How to Open a Coffee Shop: The Complete Guide

By Sara Brown, Bond Street 

The full version of this post originally appeared on Bond Street

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How can a passionate affinity for coffee and a stirring desire to create something of your own manifest into a successful business?

If you’re overwhelmed by the multitude of initiatives associated with building a new business and are looking for a step-by-step guide that breaks down the everything you need to know about starting a coffee shop enterprise, you’ve come to the right place.

Section 1: Preparation

Preparation.jpg

Consulting – DIY or Professional?

As with any start-up endeavor, the process of doing extensive research and listening to/absorbing testimonies will be your best friend.  There are, of course, professionals that you can look to: a slew of fancy coffee consulting companies and consultants can offer a framework of advice on how to overcome the hurdles and which corners to cut, and which ones to definitely NOT cut.

However, consulting can be incredibly costly, and, ironically, the number one thing that these consultants will all agree upon is that, minimizing all costs possible is key.  If your funds are severely limited, hiring someone to do a job that can really been done internally, through internet research and networking, makes it an expense that falls into the category of “luxuries.”  That being said, if you don’t hire someone to do the work for you, you need to do the work.

Research, research, and more research:

Converse with the pros: Talk to as many current owners of coffee businesses that are thriving as possible, find the overlap in their commentary, and don’t discount those who have failed—some of your greatest lessons will be learned from stories about failure.  The advice of your soon-to-be contemporaries is invaluable as they have lived your struggle and triumph.

When I asked the owner of City of Saints Coffee (a successful, community- oriented coffee hub based in New York), what he thought his biggest challenge was or what he would do differently in starting a new coffee business, he expressed that they originally were outsourcing production and, after being open for a year, were “disappointed and frustrated with the quality and constancy of some of their coffee partners (vendors).”  This frustration led them to the conclusion that they would, “only be able to fully control our product and the future of the business if we took all production in house. This was a huge and harrowing (big for a company that had only two shops at the time) step for the business, but has really paid off and has allowed us a great platform from which we can expand.”

Immerse yourself in the industry: Sign up for coffee periodicals (Barista Magazine, Coffee Talk, Specialty Coffee Retailer, Fresh Cup, and The Tea & Coffee Trade Journal are some industry-centric, popular favorites) and attend trade shows.

Get down to the nitty-gritty: Have a firm handle on the laws, relevant rules and regulations surrounding owning a coffee shop/necessary permits needed in your state.  You will have enough challenges in both finding your space and, then, in creating it, to not have room for oversight of policy.

Similarly, have an equally firm grasp on financial concepts like the difference between a business with positive cash flow and a business that is profitable.

Create a business plan: this will outline your financial needs, initial and future expenses, and a general timeline (one that includes how you will stay afloat when it could take anywhere from six months- two years for your business to become profitable.)  This will be akin to deciding what your main sources of funding will be: stay as local as possible, whether simply leaning on friends & family, reaching out to local investors, utilizing online crowdfunding platforms like Kickstarter, or local banks.

The average startup cost for a kiosk style coffee shop is between $25,000 and $75,000; the average cost of a sit-down style can range from $200,000-$375,000.

When you’ve done so much research that you feel like you could probably become a coffee consultant, take your creative energy and begin to formulate the bones of your vision.

Section 2: Vision

vision

Capitalize on your strengths & narrow your target clientele:

Avoid the novice mistake of trying to capitalize on everything. A coffee shop that tries to do everything (serve a plethora of food, serve alcohol, host open-mic nights, serve as an internet café, specialize in elaborate latte art, appeal to college students, be the perfect place to read and write poetry, have the best doughnuts etc.) will likely crash and burn.  It is much more salient to be exceptional at something than mediocre at everything.

Your regular customers will drive your business in the coffee industry. Coffee is something a ton of people love and depend on, but there has to be a particular sector of coffee-drinker that will place your shop at the top of their list by default, and your job is to give them a reason to do this.  Your regulars, their loyalty and their referrals, will grow and sustain your business.

Differentiate yourself by honing in on what made you want to undertake this hefty task in the first place and linking your passion to your target clientele.  Maybe your passion is rooted in providing sublime quality, high-end coffee coupled with elaborate latte art; you’ll be appealing more to the elite, seasoned coffee drinker who is okay with paying a premium for a product they find to be superior, not a broke college student who’s looking for a means to his or her all-nighter.  Not only will narrowing your clientele dictate the neighborhood you should begin your location search in, but it will also guide your advertising in a more meaningful, and consequently, profitable direction (i.e. if you capitalize on impressive latte art, media pushes on Instagram food blogs might be more effective than if your niche is atmosphere-centric, like featuring live music).

Your ideal clientele should be at the forefront of your spatial design plans and the environment you hope to create should be their ideal environment; having a clear goal for what the atmosphere of your coffee shop will be will also point you to where it is appropriate to splurge and where it is more appropriate to save in everything from the purchase of furniture, to the kinds of cups you plan to use.

Location:

Using a local broker: When it comes to finding suitable vacancies for your space, especially in New York, you’re likely going to have to outsource to a broker if you want to avoid fruitless hunting.  With a broker, comes a fee: a standard fee for commercial real estate brokers is about 7-10% of the total lease costs.  Since many spaces in the city are closed to non-broker sales, using a broker will increase the number of viable options that you have for your space and will shave hours off finding numerous options to go see in a day. Just be sure to be mindful of rental clauses before you sign for the future home of your small business.

How much you should expect to pay for rent: Your rent is a function of your budget, whatever your total budget is, your rent should be around 6-8% of those funds.  In cities like Manhattan, the average monthly rent is drastically different depending on the neighborhood you’re looking in.

The physical location of your business is essential: Choosing a space that was already a café-type business can alleviate much of the initial hassle of preparing for building renovations and obtaining necessary documentation (and in some cases, could even cut down some of those renovation costs).  The most essential requirement of your location is the amount of foreseeable foot traffic.

Bring your imagination to the space itself: This is an equally crucial and demanding step in your process after you’ve solidified your location.  When I asked Paul Typaldos of Wayside what his favorite part about building what has become such a successful coffee venue was, he said, “Trying to make a lot out of a limited amount of space, all of these places are small.  It forces to you to be creative about both how you organize the space itself and how you organize yourself within the space.”  This idea goes beyond aesthetically pleasing and into the realm of functionality: of course it has to look good, but it has to work better.

The ideal atmosphere: What do you want to create for your customers?

The space is the physical manifestation of your dream: Don’t cut corners in making what you built in your head a reality; your brand and your niche need to be clearly reflected here. Work hard to create an environment that will draw in your clientele and keep them coming back for more. Take time to lay out your floor plan, in order to ensure that the small size of your space doesn’t define it.  Also remember that the exterior is as important as the interior. Pay attention to landscaping and other aesthetic details outside your shop.

Section 3: Hiring

hiring

Customer service is everything and more:

The Wayside employees I spoke with said that the social part of the enterprise was definitely their favorite, adding that both their patience levels and poker faces have vastly improved.  To them, customer service is everything — and I’d have to firmly agree.  The things listed above, even the best coffee in New York, are absolutely nothing without the right human delivery; Paul says (about said elements of the business above), “Isolated, they’re just individual things.  The person you’re dealing with is what really creates the experience and makes them important.

Matt of City of Saints Coffee, echoed Paul’s sentiments: “Yes, you have to execute flawlessly on the coffee, but you also have to shine on the overall experience and so much of that is dictated by the vibe and hospitality of the staff. It’s something we pride ourselves on.”

This mentality is exactly what fosters loyal customers who will come back time and time again. You want your customers to know you and to feel both known and cared for.

So, work at your shop (if not always, at least at the beginning), learn the names of the customers are regulars, memorize their orders and build friendships. In the same vein, hire staff who understand the value of customer service and who will bring personality to interactions that would otherwise be mundane (or, worse, unpleasant.)  It seems simple, but if your cashier can incite a smile in your customer, they’re definitely more likely to come back.

The most well-trained barista when it comes to making beverages, no matter how phenomenal their latte art is, is useless without equally fantastic customer ethic.  This makes it essential to strategically organize your team, ensuring that those who interact with your consumers the most are the ones who are the best at handling difficult customers and at fostering long-lasting relationships with easy, loyal ones.

You can source and roast the best coffee in the world and have a terrible experience in one of the shops.  That’s the scenario nightmares are made of, seriously keeps me up a night. We really focus on people who understand that this is mostly a hospitality business.”- (Matt, City of Saints Coffee)

Section 4: Costs & Expenses

costs

Consider your costs:

Hiring experts you may not realize you need:   When you’re imagining the people you need to get your coffee business off of the ground, a lawyer probably isn’t at the forefront of your mind, but spending the money on legal fees now could end up saving you both money and strife later.  Not to mention, they can also assist in identifying all the necessary permits and documentation needed — essentially they can help you dot your I’s and cross your T’s.  An accountant, too, is someone who will be better at doing their job than you will be at trying to do it yourself.

Renovations: Since your space is the heart of your business, building and renovating it isn’t the place to try and cut back on your costs by watching a Youtube video on hardwood installation and then taking on the challenge.  Professionals will get the job done faster and better.  You are better off setting yourself back more monetarily, asking for more funding or taking out a larger initial loan, than attempting to skimp here.

Choosing your equipment:  Another place dangerous place to skimp on costs lies in the heart of your shop — the aforementioned fancy espresso machine.  Reliability and efficiency of this machine will make or break your business, so it is a safe place to stretch your budget, within reason, and without falling prey to marketing and branding schemes.

However essential this equipment may be to your success, that doesn’t change the fact that your success will not be immediate.  With the notion that profitability could take anywhere from six months to three years, comes the possibility that $5,000 is just too much of a stretch or a risk to take so early on (made worse by the possibility of all-out failure). Consider leasing the high-end espresso machine that you need for less, and when your business begins to gain success, then, take the leap and buy so that you’re not stuck with a monster if failure sets in or success takes longer than expected.

Water filtration: Good water filtration is essential for making good coffee, so spend the extra dollars on the better filtration system.

Minimize costs by maximizing your efficiency: Streamline your baristas’ brewing processes from manual to automatic, and if you absolutely must maintain some manual brewing methods for reasons of quality (like pour-overs), eliminate bottlenecks and customer wait time by changing the process of ordering and receiving or by ensuring that the customer knows their coffee will take longer (i.e. a sign that says, pour overs will take up to 7 minutes).

Since 68% of coffee drinker have their first cup within their first hour of waking up, it is reasonable and predictable that most of your business will incur before 11a.m—can you combat inherent periods of stagnation with afternoon drink specials?

Don’t discount how much you can save by cutting back on the little things: Be purposeful about ALL of your spending (even the garbage bags), and always look to expenditures that are invisible or irrelevant to the customer experience as smart outlets to cut back on and will, thus, increase your overall efficiency.

Section 5: Marketing

marketing

Marketing starts now:

Networking should predate the existence of your space: if you only start marketing after you open, you’ve already fallen behind.  Attend local events and pass out free samples; try setting up a stand at local green markets and promote your grand opening feverishly by word of mouth and through social media marketing.

Begin to build your brand as early as possible so that by the time you open, you already have customers who are as excited about being a part of your business as you are about starting it (this is really important to combat the lack of initial profitability and gargantuan start-up costs.)

Connect with influencers: Reach out to any local coffee & food blogs and Instagram accounts to start promoting your image. Your marketing outlets will, again, need to speak to that ideal niche clientele.

If you’re opening near a college campus, promote student discounts and hang fliers around campus.  Preliminary marketing can even be a way of gaining income if you have your own brand of coffee beans that you can sell at local coffee tradeshows or events .

 

Read the full post at Bond Street

Images via Bond Street

Sara Brown is a writer for Bond Street, a company focused on making small business loans simple, transparent and fair. Small business owners are the foundation for growth in our economy and yet today’s banking system has left them behind. Bond Street provides one to three year term loans from $50,000 to $500,000 range with rates starting at 6%. Learn how Bond Street has helped Cafe Grumpy, Joe Coffee and other coffee companies finance their growth here: bondstreet.com.

 

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