How to open a coffee shop in 10 steps
Even when the whole world comes to a halt, a cup of coffee will still get people ready to go. Maybe that's why 75% of coffee drinkers say the pandemic didn't change their coffee consumption in the slightest, according to the National Coffee Association. And most of the other 25% of folks are still in the market, although they're brewing at home.
So what does this mean for an enterprising coffee entrepreneur?
Fortunately, the market is chugging along—it helps that people are addicted to the product. But knowing demand is there won't stop your business from suffering the fate of the 50% of small businesses that fail within 5 years. So, this article offers winning strategies because success takes a special blend of passion, business savvy, and a double shot of hard work.
1) Create a coffee shop business plan
"It takes as much energy to wish as it does to plan."
Perhaps the only thing former first lady Eleanor Roosevelt loved more than her "big cups of coffee with hot milk" was dropping nuggets like that. Why hope for it when you can write the blueprint? To start yours, check out these questions before starting a business:
- Executive Summary: How would you describe the business and your potential success?
- Overview: What's the business's background, legal structure, and other key attributes?
- Industry Analysis: What does market research reveal about the coffee industry in your area, including size, opportunity, and current trends?
- Competitive Analysis: Who are your competitors, and what are their strengths and weaknesses?
- Marketing: What is your marketing strategy to reach potential customers?
- Management: What unique skills do you bring to the business?
- Operations Plan: How will you manage the day-to-day tasks of the business?
- Financials: What are your estimated revenues, expenses, and profits for each of your first 5 years?
Find your coffee shop niche
Finding a niche is as simple as picking a subset of the broader coffee shop market to concentrate on. A niche allows you to rise above the noise in a crowded market, so your perfect customer can hear your brand's voice. And it's okay to let Starbucks and Dunkin’ Donuts try to be everything to everybody while you concern yourself with the coffee connoisseurs who fit in with your shop.
Although some coffee-shop concepts combine more than one of these, common types of niches include:
- Cafés. They're practically like starting a full-service restaurant, and besides coffee, they may have breakfast, lunch, and dinner menus.
- Coffee bars. These establishments offer brewed coffee and baked goods with minimal seating in high-traffic areas such as malls or bus stations.
- Coffee Carts and Trucks. With an eye on keeping startup costs low, coffee carts, kiosks, or even food trucks take their drinks and pastries anywhere sizable crowds gather like concerts, fairs, and sporting events.
- Coffeehouses. Independent coffee shops are college-town and small-city favorites and function as the neighborhood hangout spot with the sofas, bookshelves, and open-mic nights.
- Drive-Thru Coffee Shops. These venues are all about the right location and high commuter traffic.
- Retail Coffee Shops. It's a marriage between a coffee shop and a gift shop, but instead of brew, the focus is on beans and giftware such as mugs, espresso machines, and French presses.
- Roasteries. They build their product on-site so that customers can take the artisan experience home.
2) Uncover your coffee shop's unique selling proposition (USP)
Your unique selling proposition is a statement of what distinguishes you from other coffee shops. Let's face it, coffee's a commodity, and there are so many places to get a cup. And that's why top business thinkers say smart entrepreneurs don't chase 10% of a big pie. Instead, they gobble up 90% of a small pie.
Your USP communicates where you intend to snatch a slice. For instance, a green-friendly entrepreneur might have the USP "Sustainable Coffee and Vegan Sweets for Environmentally Conscious Consumers" The USP instantly embraces the owner's fellow caffeine-loving nature enthusiasts. And if they're not enough people to support the business, the owner can enlarge the USP to squeeze in more customers.
It's a balancing act between the niche, USP, and market.
3) Pick your coffee shop's business name
This is where fun enters the equation. A coffee shop's name should unite the niche and USP in a way that shines. You can keep it simple with a name like The Vegan Coffeeshop and Bakery or spunky with one like The Green Bean.
Often the process can start with competitor research or a trip to a business name generator. Also, friends and family can help you brainstorm. Ultimately, choose a name that will jolt you back to joy even when you're drudging through the business's "decaf" days.
4) Design your own coffee shop menu
You've decided your concept's niche, USP, and name, and now you can think about menu design. Don't make the new coffee shop business owner's rookie mistake of creating too large of a menu. Instead, steal a note from Steve Jobs, and let your simplicity lead to excellence. What can you and your team execute with high-quality repeatedly?
5) Choose your kitchen location and equipment
"Location" is still every real estate agent's favorite three words, and the old repetitive phrase applies to the search for your coffee shop. Questions to help your investigation include:
- Is there enough foot traffic to make it profitable?
- How does the location line up with your target demographics?
- How close is the competition?
Once you've locked in the perfect spot, you can move on to buying equipment. Your list should include:
- Accessories and utensils
- Automatic coffee brewers
- Coffee grinders and espresso grinders
- Coffee roasters
- Display cases
- An espresso machine
- An ice machine
- A point-of-sale system (POS system)
- A water filtration system
6) Figure out your financial plan
Coffee shops enjoy juicy margins, but they can easily be swallowed up by financial illiteracy. If numbers are practically a foreign language, then bookkeepers, software, or accountants can help. And here are a few questions to find your potential expenses, watch the bottom line, and maintain cash flow:
- What's the cost of sourcing for your coffee beans, chocolate, milk, muffins, pastries, syrups, and other ingredients and baked goods?
- Will you buy fair trade coffee?
- Can you partner with food service vendors and restaurant suppliers or work with farmer's markets?
According to Crimson Cup, a company that teaches new owners how to launch successful coffee shops, these are the average startup costs:
- Coffee shop with seating: $80,000 to $300,000
- Coffee shop with a drive-thru only: $80,000 to $200,000
- Coffee shop with both seating and a drive-thru: $80,000 to $300,000
- Coffee kiosk/stand: $60,000 to $105,000
- Mobile coffee food truck: $50,000 to $154,000
- Brew Bar added to an existing coffee shop: $5,500 to $25,000
- Specialty coffee service added to an existing business such as a bakery or cafe: $25,000 to $75,000
Don't have a few hundred thousand under your mattress? Check out these simple ways to launch your new business:
- Ask friends or family.
- Crowdfund with community help.
- Finance equipment and partner with vendors.
- Invest your savings.
- Open a line of credit.
- Secure a personal or business loan.
- Use personal or business credit.
7) Get your paperwork in order
A couple more tasks and this coffee vision will percolate into a reality.
Register your business name with the state
Before you serve that first latte, you'll have to register your new venture with the state and local authorities. Then, of course, you'll need to select the type of business structure such as sole proprietorship, limited liability company (LLC), or corporation.
Apply for your EIN
Your Employer Identification Number (EIN) identifies your business for taxes. Thankfully, getting one is both free and easy. Get your EIN here.
Obtain permits and licenses
This step has its sweat equity. Just know jumping through the regulatory hoops will protect your potential customer and prepare you for those impromptu inspections from the local health department. Standard permits, certifications, and licenses include:
- Health permit. You can get this from your county's health department.
- Seller's permit. You may need this as a coffee shop.
- Food-handling license. This is for anyone who handles food, so you and all your employees will likely have to get these.
- Food safety certification. A single employee or all employees may need this to sell food.
- Fire department and occupancy permits. You'll likely need to show sufficient fire alarms, extinguishers, sprinklers, and adequate escape routes to ensure the safety of your guests.
- Liquor license, if applicable. You'll have to get this if you're planning to serve alcoholic beverages, and you can check the Alcoholic Beverage Control board for your state's specifics.
- Sign permit. You may need a permit for your sign, or you can hire a sign company to check this box for you.
Insure your coffee shop business
Too many new coffee shop owners forget about insurance. It's how you protect yourself from the unexpected.
Every coffee shop entrepreneur needs reliable small business insurance—that's why it's essential to shop around for the best deal. Check out this overview of important coverages you may need to insure your coffee shop:
- Workers' compensation. This coverage protects your employees if they get sick or injured while working in your coffee shop. Every state requires worker's comp, and the consequences of skipping this coverage could cause the state to close your business. (You can get a quick estimate on what you'd pay for workers' comp with our 60-second workers' compensation calculator.)
- General liability insurance. This policy protects your coffee shop if you're sued for an injury or property damage claim. (Expensive lawsuits can quickly put a coffee shop service out of business.)
- Property insurance. This policy protects your coffee equipment.
- Business interruption. Supplements your lost business income if you must temporarily suspend the coffee shop's operations for any reason.
- Business Owner's Policy (BOP). This policy includes general liability, business property insurance, and business interruption coverage for your coffee shop startup—all in one bundle.
8) Hire your first employees
Before you interview, you'll need workers' compensation insurance to operate legally.
Once you've squared away the legal and paperwork requirement, you can head over to the Small Business Administration. Below are some potential staff to consider:
- A general manager
- A pastry chef
Stretch that tight budget to snag the most experienced baristas and other talent you can afford. A few negative reviews can kill a coffee startup. Good coffee drinks are the price of entry, but superior customer service builds a stellar reputation.
8) Spread the word about your new coffee shop business
Here are some ideas for your marketing plan:
- Build a website. Get the URL for your business name. A service with templates like Weebly or Squarespace can make this easy.
- List your business on Google and Yelp. Sign up for your Google My Business and Yelp profile.
- Buy online advertising. If you can afford the pricing, focusing on longer keywords related to your niche and USP could mean winning new customers.
- Create word-of-mouth. Serve the best coffee around, and soon you can recruit some of those jolly coffee addicts for video testimonials to post on your website and social media.
- Work with related local businesses. Can you benefit from another business's customer base? For example, mobile coffee shops have partnered with cigar bars, bookstores, and even car repair facilities.
10) Check out these tips for running a successful coffee shop business
Running a successful business is a bottomless cup. Luckily, you only have to sip a little at a time. When you're ready to taste a new flavor, head over to:
- The National Coffee Association: The leading trade association dishes out everything relevant to the coffee industry, including the hottest trends, actionable research, and the best advice to set you apart from your competition.
- CoffeeGeek: Coffee nerds, welcome home. The site is a one-stop shop for equipment reviews, a vibrant community, and how-to guides on practically any drink.
- Roast Magazine: "Roast addresses the art, science, and business of coffee by covering the issues most important to the industry, with high-quality editorial focused on the technical aspects of coffee."
Some sips are like drinking from a caffeinated firehose. And perhaps, all that energy coursing through your veins has you pondering how to stay sane as an entrepreneur.
If you're still crazy enough to pursue this coffee dream, you can get business insurance with Huckleberry almost so fast your espresso machine will feel jealous. (Getting a quote is free, easy, and 100% online.)