If you are considering opening a coffee shop, coffee store, espresso bar, or starting a coffee business (I use all these terms interchangeably), then there are multiple factors to consider, and details to attend to, in order to maximize your chances for success. In this article I’ll be concentrating on how to develop your idea into an operating business. How to position your business for success before you ever open your doors. I will address how to run that business and achieve profitability in an upcoming article.
Most people begin planning their new coffee business based upon their “dream,” what they would ideally like to own. While this is a normal tendency, it may not be the most prudent way to start. Much time and energy can be wasted working on “your plan,” when in reality, you may not be able to afford what you desire.
As a consultant, I’ve seen this happen many times over the past 19 years. Often, new entrepreneurs get swept away by their dream, and end up over-extending themselves financially, only to run out of money before they can open their doors for business. Those who do manage to get open are typically left with little or no operating capital. Because few businesses open on Monday and are profitable on Tuesday, having sufficient operating capital will be necessary to pay your bills, employees, and yourself, until the business can generate some profit.Unless you have substantial personal capital to invest, you would be wise to begin your planning process by taking a trip to see your banker. Discuss the possibility of borrowing money to help fund your future business. Understand that lending institutions typically don’t like to loan on food service businesses due to their high failure rate (95%). They are even less enthusiastic if it is your first business.
You will usually have to be willing (and able) to invest a good portion of the required money personally; typically 50% or more of the project cost, before the bank will even consider lending anything to you. Be aware that many times bankers may make it sound as if financing will be no problem during this initial inquiry, but when you come back to actually get the loan, their demeanor may change as if the first meeting had never occurred.
For this reason, when you first meet with them, let them know you want honest answers, and that you will be basing your business concept, planning, and assumptions upon what they are realistically willing to lend you.
Because I have done financial projections for hundreds of coffee businesses, I can confidently provide you with a realistic range of costs for different coffee concepts. When determining the potential cost, many factors must be taken into consideration beyond the expenses for equipment, fixtures, furnishings, and contractor labor.
There will be expenses for professional services (lawyer, accountant, consultant, space designer, etc.), permits and inspections, small wares, beginning inventory, marketing, pre-opening labor, etc. You’ll also need to set aside operating capital to pay bills, your employees, and yourself, until the business can become profitable. A good rule of thumb is to set aside 1/3 of the funds you have to work with as operating capital, and the remaining 2/3rds will be what you actually have to plan and open the business with. So, taking all of these factors into consideration, here are some typical costs (U.S. Dollars):
Espresso Bar/Coffee Shop: $300,000 to $450,000+
Espresso Drive-Thru: $150,000 to $250,000+
Espresso Kiosk: $75,000 to $150,000+
Espresso Cart: $30,000 to $50,000+
Understand that there is not a direct relationship between the cost of a concept, and the income it might potentially produce. One of the most lucrative operations I had ever seen was an espresso-cart that was located in the lobby of a large hospital in a metropolitan area. This business was generating over 1,000 transactions per day, and I estimated that annual sales must have been over 1.2 million dollars, with a bottom line profit probably falling between $250,000 and $400,000.