How to Start a Coffee Shop

Coffee shops have become big business. There is the familiar chain that has blanketed the country, and fast food restaurants are increasingly competing for a share of the market. If you want to open your own independent shop, the good news is that there is still a place in this business sector for the kind of knowledge and service that are best provided by the independent owner.

The two biggest hurdles you need to clear on the way to operating a successful coffee shop are to make a detailed business plan and to learn everything you can about coffee.

Your Coffee Shop Business Plan

write-a-business-planYour business plan is your roadmap. Its purpose is to spell out the expenses involved in your business, the income you project that it will generate, where your financing will come from, and plans for growth over a period of from one to five years.

There are a number of business plan templates online and in books that you can use for detailed line-item suggestions, so let’s just take a look at some of the bigger decisions that you will need to make.
 

1. What type of shop do you want to be?

Most shops are one of four types: a kiosk, a drive-through, a walk-in shop with counter service, or a walk-in shop with counter service and table seating. Each of these is more costly than the last, so if financing is tight, you may want to start small.

2. What should you look for in a location?

Location is more critical for a coffee shop than for many other kinds of businesses because it is not a destination by itself. It is usually a place people stop in on their way to something else. You need to look for places that large numbers of people pass by or where large numbers of people congregate.

Once you have a location that you are considering, spend some time there and count how many cars pass by on the street or how many people walk through the lobby in an hour. Find out about lease rates in the area.

3. Calculate the cost of equipment and supplies.

Make a detailed list of everything your shop will need. This includes the machines to make the coffee, the coffee, additives like milk, sugar and flavorings, napkins, stirrers, cups and office supplies.

It is possible to save startup costs by leasing equipment or buying used. Coffee shops that have recently closed often sell their inventory at well below the cost of new, so keep an eye out for that sort of opportunity. You may even get some free advice in the deal.

4. What is your budget?

Depending on the size of the shop and the location, it would not be unreasonable to spend $250,000 for the initial costs of opening a coffee shop. Beyond that, you should have at least one year of operating costs on hand.

Operating costs include supplies, payroll, loan payments, taxes and insurance. Even a successful shop may need a year or more to develop a solid base of steady business, so you cannot count on profits to fund the business during this initial phase.

You should focus your spending on the location, the employees and the product. Fancy decor and atmosphere can wait, as long as the shop is clean and welcoming.

Speaking of product, you need to decide what you are going to sell besides coffee. Most shops offer at least tea, hot cocoa and some type of food. As a ballpark estimate, about half of sales are typically coffee and about 45 percent other drinks and food, with the balance made up of bulk coffee sales and branded merchandise, like mugs or T-shirts.

Remember to also budget for professional services like an attorney, an accountant and an insurance agent. They can give you valuable advice and keep you from making costly mistakes.

5. Plan for the investment in your employees.

Your baristas will have a large impact on the satisfaction of your customers. They need to be well trained so they prepare drinks correctly and quickly. It is important to pay and treat your baristas well enough that you do not have constant turnover; not only does turnover cost time and money in never-ending training, but it turns off customers.

Marketing research has shown that customers want consistency. It may sound odd, but they would rather know that they are going to get average quality in “Business A” than to get excellent quality today and lousy quality tomorrow from “Business B.”

When your customers know your baristas and know what to expect from Joe or Kate or Allison, they are more comfortable making your shop a regular stop. Of course, you should always aim for not just consistent but consistently excellent product and service.

Becoming a Coffee Expert

If you are even casually thinking about opening a coffee shop, you must already know a little something about coffee. To be a true expert, you will probably need to learn a lot more.

Take the time to learn about all the countries from which coffee is sourced. Learn about the terrain where it is grown, and the process of growing and harvesting in different countries. Understand the entire chain of business that stretches from planting the coffee to the moment it appears in your shop.

It may be very important to your customers to know if your coffee has been grown in an environmentally sustainable manner and if the growers were paid fairly for their labor. Educating yourself about Fair Trade practices and green business practices can be a big plus.

As you increase your information base about coffee, you should also be tasting as many different types as you can. Visit other shops and taste the varieties they offer. Explore how the taste of a particular type can change depending on how it was brewed and served.

One of the most important relationships you will have as the owner of a coffee shop is with your coffee roaster. A great roaster will ensure consistency and quality in your product and will also be a tremendous resource for information. Tasting every coffee your roaster sells and learning as much as you can during the process will go a long way toward making you an expert.

You might also want to consider joining the Specialty Coffee Association of America (SCAA) for educational and networking opportunities. This association is international in scope and offers professional training, industry information, meetings and conventions and a very useful website.

The Barista Guild of America is one of the trade guilds of the SCAA and is specifically focused on the professional development of baristas. It offers training that leads to certification as well as barista competitions and general fellowship.

Gaining Barista Guild certification yourself and passing along what you have learned to your own baristas can add a level of expertise to your shop that your customers will appreciate. If your staff is more well-trained than the competition, market that as one of your unique advantages.

There is one more aspect to making great coffee that you will want to consider: the water. When you are choosing your location, be sure to check out the water supply. If it has an off taste or has a mineral content that will damage your equipment, you will need to arrange for a different source of water.

Conclusion

To open and successfully operate a coffee shop, you need money, space and expertise. Even a small kiosk in the lobby of a large office building will take several thousand dollars to set up and operate until it becomes profitable. A large shop with food and tables will require a few hundred thousand.

Scouting a location can be time consuming, but it is time that is well worth spending. Finding a space that needs minimal renovations, has a reasonable rent and is easily accessible to a large number of people can be the difference between success and failure.

Finally, developing expertise both as a business owner and a coffee connoisseur will give you the knowledge and confidence you need to move forward with your shop. Write a detailed business plan, seek all the advice you can find, both online and in person, and drink, drink, drink coffee.