How to Open a Coffee Shop

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Imagine the rich aroma of freshly brewed coffee enveloping a room filled with chatter, soft music, and the clink of mugs on saucers. The dream of opening a coffee shop can be intoxicating, but this venture requires an investment that might swing from a cozy $20,000 kiosk to a grand $250,000 café. While a passion for coffee is a must, success also depends on a blend of expertise in bean varieties, brewing techniques, and savvy business management.

Profit margins, typically percolating between 15% and 25%, are tempting, but navigating the challenges — from fierce competition to ever-evolving consumer tastes — requires a steady hand. If you’re brewing ambitions of crafting the perfect coffee haven, join us as we explore the roadmap to caffeinated success.

Considerations Before Starting a Coffee Shop

Initial Investment	Starting costs can range from $20,000 (small kiosk or cart) to $250,000 or more (full-scale café with high-end equipment and prime location).
Skills Required	Knowledge of coffee beans and brewing techniques, customer service skills, basic accounting, and business management. Barista training can be beneficial.
Demand	Steady and high, especially in urban and corporate areas. The culture of coffee shops as social hubs or workspaces continues to grow.
Location	Best in areas with high foot traffic such as downtown streets, near offices, or by universities. Proximity to complementary businesses (like bookstores) can be advantageous.
Hours	Typically early morning starts (6 or 7 a.m.). Business often tapers off in the afternoon. Some locations, especially in urban centers, may benefit from extended hours.
Permits and Licenses	Business license, food handler’s permit, health department certification, and possibly liquor licenses if serving alcoholic beverages.
Profit Margin	Typically ranges from 15% to 25%, depending on factors like location, pricing strategy, and overhead costs.
Challenges	Intense competition from both local cafes and big coffee chains, fluctuating coffee prices, hiring and retaining trained staff, and adapting to changing consumer preferences.

Benefits of Opening a Coffee Shop

There are plenty of benefits to opening a coffee shop. Here’s a look at what business owners can look forward to:

Impressive profit margins: Selling single cups of coffee can bring a nice profit. Research shows the average cost to make a cup of joe is about $1, but consumers pay $3.50-$4.50. That’s a 300-400% markup, and a recipe for a successful business.
Increasing demand: More and more people are visiting their local barista for their favorite beverage. An estimated 83% of Americans drink coffee, which may explain why coffee shops have a 7% annual growth rate.
Ability to specialize: Coffee is no longer a simple drink with cream or sugar. Customized drinks and specialty coffee orders have created a whole new language. Ordering a venti, half-whole milk, half 1%, no foam latte with whip and two packets of Splenda won’t raise eyebrows in your corner shop.

How to Open a Coffee Shop

1. Create a Business Plan

Starting a coffee shop requires a sound business plan, which is a document that explains how your company will succeed. Its sections explore key aspects of the business, like the coffee shop’s goals, marketing, and finances.

More specifically, a business plan will include these parts:

Executive summary: A top-line view of your business plan.
Company overview: Explain the business and what sets it apart.
Description of products or services: The food and drinks on the menu.
Marketing plan: Discuss your ideal customers and how you’ll attract and retain them.
SMART goals: Set Specific, Measurable, Attainable, Relevant, Time-based goals.
Management team overview: Provide details on managers, their experience, and duties.
Financial plan: Explain where funding for the coffee shop will come from.

2. LLC vs Sole Proprietorship: Choose a Business Structure

Once you’ve created your coffee shop business plan, it’s time to move on to structuring your business. What form will your new coffee shop take? There are several different kinds of business structures, but a sole proprietorship or a limited liability company (LLC) is the most common.

The difference? A sole proprietorship is best for small businesses with no employees. If you plan to start small — like a mobile coffee shop or a coffee kiosk in a mall where you’re the sole employee — a sole prop is a good choice. Setting it up is also free.

However, most coffee shop owners hire at least a small staff, which lends itself to an LLC. An LLC provides liability protection. That means if the shop goes under or ends up in debt, your personal assets are off limits to your creditors. If you want help forming your new LLC, consider using our business formation service.

There’s a cost to apply for LLC status. Filing fees vary by state, but you can expect to pay anywhere from $50 to $500.

3. Create a Business Name for Your Coffee Shop

The next item on your to-do list? Create a coffee shop name. While the options are endless, most states have rules when it comes to how to name an LLC. A name must be unique. Most states have a searchable database on the secretary of state’s website to let you check.

If you plan to LLC, most states require the name to contain “limited liability company” or “LLC”.

Before registering a name with the state, check for a matching domain name. Ideally, the company website and company name will match.

Name your coffee shop

Enter your business name to get started

4. Register Your Business and Open Financial Accounts

You’ll have to clear a short list of chores to get your coffee shop up and running as a legal entity:

Register the business: Each state requires you to fill out LLC formation documents to legally establish a business. The forms are usually on the state’s secretary of state website. There’s often a filing fee, too.
Create an operating agreement: That’s a contract that explains how the shop will run. It explains who’s involved, how decisions are made, and how profits and losses are managed.

Get an EIN: Every business needs an employer identification number (EIN) from the IRS. Visit the IRS website to get this nine-digit number. In addition, your state may require a separate tax ID. Visit your state business department to learn more.
Open bank accounts: You’ll want to open a business checking and savings account to keep the books above board. You’ll need your EIN in place before you apply.

5. Determine Your Business Costs

The startup costs for a coffee business vary. Research shows a small coffee kiosk will set you back about $60,000 to $150,000. A coffee shop with seating and drive-thru runs about $80,000 to $300,000. But startup costs are just part of the financial picture. Consider these costs as you learn how to start a coffee shop:

Real estate costs: Ideally, your coffee shop will be in a location with high foot traffic, but a spot in a popular retail area could be pricey. Factor in whether you’ll lease, buy, or rent.
Equipment costs: Some coffee shop equipment is highly specialized, like espresso machines or grinders. The size of your shop’s gear matters too, and depends on how much seating you’ll provide. A coffee shop with 15 tables has different equipment needs than a kiosk.
Labor costs: If you’ll start an independent coffee shop with employees, labor costs are a factor. The average coffee shop employee makes $11.10 per hour.
Consumable supplies: You’ll need to order a few supplies continuously, like paper plates, plastic silverware, and ingredients for coffee and food. Many coffee shops buy high-end ingredients for premium quality coffee, so these expenses can add up.
Marketing and advertising: Where will you find customers? To start, some shops buy local advertising for a grand opening, then drive repeat business through word-of-mouth and social media. It all comes down to location, though. If you’re visible, the customers will come.

How can you fund your startup costs?

Startup costs are often the first big hurdle for new coffee shop owners. If you need to raise capital, consider these options:

Government assistance: There are a handful of government grants that may provide assistance. Start your search on Grants.gov. While grants provide “free money,” they’re also difficult to qualify and apply for.
Credit cards: A business credit card can cover some of your startup costs, but many credit cards have high interest rates.
Loans: You can apply for a business loan, or ask friends and family for financial help. A bank loan takes time and involves a lot of paperwork. Asking friends and family to pitch in is easier, but not always possible and can damage the relationship.

6. Purchase Equipment for Your Coffee Shop

It’s time to start filling your coffee shop with necessary gear and furniture. Here’s a checklist of coffee shop equipment to consider buying:

Espresso machine
Coffee grinders and espresso grinders
Point of sale system (POS system)
Automatic coffee brewers
Blenders
Ovens
Toasters
Refrigerators
Ice machine
Storage
Display cases
Sinks
Dishwasher
Accessories and utensils
Dishes
Furniture

Need more? This handy coffee shop equipment list is a good start.

7. Market Your Coffee Shop

Marketing is an ongoing cost, but you don’t have to bet the farm. Consider starting with social media. You can tailor your channels to the clientele you want to target. If you want corporate clients, LinkedIn is a good platform. For the younger crowd, try Snapchat or Instagram. Consider joining groups on social channels too. Facebook, for example, has a coffee shop owner group brimming with great ideas.

Coffee drinkers need to know your location, so it’s a good idea to add your local business to online directories. The biggest is Google My Business, but there are others, like YellowPages.

Examples of Coffee Businesses to Start

When you think of a coffee shop, you probably picture a Starbucks-like experience, with a seating area and a drive-thru. But there are other kinds of coffee businesses. Consider these ideas:

Coffee bar: A small space with bar seating and limited menu.
Coffeehouse: A traditional coffee shop with a full menu, seating, and a drive-thru.
Drive thru-only coffee shops: No indoor seating, just a drive-thru and a limited menu.
Coffee carts and trucks: Mobile options that can be one-person venues.
Coffee roaster/retailer: Roast different blends of coffee beans and sell them to regional coffee shops.

Related posts:

Starting Your Dream Coffee Shop

Starting a coffee shop can be an exciting endeavor, but it’s not without its challenges. From picking a company name and business structure to finding a location and creating a menu, there’s a fair amount to do before opening day.

For the passionate, persistent coffee lover, a coffee shop can be a highly profitable business to start.

Starts at $0 + state fee

Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

Written by Team ZenBusiness

ZenBusiness has helped people start, run, and grow over 700,000 dream companies. The editorial team at ZenBusiness has over 20 years of collective small business publishing experience and is composed of business formation experts who are dedicated to empowering and educating entrepreneurs about owning a company.

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