So you think you have what it takes to open a coffee shop?
Just know going into your fledgling java empire that a load of work goes into opening a coffee shop.
Yet if you do so successfully, the work is steady, the revenues (and the local brews) can be strong, and you'll meet an abundance of new friendly coffee lovers just like yourself - new friends you may know for life.
Surely, Americans love their coffee and that gives you an automatic leg up as you roll out your new venture.
- According to the National Coffee Association, 63% of Americans reported drinking at least one cup of coffee a day as of March, 2019. That figure is up from 57% in 2016.
- Better yet, the number of Americans drinking higher-priced premium gourmet java for the first time - the kind coffee a shop owner can really make a buck on - is over 60% for the time the NCS began tracking gourmet coffee numbers.
- All told, Americans spend, on average, $1,110 annually on coffee, according to the NCA - that's a figure that has held steady (counting in inflation) over the years.
These are figures a savvy coffee shop owner can work with as building blocks for a new business. Yet with industry heavyweights like Starbucks (SBUX - Get Report) likely right down the street, the challenges are many for new coffee shop owners - but not insurmountable.
(For this article, we're assuming you're opening an independent coffee shop, and not investing in a franchise coffee shop, as the experience and the cost between both will vary greatly.)
How to Open a Coffee Shop in 8 Steps
Now that you have an idea on price, here's what you need to do to open up a quality coffee shop.
1. Figure Out the Equipment You Need Your budget will tell you what kind of coffee shop you can open, and how big or small it will be.
But no matter what the size of your shop, you're going to need these pieces of equipment to get your coffee shop off the grounds.
- A good espresso machine - An cost of about $500 to $2,500.
- An espresso grinder - You can get a good grinder for $300, although with top-of-the line espresso machines, you likely won't need a grinder.
- Blenders and coffee brewers - Anywhere from $200 all the way to $2,000 for a premium coffee shop blender.
- A commercial refrigerator and dishwasher - A restaurant-size fridge will set you back about $800 to $1,600, depending on make and model. A reliable dishwasher should cost less, at an estimated $500 per unit.
- Coffee-making foodstuffs and ingredients - Figure on $1,500 or more a month, for starters. That's for the actual coffee you use, plus chocolates, spices, syrups, along with any food you sell, like egg sandwiches or bagels.
2. Figure Out Your Human Costs
Equipment aside, you're also going to pay for employees and payroll costs, along with income taxes on the earnings you make from the coffee shop (estimate about 35% of profits in local, state and federal income taxes.)
If you hire full-time workers, you'll likely need to pay half of their Social Security FICA tax, of 15.30% of total wages - 7.65% paid each by you, the employer and 7.65% of income paid by each of your employees.
Additionally, factor in costs associated with small-business accountants and attorneys, and any marketing expenses you rack up with a new web site, social media campaign, and local advertising.
Toss in the outlays for chairs, tables, artwork, lighting, napkins, plasticware and other coffee shop necessities, and you've likely added thousands of dollars a month to your budget
3. Create a Business Plan A business plan is a 10- or 15- page document that spells out exactly how you plan to run your coffee shop, what your estimated expenses and profits will be, and where you see the business, performance-wise, in five years.
Bplans.com offers a very thorough sample coffee shop business plan.
As you fill your business plan out, be realistic about your expenses and estimated revenues. Better to have a real grip on your coffee shop's numbers (which always can be readjusted later) than be off base with your figures, thus putting your entire shop's future at risk.
4. Find a Good Location The venue where you choose to open your coffee shop will be unique to you.
That said, you'll want to open your shop in a commercial district, ideally close to your home for an easy commute. Your best bet is a college town or larger city or town with plenty of parking for retail businesses like yours, and one that offers easy access to public transportation.
Check the area's crime rate (your local police station will have the figures) in the event you're going to keep your coffee shop open at night. Again, keep your total rental cost to about 15% of your estimated monthly revenues. Anything more and you're risking a tight financial squeeze.
Additionally, factor in utilities, like electricity, WiFi, water, and cable, if you're hooking up a television screen in your shop. Note that heat and air conditioning costs may be separate.
5. Buy Your Equipment While we've provided a price range for the coffee shop estimate you'll need above (in general, expect to pay around $10,000 for everything you'll need), you'll also need to know where to buy commercial coffee shop equipment.
Start by asking around among other small business owners (especially restaurant, cafe, and coffee shop owners.) The National Coffee Association is a good place to start for information, along with national coffee equipment providers like Webrestaurant Store and Prima Coffee Equipment.
6. Cover Your Needed Technology Costs You're going to need a merchant-based point-of-sale technology setup to handle transactions, along with restaurant-specific small business financial software to keep tabs on the money rolling in and out of your coffee shop.
A good POS financial accounting package can be had for as little as $2,500 to $4,000 as a one-time fee, along with a monthly fee for the software needed to run your shop's finances.
7. Hiring Staff and Paying for Vendors Lastly, you'll want to hire good, dependable help along with reliable vendors who'll bring you the goods you need, like coffee supplies, ingredients like milk, chocolate or spices, and paper supplies to properly run your business.
Know that labor represents a big chunk of your total expenses (about 60%), so hire efficiently.
Aim for young, low-cost help - ideally staffers who enjoy brewing and drinking company, and have general knowledge about the topic. Reliability is key, so go ahead and check references for job applicants and ask specifically about an applicant's ability to show up on time and on schedule.
Basically, the same goes for your food, drink and supply vendors. Reliability is again critical, so ask any potential vendors for references and check them out. If a vendor refuses to provide any references, keep on looking.
For your coffee vendors, ask for samples and try them all out. Make a short list of the vendors you like best and try each on a trial basis.
Again, ask around and join all the coffee retail organizations you can. Coffee shop owners already up and running will be glad to help a newbie out.
8. Get the Right Compliance Documents While laws vary in different states, cities and towns, you'll likely need a business license, an Employee ID number (EID,) a Certificate of Occupancy, and a Food Service License (if you're serving food) to open your coffee shop.
Application fees vary so check with your local business licensing department (they're usually in your local town or city hall) to see how much your documents and permits will cost.
How Much Does Opening a Coffee Shop Cost?
Your first challenge in opening a new coffee shop, akin to opening any new small business, is figuring out how much it will cost to do so.
Industry figures vary. According to Crimson Cup, a national coffee chain, the price for opening a coffee shop ranges from $80,000 to $250,000, depending on the size and scope of your new coffee shop operation.
Crimson Cup also breaks down the costs associated with running a new coffee shop, and every hopeful java shop owner - of any kind - should know the following figures (as of 2018.)
- Total cost to run a coffee kiosk/coffee stand - $60,000 to $100,000.
- Total cost to run a mobile coffee & food truck - $50,000 to $150,000.
- Total cost to run a coffee shop with seating - $80,000 to $275,000.
- Total cost to run a drive-thru only coffee shop - $80,000 to $200,000.
- Total cost to run a coffee shop with seating and drive-thru services - $80,000 to $300,000.
The above numbers do have substantial price ranges, but that's also dependent on where you open a shop (it costs much more money to open a coffee shop on Manhattan, N.Y. than it does in Manhattan, Kansas, for example.)
By and large, the rent you pay to open your coffee shop (unless you're fortunate enough to already own the building) is one of your biggest expenses. Going into your new venture, keep your rental costs to between 10%-to-15% of your estimated monthly revenues - that's a good rule of thumb to work with when you open up for business.
The Takeaway on Opening a Coffee Shop
If you love coffee, love people, and can tolerate getting up each morning at 4-5 a.m. to open the doors, an independent coffee shop experience may just be for you.
Follow the steps listed above to get the job done and start brewing. Somewhere there are a host of potential customers who'd like to give your new coffee shop a try - the trick is creating a great coffee shop experience and making those customers come back for more.
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