality that you can – a truly excellent cup of coffee.
If your customers love what you’re giving them, they’ll be loyal to your brand and to the product. Do what you can do to ensure an outstanding product, a relaxing, customer-oriented experience at your shop, and they’ll reward you accordingly with their continued patronage.
12. Opening Day
Congratulations! You did the legwork and figured out how to open a coffee shop. Now, embrace your customers, share your joy, and you’ll soon be on the way to financial success!