When you are serious about starting your coffee shop, you will want to take a few minutes (perhaps with a large cup of coffee), and jot down all the little things that you will need to obtain, so that you can open your coffee shop efficiently.
Of course, the list will essentially bring together your menu and your entire business concept. Once you lay everything on the table, you will quickly see that all of these things needed to start your business. The more research you do, the cost of your coffee business will become more clear.
Certainly each purchase will begin to whittle down your savings account – or your overall budget. Nevertheless, we recommend writing everything down clearly, that way you can see where exactly you can adjust your purchases to suit your budgetary needs.
Don’t Be Afraid of the Face Your Startup Costs
Confronting the coffee shop startup costs may be difficult for many to do, but it will empower you to control your budget – and help you realize whether or not you are ready to start your coffee business.
The mistake we often see is that new coffee business owners don’t anticipate the number of “little things” they will need for their coffee shop. By the time they realize the necessity for more money, they are already way too far in to back out completely, at least without doing some major damage to their savings. Of course, this leads them in a desperate situation looking for money to bridge the gap.
Evading this error can be done early on by simply deciding that you want to see all of the startup costs before moving forward with you coffee shop business.
Our Recommendation: Write everything down. Your financial needs will vary depending on your menu, your concept, and your location, but anticipate everything anyway. From the fixtures, furniture to the possible plumbing, and coffee inventory. It’s better to over budget than to find yourself knocking on your neighbour’s door for more money.
We also recommend that you separate your personal finances with your business finances as early as possible. You will need to know where that “red line in the sand” is – so that your business efforts doesn’t destroy your personal finances. Additionally, you should consciously give yourself a little slack. Perhaps, you may want to do this by over-estimating each item on your costs list, providing yourself a “slack” (that’s my technical term) category of, say 10%, of the anticipated costs.
The first thing is to be honest with yourself about the costs. All the costs. Putting everything “on the table” will help you to make appropriate business and financial decisions – and keep you from of extending yourself too far. Knowing how much things are going to cost, will help you plan for contingencies (if necessary), provide you with information when it comes to borrowing and raising capital for your business.
Keep in mind that this is a real business investment that you plan to grow and make a handsome profit. There are always risks. You should work hard to minimize those risks with planning and educating yourself on the retail coffee business. Of course, the reward is that you create a robust business that appreciates and generates healthy profits and cash flow. In essence, you are budgeting for your future growth and profits.
Know what kind of coffee business you want
(This may take some time)
Know what your budget is (or will be) and how much you will need to get up to profitability
Learn everything you can about the retail coffee business
Prepare a budget proposal (through a business plan)
Adjust your budget as your plan evolves
Decide on clear path to execute your plan (Simple is better)
Take steps every day towards your goal (learn, research, prepare)
Starting Your Coffee Shop Business Planning: Are you ALL in?
Your profits will come from your detailed planning, investments, and passion. Getting it right from the start is important. Educate yourself on what really matters when it comes to your costs – this includes your equipment costs, your lease signing, and other important details. When you are starting up your coffee business, you will have many one-time costs, which you may include as fixed costs – and you will have many variable costs that are on-going costs.
These variable costs grow as you grow. For example, as you grow, so too will your inventory needs grow (therefore the cost of your inventory will increase). Additionally, new hires or extra time on the clock will grow. These are variable costs. So, this is a good thing as long as your pricing your items well and managing your labor costs efficiently.
Overall, this variable costs are not a bad thing, as the more profit you will also be making. In addition, you will need additional startups funds that are unique to launching a coffee business. For example, you will need to pay for inspector fees, health department fees, fire department fees, and other items such as insurance premiums, and your deposit for your lease, etc.
These costs are often overlooked by many jumping into their first business . Additionally, and perhaps more importantly, each of these elements vary in the time they take to “check off your list”.
For example, it may take an additional 1, 2, or 3 extra months to simply get your county health department to sign off and give you the green light to open your business if certain things aren’t up to code. Will you have enough to cover three months of your lease without making a single sale? Consider the costs of any potential delays. As in anything, consider planning a little more than you actually budget – and allow for more time so that the necessary paperwork, inspections, etc. get done.
Recommendation #1: Set Up Your Own Coffee Shop LLC and Business Bank Account
Before you actually finish your coffee shop business plan or even before you start spending any real money on equipment or leases, you should create an LLC in your state and establish a bank account.
You can then add money to this bank account and spend money for your cafe using funds from this bank account. If you choose not to legally set business up as an LLC, consider setting it up as a corporation or a non-profit. Whichever legal structure you decide, make sure its done before you spend any real money. That is anything over several hundred dollars. For more information see Tips to Starting Your Coffee Shop.
In the next sample table, we’ll write these sample costs down (to get your thoughts flowing). You may need to add more or subtract some items (which will vary from coffee shop business to coffee shop business).
Recommendation #2: Start Creating a Budget (Edit and Add When Necessary)
Your “Sample” Coffee Shop Start Up Costs
|First Month’s Lease||EUR 1500|
|Second Month’s Lease||EUR 1500|
|Security Deposit||EUR 1500|
|Insurance Premiums||EUR 250|
|Inspector Fees||EUR 400|
|Utility Connection Fees/ Deposits||EUR 200|
|LLC Fees and Other Business License Fees||EUR 400|
Please note: In addition to these basic fees, you will need to spend money on a variety of things to ensure your business is ready to launch. Some items will take care of themselves, other items may be needed to be added. Either case, I have added some sample costs below (again, to get your thoughts churning as you plan your own coffee shop or coffee stand business). As you begin to go through them, you may start considering your own coffee shop menu, the condition of your location, and of course, your overall budget. Consider, what items you will need to add? What items will you seek to avoid?
Remember Your Coffee Shop Business Lease
The signing of your coffee shop business lease is important! Our Coffee Shop Startup Kit offers an excellent one-hour interview on the subject of your coffee shop business lease. (You should not miss it!)
Considering the location and the condition of your location is essential to your budget. Depending on your vision and your budget and the current state of your location, you may need to spend money to get it ready to use. Your lease ultimately impacts your bottom line, your ability to conduct business, and your ability to increase your profitability.
Okay, let’s continue by considering the following sample coffee shop business items below:
Your Sample Coffee Shop Startup Cost (Budget) – Part 2
|Your Leasing Space (Physical Space)|
|Electrical Installations||EUR 1000|
|Restroom Upgrading||EUR 300|
|Vent Installations||EUR 400|
|Display Cabinets||EUR 500|
|Espresso Machine||EUR 10,000|
|Two Grinders||EUR 3000|
|Mop sink and Install||EUR 400|
|Convection Oven (If needed)||0|
|Commercial Drip Coffee Maker||EUR 300|
|Computer, Printer and POS system||EUR 1000|
|Chairs and Tables||EUR 1000|
|Outdoor furniture||EUR 1000|
|Music System||EUR 400|
|Electronic Scales||EUR 150|
|Chemex (2-3)||EUR 150|
|Dishwasher (If needed)||EUR 700|
|Display Showcase||EUR 500|
|Internal Displays and Signage||EUR 200|
|Outside Signs and Displays||EUR 800|
|Coffee Beans Inventory||EUR 1000|
|Website Design||EUR 500|
|Office Supplies||EUR 200|
|GRAND TOTAL||EUR 30,100|
The above list is certainly, incomplete. The complete list of course, varies for every coffee business establishment. Feel free to add/edit it. Simply running down the list, you’ll see that everything will need to be in place before you open your business. If you are still in the planning stages of your coffee business, it’s a good list to keep updated.
Nevertheless, if you put the lists together (EUR5,700 + EUR30,100 = EUR35,800). So, you will need about EUR 36K before you even pour you’re first drink. (This also does not include your time, your labor costs, and other miscellaneous expenses.)
Also note, this may be a very conservative figure depending on your business concept and the remodeling costs to ensure your appropriate vision. Building out your coffee shop takes planning – and perhaps the hiring of contractors – which adds additional costs.
Remember, about adding additional slack of at least 10% to help with costs that run higher than expected. So, if you wish, consider adding an additional $3600 as your slack account. This additional money should be used for your startup costs. And hey, if you go under budget, you can use that money to help sustain your business as you move toward profitability.
However, if you plan early, you will be able to make better decisions that will save you money over time. That’s why we recommend our Coffee Shop Business Plan Guide.
Your Coffee Shop Break-Even Point
To be able to determine your break-even point of you coffee business you will need to be able to:
- Forecast your expenses
- Forecast your sales
Your “break-even point” really means the point at which you generate enough revenue to cover all your expenses. To be sure, investors, bankers, or serious partners will ask you what your break-even point will be. By figuring out your break-even point beforehand, you can see if your sales forecast will be high enough to finance your operating cost.
But as in many different things, the devil is in the details. While the fact is true: your break-even point is the point where your revenue covers all your costs – many will often play with the “costs” figures.
For example, you will have one-time upfront costs like security deposits, possible broker fees, equipment costs, travel costs, possible consultant fees, furniture costs, etc.
I encourage you with the help of an accountant, to amortize your equipment costs over time (breakup the costs over the span of a few years) and embed those costs within your annual and monthly expenses. OR… at least acknowledge their existence by categorizing them with your cost structure.
For example, by embedding your startup costs (variable and fixed costs) within your operating expenses in a manner that works best for you – you can be sure that your revenue will not only be covering your day-to-day operational costs but the costs associated with starting your business.
To be sure, most of your cost are controllable based on your needs, we often call these variable costs. They include such expenses as your payroll, your costs of sales (what it costs to deliver coffee and snacks to your customers), utilities, inventory, administrative expenses, and your promotional costs). Your fixed costs and variable costs, and embedding your “one-time” startup costs, should be added all together and divided by a specific amount of time that you choose (annually, monthly, weekly) and then calculated with your sales (or estimated sales).
Your sales will need cover these cumulative costs. You must use these factors to determine your break-even point.
Starting Your Coffee Shop: How do you forecast your sales?
Okay, so we know that to do our “due diligence” for our coffee shop business planning, we’re going to need some data – or some information by which to base our decisions on. There are many data points that we’ll need to consider when it comes to determining our coffee shop budget. But how do you determine your future sales? How can you even arrive at the point of figuring out your actual sales receipts?
Answer: Well, to be sure, it’s a bit of an art and a science. If you are buying an existing business, you will want to see the last couple of years of sales receipts or profit and loss statements. Getting this hard data will play an important role in determining your own sales as you take over the business.
Of course, you will want to make some adjustments to future sales as you change your pricing, your menu, and your marketing. Additionally, you should learn to count customers during the process of buying an existing stand or selecting a specific location to start a coffee shop or espresso drive-thru stand.
While not the scope of this article, consider this brief article on counting customers for your coffee business here.
It Always Comes Down To The Math
Coming up with the data will be your job. But it’s easier than it sounds and its the numbers. The feasibility of realizing your coffee shop dream always comes down to the math. Learn to play with the numbers. Don’t be intimidated by the math. The numbers aren’t out to “get” you. They don’t have any power over you.
By starting early in getting your data points, you will be able to open your coffee shop with confidence. You will be able to approach investors or barrow money with the confidence you will need.